Ethical and Compliance failure cases reported in the year 2020 have only one common element: all those companies lacked a robust Compliance Based Ethical Culture in their organizations. It has become a pressing priority to safeguard the environment and smooth governance across the organizations. The media’s international presence is so quick and transparent that customers are aware of what is happening in various organizations and what are their business practices and policies. Such a Compliance Program has become a necessity and the foundation of Sustainability for the entire organization. Building a Compliance Based Ethical Culture in the organization is in high demand these days to maintain a positive image. Auditing such a program is even more challenging than its implementation due to the complexity involved in the execution. Here in this short article, I have focused on the key points that should be considered while auditing a Compliance Based Ethics Program.

#1 Know which Compliances are Applicable

It is considered the best practice to list out all the rules and regulations the client needs to follow, including their policies and procedures. Every organization will have its own set of guidelines and procedures to follow based on its values. Compliance Based Ethics Program emphasizes the organizational health that is affected by following an ethical behaviour that complies with every applicable law and the rules set by the organization itself.

#2 Collaboration of Audit and Program Objectives

While planning the internal audit of a Compliance Program, an audit’s objectives should align with the program’s objectives to serve the purpose of successfully implementing the Compliance Based Ethics Program. It is also imperative to define goals for a Compliance Program that meets organizational goals; otherwise, any contradiction will increase the numbers of violations. The Auditor needs to consider whether the goals and objectives are documented and approved by the authority or not. This includes verification of the Code of Conduct and Code of Ethics and its related internal controls.

#3 Application of a Risk-based Approach

Evaluation of essential components of such a program includes using a risk-based approach to find out the areas where the organization will fail or report non-compliance and the areas that require the utmost attention to ensure timely compliance. In the case of Pacific Gas and Electric Company wildfires, one of the most significant ethical and compliance failures of 2020, the company intentionally prioritized low-risk areas for the inspection. It caused substantial wildfires later and is a history of what happened next. Prioritizing the legal and regulatory weakness addresses well the practical issues remaining in the effectiveness of the program.

#4 Automated Techniques

The program’s automation, such as mapping all the compliances in one place and sending regular reminders to the clients, will make sure the non-compliance does not occur. Since the organizations are juggling too many compliances, an automatic reminder will save the client’s time and reduce the chances of violations. An automated process of such a program significantly reduces the risk of the occurrence of manual errors.

#5 Review How Effectively the Program is Communicated

Reviewing how the client has communicated its policies and procedures related to its employees’ Compliance Program is a crucial task. Auditors’ will have to check how effectively the client has displayed the policies, code of conduct and code of ethics to its employees. The employees should be aware of the ethical protocols that they are supposed to follow, and the auditors should consider the execution of this by verifying whether the client had arranged the training programs to make the implementation practical.

‘A Healthy Tone at the Top drives a successful Compliance Based Ethical Environment.’

#6 Involvement of the ‘Tone at the Top’

The success of implementing an effective Compliance Based Ethics Program lies in how much the management is involved and willing to make it robust. The tone at the top also decides how much employees will be interested in following the program’s principles and rules. Auditors need to understand management’s intentions and participation, helping them find out high-risk areas and set priorities. Management’s vigilance and mindfulness is the key to building an effective Compliance Based Ethics Program.

#7 Documentation and Evaluation

Documentation of the audit findings makes an audit procedure complete. However, it is worthless if follow-up of whether necessary actions that were taken are not done. An auditor’s report will include suggestions to the management for improvement. Auditors’ should also check whether the employees and everyone else dealing with the organization’s business are aware of the audit findings. They are also involved in taking actions on the audit findings, and critical issues. The constant evaluation of the program’s efficiency and usefulness and recommendations on dealing with them effectively plays the primary role in the entire audit procedure.

The Closing Thoughts

To achieve long-term prosperity, maintain and safeguard values and the ethical health of an organization, a practical implementation of a Compliance Program that helps build a powerful governance practice is quite imperative and challenging at the same time. Developing an ethical culture in an organization that everyone finds worth incorporating ensures its success and effectiveness of the internal controls. Since everyone in the organization supports ethical behaviour promoting compliance with every regulatory requirement, non-compliance will reduce automatically. This article focuses on the critical considerations for such audit, and other general and specific points shall vary for different organizations.


Author Bio

Qualification: CA in Job / Business
Company: Upwork
Location: Ahmedabad, Gujarat, India
Member Since: 28 Jan 2021 | Total Posts: 4
Writing everything about Finance, Business, Investment and many other genres. As a professional Chartered Accountant with over 10 years of experience, I can help you develop well-researched, informative and detail-oriented articles as well as blogs. I have written articles/blogs for Blacksheep View Full Profile

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April 2021