Small Business Audit: What It Is and How to Prepare

Contents:

• Definition and types of business audits
• Possible results of audits
• Signs of an upcoming company audit
• Effective strategies for preparing a business for inspections

The author of the article is Maria Kuznetsova, who holds the position of lawyer and deputy general director for legal issues at Legal Boutique.

For small businesses, any inspections often become a source of stress, and sometimes lead to inefficient use of time and resources. However, many difficulties can be avoided if you familiarize yourself with the basic rules and requirements in advance.

In this article for the editorial board of "Business" from Skillbox Media, I will share the following topics:

• A business audit is a process during which various aspects of a company's activities are assessed in order to determine its financial condition, the legality of its operations, and compliance with established standards. There are several types of audits, each of which may have its own characteristics and purposes.

  1. A financial audit is aimed at analyzing accounting statements, cash flows, and other financial indicators. It helps determine the real state of the company's affairs and identify potential risks.

  2. A legal audit covers compliance issues, including the availability of necessary licenses, compliance with labor laws, and other regulations. This type of audit is important for eliminating possible legal consequences.

  3. An operational audit focuses on the internal structure and processes of the company. It allows you to evaluate performance, identify weaknesses, and suggest areas for improvement.

  4. A tax audit is conducted to analyze the correctness of tax payments and compliance with tax legislation. This is especially important for preventing fines and other sanctions from tax authorities.

  5. Commercial due diligence includes an investigation of the company's market position, competitiveness, and reputation. This type of due diligence can be useful when preparing for a merger or acquisition.

  Each of these types of audits has its own goals and methods, and their choice depends on the specific situation and business needs.

• What are the possible results of its actions;
• You can determine that a company may be subject to an audit by paying attention to several key indicators. First, it is worth monitoring changes in legislation or new initiatives from government agencies that may affect your industry. In addition, if your company has recorded violations in the past or has received notices from regulatory authorities, this may indicate a possible audit.It is also important to consider competitor activity and industry news. If your sector is experiencing widespread audits, this could be a sign that your company could also be under scrutiny. It's equally important to pay attention to internal signals: if employees start asking a lot of questions about documentation or procedures, this could indicate preparations for an audit.

  Finally, maintaining an open dialogue with auditors and consultants will help you identify potential risks in advance and prepare for possible inspections.

• Preparing for an audit requires a systematic approach and careful organization. First, familiarize yourself with the requirements and assessment criteria to understand what exactly will be examined.

  Then, it's a good idea to create a work plan to help you allocate your time and energy. Make a list of topics or tasks to review or review. Using a variety of learning methods, such as note-taking, peer discussion, or practice tests, is an effective solution.

  Also, remember the importance of breaks: short breaks will help maintain concentration and improve information comprehension. Finally, don't forget to regularly review the material covered to reinforce your knowledge. This approach will help you approach the audit with confidence and demonstrate your skills.

Definition and Types of Business Audits

The term "audit" is not used in legislation. This is a colloquial term for control and supervisory measures (CSM). CSM is a process during which state or municipal authorities assess a business's compliance with current legal regulations.

Control can be carried out by various organizations. For example, the Ministry of Emergency Situations checks compliance with fire safety regulations, Rospotrebnadzor evaluates the quality of goods and their labeling, and the Federal Tax Service monitors the accuracy of tax calculation and payment. In total, there are 17 types of control.

Small businesses are generally subject to inspections quite rarely. Sometimes this occurs only once a year or even less frequently - once every few years. Companies that are considered higher risk or have a history of violations are inspected significantly more frequently.

All types of inspections can be divided into several categories:

• Based on the inspection method, there are two types: documentary and on-site. During a documentary inspection, representatives of the regulatory authority analyze the documents submitted by the company. On-site inspections, on-site inspections involve inspectors visiting the organization on-site, for example, at its office.
• Based on the timing, inspections are divided into two categories: scheduled and unscheduled. The former are carried out according to a pre-established schedule, while the latter are conducted without prior notice and can occur even during the moratorium.

Starting in 2025, the number of grounds for organizing unscheduled events has increased. These changes were made to Decree of the Government of the Russian Federation No. 336 of March 10, 2022, as well as to Federal Law No. 248-FZ. Unscheduled inspections may now be conducted in the following cases:

• due to a lack of notification of the commencement of operations;
• due to errors in product labeling;
• due to neglect of a scheduled inspection;
• due to difficulties related to transport safety;
• during the process of monitoring compliance with mandatory standards, the supervisory authority may discover discrepancies in the use of cash register equipment.

In addition to scheduled and unscheduled inspections, preventive visits also take place. These may be either in-person or remote meetings with the inspector, during which compliance issues with mandatory standards are discussed. Such visits may be initiated by the regulatory authority, in which case they are considered mandatory, or by the company or individual entrepreneur themselves.

Preventive inspections must be mandatory for the following categories:

• If an object is classified as belonging to the extremely high or high risk group, then certain measures are applied in accordance with the legislation. For objects that fall into other risk categories, the rules stipulated in the regulations on the type of control apply.
• If notification of the commencement of certain types of activities has been submitted, the inspection must be carried out within six months.
• if the visit is included in the inspection plan;
• in the event of receiving an assignment from the president, prime minister or his deputy, as well as from the head of the region.

It is impossible to refuse such a visit. This event lasts for 10 working days. If the inspector discovers any violations during the inspection and they are not corrected by the end of the visit, the company will be issued an order requiring them to be corrected.

What is a moratorium?

This is a measure established on January 1, 2016 and extended until January 1, 2030. According to it, scheduled inspections of small and medium-sized enterprises (SMEs) are not carried out.

However, this moratorium does not apply to certain categories of entities, including enterprises classified as extremely high and high risk, as well as production facilities classified as hazard class 2, and hydraulic structures of the same class.

Possible results of inspections

If no violations are detected during the inspection, no negative consequences will follow. However, if minor violations are detected, the inspector draws up a report, which may result in the following actions:

• issuing an order to eliminate the violation within a specified timeframe;
• The amount of the fine varies depending on the type of violation. In most cases, it does not exceed 50,000 rubles.

As a rule, inspectors prefer to limit themselves to issuing orders. Fines are rarely imposed.

Besides issuing orders and imposing fines, other consequences may arise. Thus, regulatory authorities have the right to:

• temporarily suspend the operation of the enterprise;
• impose fines of significantly larger amounts - they can reach, for example, 1 million rubles in case of violation of sanitary requirements;
• initiate the process of initiating a criminal case;
• record discrepancies in the registers, which, in turn, can affect, for example, interactions with business partners;
• report violations to regulatory authorities.

However, such consequences occur infrequently, most often in situations with serious violations. For example, this may occur if there is a threat to the lives and health of clients, if the company repeatedly violates regulations or conceals its income, or if it is engaged in criminal activity.

Signs of an impending company inspection

Entrepreneurs have the opportunity to receive information about planned inspections of their organizations or partners in advance. Resources where such information can be found are listed below.

The Unified Register of Control Measures (ERKNM) allows users to access data on inspections. To do this, they must enter information about the organization, such as the TIN, OGRN, and full name of the individual entrepreneur. Using the Unified Register of Control Activities (URCNM), you can learn about scheduled inspections, including their date, the body conducting the inspection, and the subject of the inspection, as well as review the results of inspections already conducted.

The General Register of Control Activities allows you to determine which institutions have the right to inspect your activities and on what grounds.

Regulatory bodies, such as Rostrud, regional offices of the Ministry of Emergency Situations, Rospotrebnadzor, and the Federal Tax Service, post data on their websites. For example, the Prosecutor General's Office and Rostrud notify of scheduled inspections several days in advance.

In your personal account on the Gosuslugi platform, you can set up notifications about ongoing inspections. This function is located in the "Control and Supervision" section.

The digital platform MSP.RF offers the ability to set up notifications about upcoming inspections. This function is available in the section dedicated to "State notifications about upcoming business inspections." The platform informs users about preventive visits, unscheduled inspections, and scheduled control measures.

One of the drawbacks of such notifications is that it is not always possible to know the date and person initiating the inspection in advance. Information about unscheduled inspections typically becomes available in the system only after the decision to conduct the visit has been made, and sometimes even after the visit itself has been completed.

It is also possible to use the "Inspector" mobile app. It enables online interaction between businesses and regulatory authorities. The app allows for the exchange of documents and notifications, the ability to record correspondence, as well as access to information about scheduled control measures and a unified register of control types.

Effective Strategies for Preparing Your Business for Inspections

Each inspection has its own unique characteristics. However, there are universal recommendations that can help not only minimize the likelihood of fines but also significantly reduce stress during inspections. Here are those tips.

Monitor your organization's risk level. If it is exceeded, submit a request to the labor inspectorate to lower the category to reduce the number of scheduled inspections.

Procure the necessary documents in a timely manner. For example, don't miss the opportunity to submit a notification of the start of your business and register in the Honest Sign system for product labeling.

Participate in preventive inspections. You can invite an inspector voluntarily or organize an online visit to identify potential violations and correct them before a fine is imposed.

Process complaints and feedback. It's important to respond promptly to inquiries from both employees and customers. If your employees or customers decide to complain not only to you but also to regulatory authorities, this could lead to an unexpected inspection.

Conduct audits regularly. Update information on the corporate website, monitor reporting deadlines, and monitor compliance with fire and sanitary safety regulations.

Organize employee training to explain what to do when inspectors arrive. Specify who has the right to speak with them and clarify the location of the necessary documents. Interaction with the inspector is critical, as even a casual question can signal the presence of problems and lead to an additional inspection.

Make sure to hire professionals with the necessary skills. Even if your organization does not have the resources to hire an in-house accountant or lawyer, it is worth considering outsourcing qualified specialists. This will help you avoid errors when drafting client agreements and ensure proper accounting.

Stay up-to-date. Pay attention to changes in legislation and the emergence of new fines. Adjust your work processes to avoid violating new regulations.

If you are interested in entrepreneurship, you may find the materials in the "Business" editorial board from Skillbox Media very useful.

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