3 Critical Steps to Avoid a Compliance Audit


The audit is not something that any amount of planning, process, or practice can fully neutralize. Any provider that claims to be able to shield an organization from ever being audited is selling a false sense of security. However, there are steps to be taken by HR practitioners that can transform the audit from a nerve wracking, white knuckle experience into nothing more than an irritating diversion. Read on to learn the three critical steps to inoculating your workforce management program against the inevitable occurrence of an audit.

Whether it is a Department of Labor audit checking into appropriate insurance, OSHA examining your workplace safety compliance, an IRS audit examining worker classification practices, an ICE audit to validate the immigration status of employees or any other regulatory audit, there are some best practices an HR leader can observe to ensure the outcome is an affirmative one and not overwhelmingly damaging.

Step 1 – Understand All the Risks Facing Your Organization

There are many types of liabilities facing a company, from credit risk to technological risk to governance risks and numerous others.  But the risk most relevant to HR is operational risk (which is characterized by the lack of complete and fully enforced operational policies).  In order to survive an audit and come away from it unscathed, an HR practice should have clearly enunciated policies governing worker classification, on and offboarding policies, contracts/document creation, immigration statuses, and workplace safety. 

The well-prepared HR practitioner also has methodologies in place to help avoid risks wherever possible, share the risks through involvement of third parties (like insurers), distribute the risks via outsourcing arrangements, and control risks through detection and prevention activities described in Step 2. 

Step 2 –  Prepare by engaging in internal audits to identify potential areas of weakness. Record everything.

To this end, it is highly recommended that an HR organization perform regularly scheduled internal audits to seek weaknesses in their operations and identify where they may be vulnerable during a real audit.  Take stock of the availability of information in every risk category. Is there documentation for your worker classification protocol?  Is there a well-organized file containing all the required insurance coverage and other pre-employment screenings?  Are there verifiable policies governing workplace safety?  Are contracts with staffing suppliers and other third parties easily accessible and organized?

Engage the internal audit at regular intervals and record the results – especially the deficiencies. Then set about to improve in areas where incomplete or ineffective policies and practices have been identified. In this way, when an inevitable audit issues from an external source, you’ll be able to prove you’ve been taking steps to continuously improve compliance and have been making every good faith effort to field a responsible workforce management program.

Step 3 –  Develop and Enforce Risk Mitigation Practices

These may include onboarding/offboarding checklists, a worker classification protocol based on the latest IRS guidelines, standardized contract management policies, workplace safety practices and inspection schedules as well as many other practices as may be required according to the composition and location of your organization’s workforce.  The point overall is to make sure that the output of your internal audits are translated into continuously improvements in compliance with all regulatory mandates. Just having the practices on the books is not enough though.  Make sure the policies as developed are fully adopted and adhered to via regular internal audits.

Do these three things and even if your company is the target of any kind of audit, you’ll be able to demonstrate that your workforce management program is dedicated to compliance.

More Articles