A compliance program is not static. Policies can be written, leadership can be assigned, and authority can be delegated carefully but without continuous oversight, even the strongest program can fail.
This is why Element 5: Monitoring, Auditing, and Internal Reporting Systems is critical to the long-term effectiveness of any compliance program.

This element answers one essential question:
How do you know your compliance program is actually working?

Why Monitoring and Auditing Matter

Compliance risks evolve over time. Regulations change, operations grow, and employees rotate through roles. Without regular monitoring, organizations may not realize there is a problem until a violation, audit, or investigation occurs.

Effective monitoring and auditing allow organizations to:

  • Detect potential misconduct early
  • Identify compliance gaps before regulators do
  • Validate that policies are being followed
  • Strengthen internal controls
  • Reduce legal, financial, and operational risk

Regulators expect organizations to take a proactive approach, not a reactive one.

Understanding the Three Core Components

Element 5 consists of three interconnected systems that work together to protect the organization.

1. Ongoing Monitoring

Monitoring is the day-to-day review of compliance-related activities. It focuses on identifying issues in real time or near real time.

Examples include:

  • Reviewing operational records
  • Tracking compliance metrics
  • Supervisory reviews
  • Identifying trends or recurring issues

Monitoring helps organizations spot warning signs early before they become systemic problems.

2. Periodic Auditing

Auditing is more structured and formal than monitoring. It involves scheduled internal or external reviews designed to assess whether compliance controls are working as intended.

Effective audits:

  • Focus on high-risk areas
  • Are conducted independently
  • Follow a defined scope and methodology
  • Are documented thoroughly

Audits help organizations evaluate the strength of their compliance program and provide a clear roadmap for improvement.

3. Internal Reporting Systems

A strong compliance program must include a way for employees to report concerns confidentially and without fear of retaliation.

Internal reporting systems may include:

  • Anonymous hotlines
  • Online reporting tools
  • Dedicated compliance contacts
  • Written reporting procedures

These systems empower employees to speak up, often identifying issues management may not otherwise see.

Regulators view internal reporting as a key indicator of a healthy compliance culture.

Why Anonymous Reporting Is Essential

Employees are often the first to notice misconduct, unsafe practices, or policy violations. However, without protection, many will remain silent.

An effective internal reporting system must:

  • Allow anonymity when requested
  • Protect employees from retaliation
  • Ensure reports are reviewed promptly
  • Include documented follow-up actions

When employees trust the reporting process, organizations gain visibility into risks before they escalate.

What Regulators Expect to See

When reviewing a compliance program, regulators often look for evidence of:

  • Regular monitoring activities
  • Documented audits and findings
  • Follow-up actions on audit results
  • A functioning reporting system
  • Proof that reported issues were investigated and addressed

If issues are identified but not corrected, the program may be considered ineffective even if the systems technically exist.

Turning Findings into Action

Monitoring and auditing are only valuable if findings lead to improvement. Organizations must:

  • Investigate identified issues
  • Determine root causes
  • Implement corrective actions
  • Update policies or training as needed
  • Track outcomes over time

This feedback loop strengthens the entire compliance framework.

Key Action for Organizations This Week

Establish regular monitoring practices, conduct periodic audits focused on high-risk areas, and implement a confidential internal reporting system that employees trust.

These systems ensure your compliance program remains active, responsive, and effective.

Looking Ahead: Week 6

Next week, we’ll explore Element 6: Consistent Enforcement and Discipline, which ensures that compliance rules are applied fairly and consistently across the organization.