Money laundering is a serious global concern that impacts the integrity of financial systems. For businesses, particularly those in regulated industries like finance, real estate, and accounting, having a strong anti-money laundering (AML) framework is not optional—it’s mandatory. One of the key ways to assess this framework is through an AML audit. At the heart of this process are the audit procedures for money laundering, which help auditors determine whether a business is doing enough to detect and prevent illicit financial activity.
In this article, we’ll walk through the key audit procedures used during a money laundering audit. These procedures help identify weaknesses, confirm compliance, and strengthen internal controls. Whether you’re a compliance officer preparing for an audit or just want to understand how these reviews work, this guide will break it down in simple, clear terms.
Understanding Audit Procedures for Money Laundering
Audit procedures are the practical steps an auditor takes to examine how well a business complies with AML regulations. They go beyond simply checking if policies exist. Auditors want to know if those policies are being followed, whether staff are aware of them, and how effective they are in real-world situations. These procedures include reviewing documentation, interviewing staff, analyzing transactions, and testing internal systems. The ultimate goal is to ensure that the business has effective controls in place to detect, report, and prevent money laundering.
Audit procedures are tailored to each business based on its size, industry, and risk exposure. A small accounting firm will not be audited the same way as a large financial institution. However, the core steps remain similar across the board.
Reviewing the AML Risk Assessment
The AML risk assessment is the foundation of a strong compliance program. It outlines where the business is most vulnerable to money laundering, based on factors like client types, services offered, geographic locations, and transaction volumes. Auditors begin by examining this document to determine whether it’s accurate, current, and comprehensive.
An effective risk assessment should be detailed and tailored to the company’s operations. Auditors will check whether the assessment considers all relevant risks, including high-risk customers or unusual transaction types. They also look at whether the risk ratings make sense, and whether the business updates the assessment regularly as operations or regulations change. A weak or outdated risk assessment is often a sign that other parts of the AML program may also be lacking.
Examining Customer Due Diligence Procedures
Customer Due Diligence (CDD) is the process of verifying a customer’s identity and assessing their risk before entering into a business relationship. During an AML audit, auditors review how well the company performs this process. This includes checking whether the business collects and verifies identity documents, understands the nature of the customer’s business, and performs Enhanced Due Diligence (EDD) for high-risk clients.
Auditors may select a sample of customer files to review. They’ll look for missing documents, inconsistent information, or signs that risk levels weren’t properly assessed. If the business works with politically exposed persons (PEPs), foreign clients, or clients in high-risk industries, auditors will examine how these cases were handled. Proper due diligence is critical because it’s the first line of defense against money laundering.
Testing Transaction Monitoring Controls
After onboarding a customer, businesses must keep track of their financial activities to identify anything unusual or suspicious. This is where transaction monitoring comes in. During the audit, auditors evaluate whether the company has effective monitoring systems and processes in place. These systems may be automated, manual, or a mix of both.
Auditors will review how transactions are monitored, what triggers an alert, and how those alerts are handled. They’ll also assess whether high-risk transactions are reviewed more closely, and whether there’s documentation to show that issues are escalated appropriately. In some cases, auditors may test the monitoring system by reviewing specific transactions or checking whether known red flags were detected. Effective monitoring is a core element of any AML program, and weak controls in this area can expose a business to significant legal and reputational risk.
Reviewing Suspicious Transaction Reporting
When suspicious activity is identified, businesses are required to report it to the relevant authorities by filing a Suspicious Transaction Report (STR). Auditors carefully examine how the business manages this reporting process. They look at internal procedures for flagging, documenting, and escalating suspicious transactions.
During the audit, the auditor will check whether staff are aware of their reporting obligations, how long it takes to file a report after suspicion arises, and whether the documentation supports the decision to file—or not file—a report. Delays, inconsistencies, or a lack of reporting can suggest deeper problems within the compliance framework. Regulators take STR obligations seriously, and auditors want to ensure that your business does too.
Assessing Staff Training and Awareness
An AML program is only as strong as the people running it. That’s why staff training is a major focus during an audit. Auditors assess whether employees receive regular AML training and whether the content is appropriate for their roles. For example, staff dealing directly with customers should be trained to recognize red flags, while compliance teams need a deeper understanding of regulations and reporting.
Auditors may ask to see training materials, attendance records, and feedback forms. They might also interview staff to check whether they understand the AML procedures. If staff can’t explain what to do when they spot suspicious activity, it suggests that training isn’t working. Regular, role-specific training not only helps with compliance—it also builds a culture of accountability and awareness.
Following Up on Past Audit Findings
A thorough AML audit doesn’t just focus on current procedures. Auditors will also check whether past issues have been addressed. If previous audits highlighted weaknesses or made recommendations, the auditor will want to see whether those recommendations were implemented and whether they made a difference.
This part of the audit helps determine how seriously the business takes compliance. If old problems were ignored, it can lead to repeat findings—and may trigger regulatory scrutiny. On the other hand, evidence of improvement shows a commitment to doing better and can build trust with auditors and regulators alike.
Conclusion
Understanding the audit procedures for money laundering is essential for any business operating in a regulated sector. These procedures give auditors a clear picture of how well your AML program works—and highlight where improvements are needed. From reviewing risk assessments to testing monitoring systems and evaluating staff awareness, each step plays a critical role in identifying and preventing financial crime.
AML audits are not just about ticking boxes. They’re a chance to strengthen your defenses, build a culture of compliance, and protect your business from reputational and legal harm. By understanding the process and being prepared, you can turn your next AML audit into a powerful opportunity for growth and improvement.
