Mixed report card for compliance consultants

Australian Financial Services Licensees (AFSLs) say that while some external compliance providers are excellent there are others that need to lift their game, and highlighted several major pitfalls that could be encountered when using external auditors.

Asked to comment on compliance issues, the licensees highlighted a lack of a common framework in the industry, a lack of accountability, a potential conflict of interest in the way reporting is carried out and a generic ‘one-size-fits-all’ approach.

“Some service providers find it inordinately difficult, if not impossible, to avoid compromising their judgment,” said Millenium3 head of advice and advocacy Sean Graham.

“It is incredibly tempting for some organisations [that] provide these services to tailor their reporting in a way that’s going to be more likely to generate future work.”

One licensee, who did not want to be named, questioned whether compliance companies provided value for the amount they charged, and might be simply looking to justify their fees.

Several licensees said that larger compliance providers had a tendency to be too generic in their approach, employing a ‘tick and flick’ mentality to rush through audits — a problem exacerbated by a lack of an agreed framework for exactly what needs to be achieved throughout the review process.

“There’s no industry standard, so most review processes come back to a review of statutory compliance, which can still dissatisfy clients,” Graham said.

Another problem with the industry overall was a lack of accountability when changes suggested by an external compliance provider were not implemented.

However, giving auditing responsibility to an external company might provide an objectivity that can be impossible to achieve when conducting work internally, several licensees suggested.

In many cases, the workload external auditors received from licensees was huge, and several larger AFSLs told Money Management that it would be impossible to meet all compliance requirements internally, or that it would place too much demand on their resources.