Mitigating risk: Best practices for cross-functional compliance audits

April 26, 2025

George Yang

Cross-functional audits may seem like a formality or a box to check, but that belies their true calling: A vital process for uncovering hidden risks in areas that overlap payroll, human resources, and finance to ensure smooth operations and avoid compliance headaches.

Many employers might only think of audits in the wake of a problem — such as when a payroll error demands extensive tax form amendments or an overlooked regulation leads to employee complaints. But the real power of an audit lies in preventing issues before they snowball, according to Lyndee Patterson, senior compliance counsel at Dayforce.

HCM Podcast

Produced with Google Notebook LM Using AI Narration

“You don’t know what you don’t know, and there are so many times when a question is asked and until it gets picked apart — that’s when you really surface risk,” she said.

A cross-functional approach means assembling stakeholders from HR, payroll, and finance to collaboratively identify potential gaps. Patterson said that siloed audits can miss red flags simply because one group assumes another is handling it.

Getting started: Setting scope and objectives

Before diving into an audit, it’s crucial to define what success looks like. Which regulations or processes warrant closer scrutiny? Is the focus on payroll remittances, employee classification, or a new employment standard? Being clear about the goal ensures no department is guessing about the scope.

“Implementing clear communication protocols and designating compliance champions within each department can help with collaboration,” said Elvira Ciambella, vice-president, business innovation, transformation and shared services at ADP Canada.

” “You don’t know what you don’t know, and there are so many times when a question is asked and until it gets picked apart — that’s when you really surface risk,” ”

This point underscores the need to assign roles. HR might track whether employees are receiving proper holiday entitlements, payroll might verify tax calculations, and finance could audit the budgetary impact of overtime costs. Each team “champion” becomes the point person for that audit area.

Data collection and analysis

A major challenge in cross-functional audits is consolidating data — employee details, pay records, financial statements — into one cohesive view. Patterson said organizations often rely on an Human Capital Management (HCM) system to unify these records. However, simply having the data isn’t enough. Successful audits require structured analysis: verifying that each data set is accurate, identifying discrepancies, and double-checking compliance against the relevant regulations, she said.

A best practice is to use shared online platforms or spreadsheets where every department can input information to streamline discussions.

“It’s common to most organizations, those collaborative type of means of getting people together on a regular basis and tracking the progress,” she said.

Active participation from all teams

Each department has unique insight. Payroll professionals catch errors in source deductions, HR staff spot compliance gaps in leave management, and finance focuses on the numbers behind compensation decisions. The benefit of a cross-functional audit is that these perspectives meet in one forum, said Patterson.

If one team draws a blank on a question — like whether a workers’ compensation claim was processed correctly — another can fill the gap.

“There’s constantly, ‘Oh, but have you guys thought about this?’ You’ve talked about the workers’ compensation impacts of this type of change, or the benefit consequences of it, there’s pension administration implications. Have you brought in those teams? And if anybody gives you the blank face, that’s the trigger.”

“We have had that occasion where the three areas get together to hammer out Q and A’s. ‘What’s new and why do I care about it?’ as an employee,” Patterson said.

Audits often include “what if” scenarios, exploring how new or proposed legislation might affect the existing processes. When everyone weighs in, the organization can spot potential pitfalls or confirm compliance well in advance.

Turning findings into action

The end goal isn’t just to spot risks; it’s to fix them. Whether an audit uncovers a missed remittance deadline or a complicated new garnishment rule, departments should develop clear corrective strategies, she said. This could involve updating software configurations, issuing corrected T4s, adjusting benefit policies, or creating new employee communications.

Ciambella stressed the importance of accountability in these follow-through steps: “When fostering an open dialogue and an environment grounded in accountability, you empower your teams to work together more effectively.”

Organizations should set deadlines for each corrective measure and assign responsibility for monitoring progress. This ensures that issues flagged in the audit don’t linger unresolved or resurface the following quarter.

Maintaining momentum

While the upfront work can be daunting, continuous improvement is key. Patterson said regulations evolve constantly — CPP rules might shift, new job posting requirements may emerge, or provinces could change their tax brackets. If departments only audit when a crisis hits, they risk being caught off guard.

Regular, scheduled check-ins — whether monthly or quarterly — keep compliance top of mind. Some organizations use rolling audits, focusing on different aspects of compliance at different times. Others rely on an annual deep dive, supplemented by shorter “mini-audits” whenever new legislation looms, she said.

Leveraging outside expertise

For especially complex issues, outside consultants or legal counsel can offer valuable perspective. They can help interpret new legislation, recommend software or tools, and guide the audit process.

This is particularly helpful if an organization is short on internal resources. Outsourcing certain tasks doesn’t relieve the employer of ultimate responsibility, but it can inject specialized knowledge into tricky areas.

Technology’s evolving role

While sophisticated, automated systems can reduce human error, they also introduce new challenges. If a platform misapplies provincial rules, it can take time for employees to notice. That’s why cross-functional audits should include a technology component. Teams should ask if current systems and automated processes actually reflect real-life operations and current law.

Jason Albert, global chief privacy officer at ADP, noted that generative AI is powerful and may eventually influence HR, payroll, and finance tasks.

“(But) we expect to see more laws requiring employers to disclose the use of AI in employment decisions,” he said.

For now, relying on AI to manage compliance could be premature. Patterson is wary of over-reliance on AI for regulatory updates.

“I don’t find that it’s reliable yet,” she said.

What are your thoughts on