Establishing policies and processes can help you meet compliance requirements. However, how do you know if your efforts are taking you closer to meeting your compliance? How to assess if your policies align with your organizational goals?
This is where compliance audits help. In this guide, we will talk about compliance audits and how to make them work for you. Besides looking into compliance audit types and steps, we will delve deep into the best practices and tools that can make your audits more effective.
What are Compliance Audits?
Compliance audits are a formal process to check if your processes, policies, workflows, operations, and procedures comply with the required standards and frameworks. These audits can be extended to internal and external audits, including multiple standards. While some of these audits are mandatory like GDPR, there are also voluntary frameworks like SOC 2 and NIST. Regardless of whether mandatory or voluntary compliance, you need audits to assess compliance.
At the end of the audit, a report is generated. This will contain all the findings during the audit and the areas that require improvements. Using this information, you can know the compliance gaps and take steps accordingly to fill these gaps.
Types of Compliance Audits
Compliance audits can be categorized based on what processes or policies they check. Broadly speaking, compliance audits fall into the following categories.
- Regulatory Compliance Audits: These audits check if you’re following the guidelines of specific regulations, like SEC regulations, GDPR, HIPAA, SOC 2, SOX, and more.
- Financial Compliance Audits: This audit ensures that an organization complies with financial regulations and accounting standards. They often include verifying financial statements and assessing internal controls over financial reporting.
- Information Technology Compliance Audits: This type of audit focuses on data security, privacy, and system integrity, and if your IT practices comply with relevant laws and standards like ISO/IEC 27001, PCI DSS, and NIST frameworks.
- Operational Compliance Audits: This audit examines your operations to ensure they follow internal policies and external regulations. This can include reviews of purchasing, sales, production, and other operational areas.
- Health and Safety Compliance Audits: These audits assess if your operations adhere to safety regulations and standards in the workplace, like the Occupational Safety and Health Administration (OSHA).
- Ethics Compliance Audits: This audit evaluates your practices against your organization’s ethical standards and values. This includes assessing anti-corruption measures, fair treatment of employees, and adherence to a code of conduct.
- Labor and Employment Compliance Audits: While this is a relatively rare audit type, it examines your adherence to labor laws and regulations, like minimum wage laws, overtime pay requirements, and workplace discrimination laws. Often, this audit is a part of a larger HR processes audit.
- Tax Compliance Audits: These audits focus on whether an organization correctly complies with tax laws, including filing tax returns and paying taxes.
Besides the above categories, it’s not uncommon for companies to have custom internal audits to evaluate specific areas. Regardless of the type, the objectives remain unchanged, which are to identify areas of improvement and mitigate risks.
How are Compliance Audits Conducted?
Before we go into how you can make compliance audits effective, it’s important to understand the general steps in a compliance audit, as this can help with customization and improving effectiveness.
Here are the steps common across all compliance audits.
Step #1: Planning
Creating a sound plan is the first step for conducting a compliance audit. The primary activity in this phase is finalizing the audit scope and objectives. Accordingly, you can set the timelines and allocate the resources for executing them. Make sure your executives are on board with the audit plan.
Step #2: Data Collection
After formulating the plan, you start gathering the data required to check compliance. This includes collecting documents like policies, procedures, reports, and other pertinent records for review. Sometimes, it helps to conduct interviews with key personnel to understand the organization’s processes and practices. Additionally, you can observe operations and activities to gain firsthand insights.
Step #3: Assessment and Analysis
In this phase, you compare the organization’s practices with the relevant regulations and policies. During this evaluation process, identify and document any deviations or non-compliance issues. You can also evaluate the effectiveness of internal controls that are in place to ensure compliance. This step provides the foundation for the audit findings and recommendations.
Step #4: Reporting
Once the analysis is done, put your findings in a report for stakeholders. Prepare a report outlining their findings, issues, and recommendations for improvement and share it with key stakeholders for feedback and clarifications. Review the feedback and make changes as necessary to finalize the report.
Step #5: Communicate the Findings
Finally, present the findings and recommendations from the audit to the management and relevant stakeholders. During this phase, discuss potential solutions and corrective actions that the organization can take to address the identified issues. Open communication during this phase helps ensure that stakeholders understand the audit’s outcomes and the steps needed for improvement.
Step #6: Follow-up
In this last step, monitor the implementation of corrective actions and recommendations provided in the audit report. This may involve tracking progress and assessing the effectiveness of the measures taken. In some cases, do follow-up audits to verify that corrective actions are successful and that the organization continues to comply with the regulations.
Thus, these are the steps involved.
Next, let’s look into some best practices to make these compliance audits more effective.
Best Practices For Conducting Effective Compliance Audits
Audits are expensive as they require resources, from planning to follow-up, and it makes sense to make the most out of them. However, given the complexity of audits and the work involved, it is not easy.
Here are some best practices for conducting effective compliance audits.
Get a Buy-in From the Management
Before starting an audit process, get the buy-in from your CXOs and Board of Directors. When the direction comes from the top, you are more likely to get greater support and cooperation from other employees and stakeholders. It will also indirectly push employees to fulfill their responsibilities, especially related to providing the necessary data and evidence.
Conduct Pre-Audit Assessments
Before starting the audit, do pre-audit assessments to understand the current state of compliance and identify areas of concern. This initial review can help focus the audit and optimize the allocation of resources.
Establish Clear Objectives
The success of an audit depends largely on the objectives you set during the planning phase. Make sure you take time to understand the regulations and policies relevant to your organization. Also, look into the provisions of each of these regulations, and accordingly, determine the audit’s scope and objectives. Establishing clear objectives keeps the audits focused and ensures the results align with your compliance priorities.
Prepare Thoroughly
A detailed audit plan is essential for a successful audit. It should outline the scope, objectives, timeline, and methodology for the audit. As a part of the planning process, identify the key stakeholders and gather necessary documents and information in advance to streamline the process. Such a well-laid plan can also save time and result in optimal resource utilization.
Maintain Independence and Objectivity
Your auditors must be independent to avoid conflicts of interest and maintain the integrity of the audit. An unbiased perspective ensures that findings and recommendations are based solely on evidence and objective assessment rather than external influences.
Select the Right Auditors
Since auditors are the lifeline of your compliance audit, ensure you choose the right independent auditor or firm. Look for aspects like experience, reputation, knowledge, communication skills, and more to decide on an auditor. While costs are important, they must not be the sole factor in picking an auditor.
Communicate Transparently
Have open and clear communication with stakeholders throughout the audit process to ensure everyone aligns with the goals. Provide regular updates and explanations about the audit process, findings, and recommendations. Transparency helps stakeholders understand the audit’s purpose and encourages cooperation and support.
Use a Risk-Based Approach
Taking a risk-based approach helps prioritize areas with higher risks of non-compliance or significant impact. You can do this as a part of your pre-audit process to allow auditors to focus resources on critical areas that could pose the greatest threat to your organization. Identifying and assessing risks early in the process enhances the efficiency and effectiveness of the audit.
Implement a Quality Assurance Program
Consider implementing a quality assurance program that includes peer reviews, process reviews, and continuous evaluation of audit methods. This proactive approach to maintaining audit quality results in high standards of accuracy and thoroughness. It can also help to stay on top of emerging guidelines.
Gather Comprehensive Data
Effective audits require thorough data collection from multiple sources, including documents, interviews, and observations. Ensure that the data collected is accurate and complete, as this will serve as the foundation for the audit’s assessment and findings. If your audits require data from different departments, assign an owner in each team or department and this person will be responsible for sending in the required data within the established timelines.
Document the Findings
Documentation is an afterthought in many organizations. Unfortunately, poor documentation can be detrimental to your audit’s success. Record the findings in detail, including evidence of compliance or non-compliance. Use clear language and supporting documentation to help everyone understand the audit’s conclusions. This transparency builds trust in the audit’s validity and reliability.
Provide Constructive Recommendations
Watch the language included in the audit. Undoubtedly, the objective is to find gaps and record them, but it doesn’t have to be in a negative tone or language. Remember, actionable and specific recommendations are highly effective in addressing non-compliance issues. Focus on solutions that are feasible and practical for the organization to implement and provide clear guidance on corrective actions. Such a positive tone makes the audits more meaningful and helps improve processes and achieve compliance.
Follow Up on Corrective Actions
Monitor the implementation of corrective actions and assess their effectiveness. Regular follow-ups are the key to gaining the most out of your audits. Also, continuous monitoring helps your organization stay on track with its compliance goals.
Stay Up-to-Date with Regulations
Regulations change over time, so you must continuously monitor regulatory changes to ensure audits align with current requirements. Provide continuous training and education to audit teams and other stakeholders to help them adapt to new standards.
Engage Subject Matter Experts
You can gain more in-depth knowledge based on the experience and knowledge of your subject matter experts. They can also offer guidance on complex regulations and industry-related practices. More importantly, they can share uncommon insights and pro tips that can give you an edge.
Foster a Compliance Culture
Encourage a culture of compliance within the organization to promote awareness of regulations and internal policies among employees. A strong compliance culture supports the organization’s efforts to maintain adherence and minimizes the risk of future compliance issues.
Encourage Feedback
Feedback is an essential part of an audit process and can help make it more effective for your organization. Involve the relevant stakeholders to discuss the audit process, its findings, and recommendations. Brainstorm on how best you can implement them for improved business outcomes. Such a collaborative approach builds trust and strengthens relationships.
Focus on Data Confidentiality and Privacy
During the audit process, it is easy to lose track of data security and privacy, which in turn, can result in non-compliance and the ensuing high fines. Small missteps can even lead to legal and regulatory losses. To avoid such negative effects, continuously focus on data confidentiality and privacy.
Leverage Technology
Use audit management software and data analytics tools to streamline the audit process and enhance effectiveness. Leverage AI automation for data collection and analysis to improve efficiency and accuracy. Such an approach saves time and effort while allowing you to focus on more complex aspects.
Thus, these are some best practices you can take to make your compliance audits highly effective. When used well, audits can identify and mitigate risks, improve processes, and ensure adherence to regulations and internal policies.
Next, let’s look at the best tools that can help make your audits more effective.
Best Software for Effective Compliance Audits
Audits are complex, especially if they have to check compliance with multiple standards and internal policies. Also, they are resource-intensive, requiring higher budget outlays. To counter these aspects, organizations are turning to software platforms to create efficient and cost-effective audits.
However, all software platforms are not built the same, and this is why we present the best software tools for making your audits highly effective.
Compliancy Group
This platform provides risk assessments and analysis of your technical, physical, and administrative controls. It also supports internal audits covering security, privacy, and device management. However, note that this tool is specifically geared for HIPAA.
Vanta
Vanta offers 250+ integrates to automate tests and evaluate how well your controls meet the provisions of different regulations. Moreover, it centralizes all your documents and data, so you can quickly provide evidence for transactions. It also makes it easy to onboard auditors to the platform and collaborate with them seamlessly to boost your audit’s efficiency.
AuditBoard
AuditBoard is a specialized audit tool that comes with many features to make your internal and external audits more meaningful. Its compliance and risk management features also come in handy to help meet the regulations of stringent standards like SOX, GDPR, HIPAA, and more.
Protecht Group
Protecht Group’s audit platform acts as a single source of truth for your audits. It is a comprehensive platform that creates audit plans, streamlines the steps, and manages the findings. Its intuitive dashboard helps to spot trends and anomalies quickly and make informed decisions.
Alyne from Mitratech
Alyne centralizes your compliance efforts and eases your audit. Its intuitive user interface enables all stakeholders to use the platform and collaborate during the audit. Moreover, its out-of-the-box controls, assessments, and risk reports make your audits highly effective.
All these tools help in different ways to conduct audits that align with your goals and take your organization closer to compliance with external standards and internal policies. More importantly, they save time and effort without compromising on the efficiency and expected outcomes.
Bottom Line
Audits are essential to understand your current state and the steps you must take to achieve your compliance goals. They are essential for your overall Governance, Risk, and Compliance (GRC) strategy. As these audits are useful across departments and operational areas, they come in many types. At the same time, they are highly resource-intensive, making it difficult for organizations to leverage their complete potential.
To help organizations conduct effective compliance audits, we looked at the steps common across all audit types. Next, we took a deep dive into the best practices that can make your audits highly effective. In the end, we looked at the best tools that can automate many of your audit processes to improve resource utilization. We hope this combination of information about best practices and tools can help you get more out of your audits.