For any organization, especially large ones, it’s always a challenge to maintain the necessary documentation for audits. If you don’t have an effective document management solution in place when you’re being audited, you’ll be scrambling to locate paper documents, electronic files and emails, typically stored in all sorts of different ways.
Failing to provide that information to an auditor puts your business at risk in a variety of ways. These include penalties for not being in financial compliance, loss of critical industry certifications and disruption of day-to-day business activities. For example, if you’re undergoing an in-depth financial audit, it could tie up your entire finance department for two or three weeks, while AP and AR processes grind to a halt.
Preparing For An Audit
Audits come in many varieties, depending on your industry and geographical location. Your country’s tax authority could audit you for financial compliance, for example. You may also have social security audits, audits from industry authorities and internal audits from the parent corporation.
When you know an audit is coming up, you have a certain window in which to prepare the information the auditor wants to see. For a standard audit, you usually have several months to prepare. That’s not much time if your documents aren’t already well organized. In other audits where there’s an investigation of some type, that window may be much shorter.
Some companies work with a consultant to put together the right information, such as bringing in a tax attorney to help prepare accounting documents for a financial audit.
Here are some common steps in preparing for an audit:
- Preparing information: With electronic files, you might need to put the relevant documents on DVDs or external drives, and collect and photocopy any necessary paper documents.
Here, it’s important to not provide too much or too little information. Volunteering documents that weren’t requested — such as by giving the auditor full access to your filing system — could unnecessarily expand the audit’s scope. If you provide too little information, however, the auditor might think you’re holding back, and push for complete access. In Germany, for example, an auditor may take legal measures if they believe you’re hiding information. - Setting up access to electronic systems: Depending on the situation, you may also be required to provide access to your IT systems. In that case, you need to prepare login credentials for the auditor that gives them easy access to what they need, while restricting access to information beyond the audit’s scope.
- Preparing for the auditor’s needs: Finally, you need to accommodate the auditor during the process. If they plan to conduct the audit on premises, do they need a desk or a computer that gives them access to your systems? If not, how will you provide remote access to your data?
One of your goals in these preparations is to create a positive, cooperative climate. Auditors are human beings, after all. Making their work easy for them may very well have a positive affect on the audit’s outcome.
Why Document Management Is Your Secret Weapon
If you don’t have a digital document management system, preparing for an audit is both time-consuming and nerve-wracking. When you have different silos for paper documents, electronic files and emails, it takes much longer to find the necessary information, and increases the risk of missing an important file.
Those problems multiply if you don’t have standardized document storage procedures in place. Left to their own devices, people tend to create their own filing systems based on what makes their work easiest in the short term. If you look at two people’s computers and email accounts, you tend to find different file structures. Spread across an organization, the result is countless information islands, any of which could contain information that’s relevant to the audit.
That’s where digital document management is extremely valuable. A well-implemented system essentially forces all of your employees to store documents in a single way and in a single, centralized repository. For example, any time an employee scans in a document or drags an email into the document management system, the system could prompt them to tag the documents with metadata that identifies them as relevant for different types of audits.
When you need to prepare information for an auditor, you just create a filter for all documents that are relevant for a certain type of audit within the specified time period. From there, it’s easy to quickly review the results and export the correct documents to an external drive or DVD. Alternately, you could just give the auditor a PC and login credentials that allow them to access those specific files.
In the end, a digital document management system makes it easy to prepare the right information, set up access to your files and accommodate the needs of an auditor, greatly reducing the business risks of failing an audit. Since your finance department won’t be tied up for weeks at a time during the audit, it also helps to avoid interruption of your day-to-day business activities.
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