AML audits are formal reviews of an organization's anti-money laundering (AML) program to assess its effectiveness, compliance with regulations, and ability to detect and prevent financial crime. These audits can be conducted internally by compliance teams or externally by regulators, independent auditors, or third-party consultants. 

In highly regulated sectors like banking, payments, and crypto, AML audits are not just good practice, they’re often mandatory. Regular audits help institutions identify weaknesses in their controls, ensure proper reporting, and demonstrate compliance to regulatory bodies.

An effective AML audit doesn’t just tick boxes. It validates that the organization is managing its risks proactively and can detect suspicious activity across all channels.

Types of AML Audits

Financial institutions may be subject to multiple forms of AML audits, each with different levels of scope and regulatory implications:

Internal AML Audits

Usually conducted by the firm’s internal compliance or risk team, these audits assess whether current processes align with internal policies, regulatory requirements, and best practices. Internal audits often precede regulatory reviews and help avoid larger compliance failures.

External AML Audits

These are conducted by independent auditors or consulting firms and may be required by law, particularly under the Anti-Money Laundering Act (AMLA). External audits provide third-party assurance and uncover gaps that internal teams might miss.

Regulatory AML Audits

These are formal inspections led by regulators such as the FCA, FinCEN, or central banks. Non-compliance can result in enforcement actions, fines, or reputational damage. The scope often covers risk assessment, transaction monitoring, customer due diligence, and AML Reporting.

What AML Auditors Evaluate

Auditors typically focus on the core pillars of a firm’s AML program, including:

• Governance and accountability

• Customer Due Diligence (CDD) and Know Your Customer (KYC) processes

• Sanctions screening and PEP handling

• Transaction monitoring systems

• Suspicious Activity Reports (SARs) submission processes

• Training and awareness for staff

• Independent testing and ongoing monitoring

• Documentation and audit trails

Tools like FacctView and FacctShield make audit readiness easier by maintaining traceable data and decision logic.

The Role of Technology in AML Audit Readiness

With the scale and complexity of financial transactions today, manual audit preparation is no longer realistic. Modern compliance teams rely on automated tools to track activities, flag anomalies, and generate audit-ready logs.

For example, Audit Trail Management solutions provide tamper-proof records of every action taken, from alert generation to final disposition. Similarly, AML Screening platforms offer evidence of due diligence by showing how decisions were made and whether watchlists were up to date.

Common Findings in AML Audit Reports

Audits often uncover systemic or process-level issues.

Some of the most frequent audit findings include:

• Incomplete or outdated KYC profiles

• Failure to file SARs in a timely manner

• Lack of audit trail or documentation for decisions

• High false positive rates in alerts

• Outdated transaction monitoring rules

• Insufficient risk-based approach to customer segmentation

• Gaps in Ongoing Monitoring

These issues can be red flags for regulators, signalling the need for remediation or even enforcement action.

Preparing for a Successful AML Audit

Being audit-ready means more than having a few policies in place.

Here’s how institutions can prepare:

• Keep all AML policies and procedures documented and regularly updated

• Perform self-assessments aligned to FATF standards

• Ensure all alerts are logged, resolved, and traceable via systems like FacctList

• Train staff regularly on AML procedures and red flags

• Automate documentation and evidence gathering wherever possible

• Address known issues with internal testing before regulators find them

Many firms also conduct mock audits with third-party experts to benchmark their preparedness, a key practice in Compliance Workflow Automation.