Imagine doing everything by the book to make your organization profitable and resilient-smart – visionary leadership, a clear strategic direction, hiring top talent, and more. Yet, one failure in a compliance audit could unravel it all, leading to hefty fines, stringent penalties and sanctions, and a severely damaged reputation that erodes customer trust and investor confidence, sometimes beyond repair.
Let’s understand what a compliance audit is and why it’s vital for your organization.
What is a Compliance Audit?
Compliance audit is an independent and formal review of an organization’s procedures, policies, internal controls, and operations to determine whether they are in accordance with the industry standards and follow external regulations and laws set by government agencies or industry groups.
A compliance audit is objectively conducted by an independent, third-party compliance auditor who presents some deliverables as a report, assessment, or audit opinion after the audit. It also addresses the effectiveness of compliance management systems and covers many areas, including information security, access controls, risk management, financial reporting, environmental regulations, and workplace safety.
What are the Different Types of Compliance Audit?
There are various types of compliance audits depending on the business activities they audit. These include:
1. International Organization for Standardization (ISO)
ISO develops and publishes international standards across many industries. Some of the widely popular ISO standards include ISO 9001 compliance, which focuses on the quality management systems of organizations, and ISO 27000 standard, which is related to information security and privacy.
2. Health Insurance Portability and Accountability Act (HIPPA)
HIPPA is a US federal law passed in 1996. It aims to protect the security of the critical medical information of people and mitigate health fraud. This compliance audit is essential for organizations that handle protected health information, including healthcare providers, health insurers, and contractors who deal with health information.
3. Payment Card Industry Data Security Standards (PCI DSS)
PCI DSS is a type of IT compliance audit designed to protect consumers’ data associated with credit card use. PCI compliance audit applies to anyone involved in the processing of payment cards, such as merchants, financial institutions, point-of-sale vendors, or hardware and software financial service providers.
4. General Data Protection Regulation (GDPR)
GDPR is a legislation passed by the European Union (EU) in 2018 that affects organizations that process data associated with the citizens of the EU. It protects individuals’ data and privacy through a series of regulations that include consent from the subject, anonymization of data, safe handling of data in case of cross-border transfer, and proper data protection measures.
5. Service Organization Controls (SOC) Reports
SOC compliance report is designed by American Institute of Certified Public Accountants (AICPA). SOC 1 report audits the internal controls of an organization related to financial reporting, while SOC 2 is also an IT compliance audit report that mainly focuses on the information security management of an organization.
6. Occupational Safety and Health Administration (OSHA)
OSHA compliance audits aim to foster healthy workplaces in almost all industries with employees. It also ensures that workplaces maintain a clean and safe environment and are not prone to potential hazards.
Why is a Compliance Audit Vital for Your Organization?
Compliance audit is necessary to ensure that your organization’s products and services live up to a certain standard. A positive compliance report demonstrates your commitment to industry standards and indicates that you are operating within legal and ethical boundaries.
On the other hand, a negative compliance audit process could result in fines, penalties, and sanctions, in addition to lost business due to a damaged reputation.
A compliance audit benefits your organization due to the following reasons:
- It helps build trust with external stakeholders.
- It leads to identification of areas of non-compliance which can be addressed to mitigate risks.
- It enhances the quality and effectiveness of your operations.
- It gives you a competitive edge in business marketplace.
- It lowers your chances of being fined or facing sanctions due to non-compliance.
- It can lead to strategic business decisions based on the valuable insights shared by compliance auditors.
- Regular compliance keeps you updated on any new regulation or policy changes and reduces the risk of non-compliance.
What are the Challenges in Compliance Auditing?
Sometimes, during a compliance audit, organization may fail to meet specific legal, regulatory, or industry standards. This can be due to the following challenges:
1. Lack of Awareness of Regulatory Changes
One of the most important challenges in compliance audits is that regulations evolve continuously to align with emerging risks and technological advancement. It becomes quite difficult for an organization to keep track of these changes on a consistent basis.
2. Insufficient Staff Training
Lack of sufficient training of employees leads to data breaches, legal liabilities, reputational damage, and productivity loss as employees become incompetent and unaware of their responsibility in combating risks or flaws that lead to non-compliance.
3. Inconsistent Documentation
Consistent records of internal processes, controls, and operations is a cumbersome and resource-intensive process as it involves a lot of time, manpower, and financial resources. Insufficient documents lead to inefficiencies and errors in workflows, which ultimately cause non-compliance.
4. Inadequate Internal Audits
A poorly designed or inadequate internal audit process can inadvertently lead to critical inconsistencies and shortcomings in assessments, which can result in compliance failure.
How to Overcome the Challenges in Compliance Auditing?
The compliance issues can be resolved by taking the following steps:
- Having in-depth knowledge of all the rules and regulations applicable to your specific industry. This can be achieved by engaging with legal experts and automated alerts for industry-specific insights.
- Performing regular internal audits with the help of a robust audit management system. This will highlight any inconsistencies or gaps before an external compliance audit, which can be addressed using prompt corrective actions.
- Organizations must offer continuous and engaging training sessions for employees on the necessity of compliance and their role in maintaining it.
- Developing clear guidelines for documentation and maintaining thorough records of procedures, systems, operations, training sessions, internal audits, and any corrective actions taken.
- Using compliance management platforms like Effivity, which provides comprehensive and customized compliance management that includes risk assessment, document management, auditing, and reporting.
Effivity’s audit management software develops a specific schedule and plan for internal audits of various departments and processes and generates automated alerts and reminders for the scheduled audit. This ensures organizations meet their internal audit requirements effectively.
In Conclusion
A compliance audit is an assessment of an organization’s internal policies and operations to verify their adherence to relevant regulatory and industry standards.
It is an essential tool for every organization as it promotes accountability and good governance and protects them from fines and sanctions. Additionally, it also helps them build and sustain a reputation of transparency and credibility in a dynamic business landscape.
