Preparing for audits can be a big challenge for small legal departments. Not only are they time-consuming, but preparing for an audit can be a huge drain on legal resources. Auditors can demand a long list of documents: from anti-money laundering policies, evidence of compliance with anti-discrimination rules or data protection laws.
Since many audits come by surprise – or at least without much advance notice – other tasks need to be put on hold to prioritize retrieving documents, summarizing information and printing out binders to send to auditors. More often than not, the necessary information is scattered across files, emails, spreadsheets and hard drives, in different locations and department, further complicating the process of gathering the most up-to-date, accurate information.
In this post we will discuss how small legal departments can overcome the challenges of preparing for audits:
Inconsistent document management
Document retrieval can be an all-consuming task, especially when there is no central, digital repository for your legal information.
With inconsistent document management, it is difficult to trust that data you gather is complete and accurate. This means that when an audit arrives, it’s not uncommon to spend days pulling policies from folders, checking accuracy with colleagues, and sifting through customer contracts in different parts of the company.
Furthermore, with each audit, priorities and scope can change, meaning you can rarely reuse documentation from previous audits. In fact, corporate structures, responsibilities, business models and other framework conditions may have changed significantly in the meantime.
Aside from being a drain on your legal resources, a lack of document management system can also open you up to risk – both legal and economical.
Who is affected by an audit?
The head of the company is rarely the company’s compliance officer. Instead, it is often the legal department, including assistants, who take on the role. Individual managers, contract managers in specific departments or even the entire management – especially the personally liable partners – can also be required to spend a considerably amount of time preparing for audits.
Simply put, the more complexity in gathering information, the more people involved, the longer an audit can take. Combine this with inconsistent document management where responsibility over documentation can be blurry, and audits can become a huge stress on the business and those affected.
The cost of preparing for an audit
Audits can cost you a significant amount of legal resources and money to compile all of your information and present them to auditors (in print or digital format). However, preparing for an audit can also pose a risk to your business operations.
During the period of an audit – especially for compliance – little time remains for strategic tasks to develop the business. If an administrative or even criminal investigation is being carried out and the news is published by the press, the entire business operation can be considerably impaired. In more extreme situations, a financial losses or damage to the business’ reputation can be irreparable.
For this reason, it’s important to be prepared with a contingency plan to assign resources and proactively adopt technology so you can be more efficient during an audit, without losing focus on the business in the meantime.
With a smart legal database, audits are losing their fright
It takes little imagination to realize that centralized database can minimize these risks, increase collaboration across your entire organization and simplify the audit process. The larger your company, the more employees, departments, locations and entities need to be included in enterprise-wide contract, compliance and risk management. With this complexity, it’s obvious that the digitization of your legal information – from contracts, claims, entity management and more – is necessary to meet the challenges of preparing for audits.
With a smart repository, you can quickly generate reports on your information. You can export the appropriate documentation and reports in real time. This alone is worth it’s weight in gold!
Finally, you can also avoid the additional expense of compiling and printing binders of information by setting up secure file sharing between your business and auditors.
Learn more about getting your corporate house in order by downloading our full “Preparing for Audits” story here.