Why Self-Auditing Matters

Courtesy of Flickr.com

Courtesy of Flickr.com

 

For you among the crowd that have been involved with audits whereby an infraction was found and you had to pay up- it cuts deep. It stings even worse when in hindsight you recognize that you weren’t proactive and missed something that has now cost the company money. The ultimate question from the top will always be:  “how did this happen?” How will you answer: “I don’t know”, “I’m sorry”, “It was a mistake”. Mistakes happen. However, when your mistakes are preventable and they cost your company money that could have been used for other endeavors-HR is going to take some heat and rightfully so.

Take a small to mid-size business (SMB) for instance. You are a business that makes a specific coating for tanks used by the US Military and your federal contract is worth 2.5 million dollars. You have other clients too and they keep you solvent, but this federal contract keeps you afloat. Now consider this: you have not run a pay equity analysis in a few years. As such, one of your mid-level employees has just had a compensation discussion with their boss that turned ugly and in return alerts both OFCCP and DOL of discriminatory compensation actions. You (HR) receive a notice from DOL asking for your entire compensation history for the past three years. Their review of females and minorities corroborate the narrative supplied by your employee- which leads to an onsite audit. Over the course of a year, they find there are plentiful pay equity violations that result in a fine of $700,000. Ouch! Fines of this magnitude can sink a business or at a minimum leave an indelible wound.

Do you remember the Astra-Zeneca DOL Settlement of 2011? Women were found to make at least $1,700 less than their male counterparts doing the same job at AZ. 124 women were awarded a $250,000 settlement. In return, AZ promised to review pay practices and fix any problems.

Could Self-Audits have helped Astra-Zeneca?

Yes. Had they been reviewing their compensation policies and practices regularly they would have seen issues warranting attention and revision before this became a class-action lawsuit. Self-auditing or mock audits can save you and the company from hefty fines, awkward conversations and/or having to close your doors.

Here are some tips on implementing self-auditing as a practice:

  • Depending on how often you can expect to be audited by outside agencies, set up an internal audit schedule.
  • Create an internal audit team to review your practice against your policy and procedures. Where possible, it is ideal to have someone outside the group being audited conduct the audit for objectivity purposes and for a fresh pair of eyes.
  • Summarize findings and create a threats and opportunities analysis to see where you need to improve. “Threats’ in this context would be items that are inconsistent with your policy and violate the law. “Opportunities” are areas where you do well in complying with policy, but there is potential for violating the law.
  • Get your team involved. Ask them to conduct their own random spot checks. This holds everyone accountable for the consistency of following procedure and allows you to get ahead of potential issues.
  • Train your team on communication during an audit. Saying the wrong thing or too much during an audit can be detrimental your success. Ensuring that each of your team members understands what to expect and how to respond can be helpful for when they are faced with a real auditor.

When it comes to your business, ignorance isn’t bliss. Don’t be afraid to self-audit. It is far better for you or your peers internally to point out your faults than any regulatory agency. Become informed about where your fall short and tighten up your practices. You will thank yourself and the executive team will thank you for saving their money.

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