Suspicious Activity Reporting (SAR) is one of the most critical obligations for financial institutions in the fight against money laundering and terrorist financing. Regulators place significant emphasis on accurate and timely reporting, making it a priority area for internal audit.
The first step is reviewing governance around SAR processes. Auditors should confirm that responsibilities are clearly assigned, with compliance teams empowered to make independent reporting decisions. Escalation channels must be formalized to ensure suspicious activity is reviewed quickly by appropriate staff.
Alert generation is another key area. Internal auditors should evaluate whether transaction monitoring systems and manual reporting channels are generating alerts that could lead to SARs. False negatives — missed suspicious activity — pose major regulatory and reputational risks.
Auditors must also assess the quality of investigations. Are case files complete, well-documented, and supported by evidence? Do investigators have adequate training to recognize suspicious behavior? Internal audit should sample cases to ensure investigations meet regulatory expectations.
Timeliness is critical. Most jurisdictions set strict deadlines for filing SARs after suspicion arises. Internal auditors should test whether reports are submitted within required timeframes and whether delays are documented and explained.
Data security is another consideration. SARs contain sensitive information and must be protected from unauthorized disclosure. Internal audit should evaluate access controls, data storage practices, and staff awareness of confidentiality requirements.
Auditors should also assess feedback and quality assurance mechanisms. Are SARs reviewed for consistency and completeness before submission? Does the institution track regulatory feedback and use it to improve processes?
Finally, auditors should consider overall reporting culture. Staff at all levels must feel empowered to raise concerns without fear of reprisal. Internal audit can provide assurance that whistleblower channels and staff training support a healthy reporting environment.
By conducting thorough reviews, internal auditors help institutions demonstrate compliance, reduce regulatory risk, and contribute meaningfully to the global fight against financial crime.
