Top 10 mistakes to avoid while appointing an independent AML auditor
Appointing an independent AML auditor
Appointing an independent AML auditor is one of the crucial functions of the senior management. Anti-Money Laundering audits are necessary to inspect the quality and adequacy of AML policies, procedures, and controls. If these are enough, good; but if not, the authorities recommend corrective actions. Make auditing of the AML framework and the implementation thereof a regular activity.
To conduct such independent audits, you must appoint AML auditors. Some firms also prefer to outsource this task to an independent third party. If you prefer to appoint an internal person, ensure they are unrelated to the AML/CFT team to ensure their independence.
Entities make some common mistakes while appointing an independent AML auditor. You must avoid these mistakes to ensure top-quality audit results. You must include all the critical aspects in your AML auditor appointment process.
What is an independent AML audit?
An independent AML audit means a review of an entity’s AML framework. It evaluates whether the entity’s AML program is enough for the level of risks it faces. It also checks the quality of AML initiatives to prevent money laundering threats. Auditors check whether the entity is doing what is written in the framework.
Thus, an independent AML audit checks the following:
- Enterprise-Wide Risk Assessment
- AML/CFT framework
- AML records, including KYC and CDD records
- STRs, SARs, and other reports filed
- AML training programs
- Transaction monitoring process and results
- The adequacy and reliability of Sanction Screening software, KYC software, transaction monitoring software
- Past audit reports to review the implementation of the recommendations
With all these assessments, the AML auditor can identify loopholes in your AML framework and implementation thereof. You can improve them to prevent and mitigate ML/FT threats effectively. Thus, independent AML audits aim to strengthen your AML framework and initiatives. You can check its importance and benefits in our blog, “Why is an Independent AML Audit Necessary?”
What is the need for an independent AML auditor?
The auditors help you identify gaps in your AML/CFT framework and the practical implementation thereof. This helps you fight ML/FT better and comply with legal requirements.
If you want to understand the role of an independent AML auditor in UAE, you can check our blog, “Role of an Auditor Under UAE AML Compliance”.
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Top 10 mistakes to avoid while appointing an independent AML auditor
While appointing an independent AML auditor, you must avoid the following mistakes:
1. Not considering the relevant qualifications and experiences of the auditor
The first factor entities look for in any candidate for any job is relevant qualifications and experience. The same is the case here.
An auditor needs to have relevant qualifications for the job. With no education in auditing, it is nearly impossible to work on the main tasks of the job. So, if you need an independent AML auditor, you must check the applicant’s qualifications.
Also, auditing experience is a must. Relevant auditing experience ensures that the auditor performs his job well.
2. Not checking the AML auditor’s knowledge of UAE’s AML regulations
The AML auditor must have complete knowledge of the UAE’s AML regulations. They must know the key provisions and implications for an entity. Also, knowledge of the chief aspects to look for in an entity’s AML framework is crucial. The auditor must know the global best practices and the relevant standards issued by the FATF.
They must also have the zest to stay up-to-date on these regulations and changes. Because as laws change, you must tweak your auditing process and criteria. So, keep an eye on this aspect.
3. Not checking if the AML auditor possesses sector-specific knowhow
An AML auditor’s job is a specialised skill job. The auditor must understand the industry risks and possible ML/FT threats. The absence of industry expertise can lead to inadequate or ineffective audit reports. It will not serve your purpose.
So, select an AML auditor who knows the industry risks, trends, and regulations. The regulatory nuances and guidelines differ for each industry. The red flags, reports to submit, and risk types are distinct. The auditor must be familiar with such industry specificities and relevant risks.
So, ensure checking the auditor’s expertise in industry aspects before appointing them.
4. Disregarding the conflict of interest or independence of the auditor
What are your expectations from the AML audit?
An accurate picture of where your AML framework stands and what improvements it needs.
An AML auditor can only show you such an accurate picture if there is no conflict of interest. For example, the audit might be partial if the auditor has close relations with your senior management or any other stakeholder. They might not speak about the real issues with your AML framework.
Such biased, good reviews are pleasing to the eyes and ears. But they are detrimental to your AML compliance. The audit’s effectiveness is questionable. So, stay cautious of such audits and auditors. Check the auditor’s independence to save your AML audit’s objectivity.
5. Not checking AML auditor’s background, references, and testimonials
It always helps to check an AML auditor’s background, references and testimonials. Conduct reference checks by contacting past clients who received their AML auditing services. Check their satisfaction with the auditor’s AML auditing quality and accuracy.
Background check is also essential to see the AML auditor’s relation with any ML and FT activities. Even if not ML/FT, any association with corruption, bribery, trafficking, or other illicit financial activities makes an auditor questionable; their close relation with people involved in such financial crimes is also a concern. So, check all these aspects before deciding on an AML auditor.
Ensure checking the track record of the AML auditor in the appointment process.
6. Not specifying the scope of an independent AML audit
Before shortlisting auditors for an independent audit of your AML framework, understand your requirements. You must enlist your requirements and expectations and define the scope of an independent AML audit.
So, define the objectives of your AML audit process. Mention the scope and expected deliverables from the auditor. Also, mention the areas or risks you want the auditor to focus on. All these must be set before the appointment process starts. Such clarity on your AML requirements lets you express it to auditors to know their take.
7. Not insisting on having an AML audit plan before the start of the audit process
Before appointing an independent AML auditor, check the auditor’s auditing plan. If it is not customised to your needs, think about it again.
So, check with the auditor about their plan for your entity’s AML audit. It would be best if you had answers to the following questions:
- Does it address industry-specific AML issues?
- Is it a complete plan enough to audit your AML initiatives?
- Does the auditor have the necessary resources to conduct an audit?
Answers to these questions are essential for an AML audit unique to your organisation. You have unique risks, risk appetite and tolerance, and AML controls. Also, the audit would not be successful if the essential resources were missing.
So, try to get a customised auditing approach from the AML auditor, including timelines, budget, and resources.
8. Not focusing on the follow-up procedures of AML audits
While appointing an AML auditor, you must also prepare for the audit process. Once the auditor starts auditing your AML initiatives, you must be ready to implement corrective actions. So, start preparing yourself for the follow-up.
The auditor will give you a list of weaknesses or loopholes in your AML frameworks. They will also provide the necessary corrective actions to take. So, at the end moment, you cannot just say no to executing these corrective measures. You must prepare your employees, finances, and projects to take care of the AML issue resolution.
If you ignore these follow-up procedures, you cannot resolve the loopholes. The result is high vulnerability to money laundering and other financial crimes.
9. Not creating transparent channels of communication and collaboration
Communication is vital for any business relationship. You have to communicate your requirements and expectations. Moreover, the AML auditor will communicate the results – loopholes and recommendations. To facilitate this, you must have smooth channels of communication.
Like this, collaboration is also crucial to making the AML auditing exercise successful. Collaboration is possible when you communicate frequently with the auditor on all aspects of the project. So, adopt the following practices to cooperate better with the AML auditor:
- Set a single point of contact in your team
- Mention the mediums of communication – mail, call, etc.
- Allocate persons handling different aspects of the AML audit project
- Have frequent meetings to discuss all the findings
All these collaborative exercises will help you address issues and achieve desired outcomes.
10. Not establishing data security and confidentiality agreement
When appointing an independent AML auditor, signing an agreement is crucial. The agreement will have terms and conditions on pricing, timelines, and allocated resources. Another important constituent of this agreement must be data security provisions.
The auditor will have access to all your AML processes and data during the auditing process. So, they must have solid measures in place to protect data confidentiality. They must use secure systems for auditing and permit accessibility to relevant persons.
Key takeaways
Avoid the above mistakes while appointing an independent AML auditor. You can appoint such a person internally or externally. If internal, they must not be from the AML compliance or customer-facing team. But if you do not have internal expertise, getting external help is a better solution.
By appointing an external AML auditor, you can get faster and more accurate audits. You have access to the expertise and specialisation of an experienced AML auditor. You can enjoy detailed, efficient audit reports with positive repercussions for your business. These efficient audits ensure no questions from the regulators on your AML compliance.
AML UAE’s pivotal role in your AML compliance
AML UAE is a leading provider of AML compliance services in the UAE. We help you in your journey of creating and implementing initiatives and practices to comply with AML laws in the UAE. We develop, execute, review, and improve AML policies and procedures for your business.
Our professionals have relevant expertise in risk management and AML consulting services. We help you have systems and controls in adherence to the latest AML regulations of UAE. We commit to AML initiatives and ensure your commitment to the same. These initiatives help you prevent, manage, and mitigate money laundering threats. We help entities with AML health checks and independent AML audits.
Get a new, external perspective on your AML initiatives from an independent AML auditor.
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About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.