Legal audits, also known as legal compliance audits or legal health checks, are systematic evaluations of an organisation's legal and regulatory framework. The purpose is to ensure compliance with local, national, and international laws and regulations.
We at MNM Law Group know the critical role legal audits play in helping corporates of all types, including companies and non-governmental organisations (NGOs), identify and address potential legal risks, streamline operations, and enhance overall governance.
This article provides a comprehensive guide to legal audits in Kenya, covering what they are, how they are conducted, and their significance for various organisations.
What is a Legal Audit?
A legal audit is a thorough and objective examination of an institution's legal practices, policies, contracts, procedures, and compliance with legal and regulatory requirements. It aims to identify potential legal risks, gaps in compliance, and opportunities for improvement.
A legal audit often covers various aspects of an organisation's operations, such as employment law, contract management, environmental regulations, intellectual property, corporate governance, and more.
How Is a Legal Audit Conducted?
The process of conducting a legal audit typically involves the following steps:
Definition of Scope
The establishment, in consultation with legal experts such as ourselves, outlines the scope and objectives of the audit. This step involves identifying which areas and functions of the organisation need to be audited.
Collection of Relevant Information
The audit team collects documents, records, and information related to the areas being audited. This includes contracts, policies, permits, corporate records, employment agreements, and other relevant documentation.
Legal Framework Review
The audit team reviews the applicable legal framework, including local, national, and international laws and regulations, to ensure that the corporation is complying with them.
The audit team assesses the organisation's current practices and policies against the legal requirements, identifying gaps or areas where compliance is lacking.
Potential legal risks are identified based on non-compliance or gaps in the legal framework. These risks can include financial, reputational, and operational risks.
Recommendations and Remediation
The audit team provides recommendations for addressing the identified issues and mitigating risks. This may involve changes to policies, procedures, contracts, or other legal practices.
A comprehensive report is generated, summarising the findings, recommendations, and suggested actions. The report is often shared with senior management and stakeholders.
Implementation and Monitoring
Once the recommendations are accepted, the institution takes steps to implement changes, if needed, and to monitor compliance going forward.
The End Goal of a Legal Audit
The ultimate goal of a legal audit in Kenya is to ensure that an organisation operates in full compliance with legal and regulatory requirements, thereby reducing legal risks, improving corporate governance, and enhancing its overall effectiveness. The key objectives and outcomes include:
1. Risk Mitigation: Identifying and mitigating potential legal risks that could lead to disputes, fines, or legal sanctions.
2. Compliance Assurance: Ensuring that the organisation complies with all relevant laws, regulations, and industry-specific standards.
3. Operational Efficiency: Streamlining legal processes and procedures to improve overall efficiency.
4. Cost Reduction: Avoiding legal disputes and regulatory fines, which can be costly to resolve.
5. Reputation Management: Safeguarding the institution's reputation by demonstrating a commitment to legal compliance.
6. Enhanced Governance: Strengthening corporate governance practices and accountability.
7. Resource Allocation: Efficiently allocating resources and efforts to areas where legal risks are highest.
Importance of Legal Audits for Organizations
Legal audits are invaluable tools for a wide range of organisations in Kenya, including companies and NGOs. Here's why legal audits are essential for these entities:
Risk Management: Legal audits help companies identify and manage legal risks related to contracts, intellectual property, labour, and regulatory compliance.
Compliance: Ensuring compliance with corporate governance requirements, taxation laws, labour laws, environmental regulations, and industry-specific standards.
Contract Management: Reviewing and optimising contracts to protect the company's interests and avoid disputes.
Due Diligence: Supporting due diligence processes during mergers, acquisitions, or financing rounds.
Reputation Protection: Enhancing the company's reputation by demonstrating commitment to legal compliance.
Operational Efficiency: Streamlining legal procedures and reducing the time and effort spent on legal matters.
Funding and Donor Relations: Legal audits are crucial for NGOs to ensure compliance with donor requirements and regulatory restrictions tied to funding.
Transparency and Accountability: Demonstrating responsible and transparent governance to maintain trust with donors and beneficiaries.
Regulatory Compliance: Ensuring that NGOs comply with regulatory and legal requirements that may be specific to the charitable and non-profit sector.
Protection of Beneficiaries: Guaranteeing that the NGO's activities align with the best interests of beneficiaries.
Financial Management: Effective legal audits can help in monitoring and managing financial matters to prevent misuse of funds.
Relevant Legal Framework in Kenya
In Kenya, the legal framework for legal audits encompasses various laws and regulations, including:
The Companies Act, 2015: This Act governs the incorporation and operation of companies in Kenya, specifying requirements for corporate governance.
The Non-Governmental Organizations Coordination Act, 1990: This Act regulates NGOs' registration and operations, requiring compliance with legal and regulatory requirements.
The Employment Act, 2007: Employment laws in Kenya must be adhered to, and legal audits often assess an institution's compliance with labour laws.
Industry-Specific Regulations: Depending on the sector in which an organisation operates, there may be additional sector-specific regulations and laws.
Are You In Need of a Legal Audit?
Legal audits in Kenya are essential for organisations, helping them navigate the complex legal and regulatory landscape, identify and mitigate legal risks, and ensure compliance with local and international laws.
For both companies and NGOs, legal audits provide a structured approach to improving corporate governance, enhancing operational efficiency, and protecting their reputation and financial stability.
By conducting regular legal audits, organisations can confidently navigate the legal environment and focus on their core mission and business activities.
We at MNM Law Group would like to be your partner in your institution’s legal compliance journey. We have the requisite experience, understanding and personnel to handle whatever you bring to us. If you’d like to know more about how we can be of service, please don’t hesitate to get in touch.