Audit Or Bust! Ringing In 2022 With A Fresh Start
Written By Jenny Germano
With 2021 winding down and a New Year on the horizon, the major task that comes to mind for any cannabis business is “it’s audit season”. What this means is, It’s really about preparing for a “FRESH START” in the first quarter of the year and essentially looking under the hood of your business. If you do not have an internal audit program and third party audit strategy, with a minimum of audits being performed each quarter, then there are going to be compliance gaps in your business - without a doubt.
This time of year is vital in any Regulated Cannabis Operation, Why? January 1st in some States and/or counties means implementation of New Rule Requirements, the reorganization of document management, the filing of business documents, taxes, and meeting banking or investor requirements in the form of financial and operational audit reports.
Here Are Some Operational Audit Category Examples:
- Packaging and Labeling
- Testing Requirements
- Inventory Management
- Health and Sanitation
- Federal Standards (OSHA, & Food Safety)
A little perspective, If you’re investing in performing physical inventory counts of product, plants and other raw materials that are regulated, you should be doing the same of your entire licensed operation. Why? How often do you really have a Perfect inventory count? If you do, why? It’s most likely because you have systems, and bumpers in place called inventory control. If you have to fix inventory issues all the time, or you’re only doing inventory lets say monthly - these are some of the issues that stem from the lack of systems and structure not being in place. The less control you have of the day to day operations in the business, the more issues you have, and then it piles on every month eventually becoming overwhelming for some. These are just a few examples of where the gaps are created and are a direct result from the lack of systems, or implementing them properly. It is important to understand the amount of systems that need to be in place, maintained and need to apply to the overall business.
Having an overall audit strategy in the business should really be at the top of the list for what you want to achieve in order to be successful in this industry. Focusing solely on your “brand or marketing” does not make you compliant - focusing on compliance first does.
Risk mitigation is one of the most important tools in any business, and with cannabis being regulated and under a State and Local mandated microscope, it should not be taken lightly in how to approach it. Additionally, the utilization of compliance software systems can help track rules and inventory while providing snapshots of the operations, but also having an in person 3rd party audit is still highly recommended for all licensed cannabis operations.
Tips For Building An Audit Strategy
- Create an audit schedule (internal and third-party)
- Third-Party audits should be a minimum of quarterly for one year for brand new operators. At least twice a year for existing operators.
- Are you an MSO (Multi-State-Operator)? The overall strategy needs to be slightly different than an OSO (One-State-Operator).
- What categories are you going to audit and how often.
- Creating weekly and monthly checklists.
- What types of audits does the business need? Financial, Cash Management, Risk Management, Regulatory, Inventory, Quality Assurance, OSHA, cGMP are to name a few.
- Who is auditing your auditors? Third-Party audits and how often.
- What software and other compliance tools will your company use to support the compliance team or compliance officer.
- Training your auditors and/or hire employees with certifications, such as quality assurance, ISO or other auditing experience from other regulated industries.
The main takeaway is to really get off to a great start in 2022 right out of the gate - be an Authentic Leader, through leading by example and really going above and beyond the bare minimum requirements. Having implementable systems in place, like an audit strategy, or a compliance program can help take a company to the next level and take the fear out of compliance. You’ll know what to anticipate because you have real data to know where you’re at through looking under the hood, as to trying to operate in the unknown with a blindfold on. It’s really about managing the risks to be very minimal. As we all know sometimes things are completely out of your control, but how you run your business is not.