The Importance of Third Party Audit Programs
Companies are being expected to develop and implement effective third party audit programs. The third party audit rights should also be included in contracts along with third party intermediaries. According to Michael Volkov on his article, the effective contracts with third parties should have included basic language authorizing the company to conduct the audits.
There are several techniques that are used by the audit program, such as the conventional financial audit, the audit provision, and the compliance audit. There are also several strategies in conducting the less invasive audits. First, phone or legal audits; the audit that conducted by telephone and follows the questions mostly about third party’s operation, legal status, and new issues’ update. Second strategy is transaction testing; the audit that take a random sample inconductingthe transaction review. Third, spot checks; the audit that conducted by a compliance officer, seek to examine the spot checks on specific concerned issues. Those distinctive strategies are aimed to determine whether a third party is in compliance with contractual requirements and anti-corruption laws.
The key in the third party audit program implementation depends on the use of risk ranking formulas along with a broad definition of the term ‘audit’ itself. CCOs should embrace the varied tools based on the available resources and the risk ranking results instead of utilizing the formal financial audit only. They also have to work together with the internal auditors in developing formula for audit priorities assignment and assign the types of third party audits based on a risk ranking formula.