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Compliance Internal Audit

Q: Is it permissible for my compliance department, which is independent of the operations and business units, to perform compliance-related internal audits?

A: The answer depends on the structure of the organization and the scope of the audits. An organization's compliance department cannot audit areas in which it currently maintains oversight as that would be a conflict of interest. This would remove the independence of the audit. Normally, the compliance department serves as the second line of defense with internal audit serving as the third line of defense.

In many large organizations, the compliance department conducts audits that are directly focused on compliance-related topics, and the internal audit department will review and validate their findings. The internal audit department will also review areas that were identified as issues in the compliance audits.  An internal audit program touches on areas other than compliance, such as operations, HR, accounting, IT, corporate governance, quality control, etc., whereas compliance audits focus solely on regulatory matters.

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