January 2, 2024

How to Perform an Independent Testing and Audit of Your BSA/AML Program?

Guide on conducting independent BSA/AML reviews, choosing auditors, process insights, and how AML Checked offers tailored solutions with certification.

What is an Independent Testing and Audit of Your BSA/AML (anti-money laundering/counter-financing of terrorism) Program?  

An independent testing and audit is an objective evaluation of your BSA/AML program by an external auditor. The purpose of the review is to assess the effectiveness of your program in fulfilling your reporting obligations under the BSA/AML laws and associated regulations.

Why You Need an Independent Independent Testing and Audit  

An independent testing and audit offers an impartial assessment of your program's effectiveness, pinpointing areas for enhancement and aiding in the mitigation of financial crime risks. It also signals to regulators and stakeholders your earnest commitment to your BSA/AML responsibilities and your dedication to fighting money laundering, terrorism financing, and other forms of financial crime.

How Often Should You Conduct an Independent Audit?  

The necessity for and frequency of conducting an independent review of your BSA/AML program hinge on various elements, including your business's size, nature, and complexity, the risk assessment of your enterprise, and the regulatory demands within your jurisdiction.

In jurisdictions like New Zealand and Canada, regulatory frameworks mandate that reporting entities carry out an independent review of their BSA/AML program biennially. This signifies a legal requirement for you to undertake an independent audit of your program every two years in these nations. Meanwhile, in other nations, such as Australia and the USA, laws and regulations do not specify a set frequency for independent reviews. Instead, it falls to the reporting entity to decide the review cadence based on their business risk assessment.

A prudent guideline is for reporting entities to schedule an independent review every 1-3 years, regardless of whether specific legal or regulatory frequencies are stipulated. This approach ensures that your program consistently mitigates the risks of financial crime and remains in compliance with evolving regulations.

It's crucial to recognize that the interval for independent reviews may also be influenced by changes in your business operations or the regulatory environment, significant anti-money laundering/counter-financing of terrorism incidents, or input from your internal compliance team or external auditors.

Choosing the Right Independent Auditor

Selecting the appropriate independent auditor is crucial for the effectiveness of your review. Look for auditors with expertise in your field, a deep understanding of BSA/AML requirements, and a proven track record of high-quality audits.

Don't Fear the Audit: Embrace It!

Many reporting entities perceive audits as a daunting necessity. Yet, an independent review is a chance to refine your program and showcase your dedication to compliance. Welcoming the audit opens doors to valuable insights into your program's efficiency and highlights areas for enhancement.

Kick-Off Meeting: Getting to Know Your Auditor

The independent review journey often starts with a kick-off meeting, where you'll discuss the review's focus, schedule, and any particular needs with your auditor. This meeting is also your opportunity to build a constructive relationship with your auditor.

Onsite vs. Desk Review

The auditor may conduct the review onsite or remotely via a desk review, depending on the review's extent. An onsite review provides the auditor a live view of your program in operation, whereas a desk review is based on the documentation and data you supply.

The Review Process: What Will Be Reviewed?

The independent review scrutinizes your program's compliance with BSA/AML laws and regulations. This thorough examination covers several crucial aspects of your program:

Review of Your Risk Assessment

A pivotal review area is your risk assessment process. The auditor will assess how effectively your process identifies and evaluates your business's money laundering and terrorism financing risks. They'll review the soundness of your risk assessment methods, including the risk factors considered, assessment frequency, and the quality of your documentation.

Review of Your CDD Records (Including KYC)

Your customer due diligence (CDD) process will be under review to ensure accurate identification and verification of your customers' identities. The auditor will check the adequacy of your CDD procedures, including verification methods, information sources, and ongoing customer monitoring protocols.

Review of Your Ongoing Monitoring and Transaction Monitoring Processes

Your procedures for continuous monitoring of customers and transactions, including automated systems and alerts, will be evaluated. The auditor will assess the effectiveness of your strategies for detecting and reporting suspicious activities, along with the quality of your suspicious activity reports.

Review of Your Policies, Procedures, and Training Programs

Your policies, procedures, and training programs are essential components of your compliance framework. The auditor will evaluate whether these elements are current and effective. The focus will be on the sufficiency of your policies and procedures to meet BSA/AML regulatory requirements and the quality of your training programs, including the frequency, content, and effectiveness of delivery methods.

Sample Review of Your Transactions

A sample review of transactions may be conducted to verify the practical effectiveness of your program. This includes examining your internal controls, such as your Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), etc. and to ensure adequacy and efficiency.

Review of the Effectiveness of Your Program

The ultimate goal is to assess the overall effectiveness of your program in fulfilling your reporting obligations. This involves evaluating the accuracy, completeness, and timeliness of your reporting and the quality of the information provided.

The Review Findings, Report, and Exit Meeting

Upon completing the review, the auditor will present findings and recommendations in a report. An exit meeting will follow to discuss these findings, offering a roadmap for remedying any deficiencies in your BSA/AML program.

Addressing Identified Issues: Closing the Gaps

After receiving the review report, you should formulate a plan to rectify identified issues, which may involve updating policies and procedures, enhancing training, or implementing new controls. Prompt and comprehensive action is crucial for enhancing your program's efficacy and mitigating financial crime risks.

Post-Review Support and Maintenance

Maintaining your BSA/AML program post-review is vital. This includes regular reviews and updates of your program, continuous staff training, and staying informed about BSA/AML regulatory changes.

How Can AML Checked Help?

For assistance with your independent audit, AML Checked offers support. Our team, skilled in conducting independent reviews for a variety of businesses and industries, utilizes a comprehensive, risk-based review methodology. This approach prioritizes areas of highest risk, ensuring a thorough evaluation of your BSA/AML program's technical compliance, execution, and effectiveness.

AML Checked's Approach

We deliver a detailed review report and action plan, providing an objective assessment of your program's conformity with BSA/AML obligations and pinpointing improvement areas. The action plan outlines necessary steps for addressing deficiencies.

Receive a Verifiable Digital Certificate

You'll also receive a digital certificate verifying the independent review's completion in line with best practices and regulatory standards. This certificate, accompanied by an executive summary, can be shared with regulators and third parties, affirming your program's independent evaluation and compliance.

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