What are compliance audits?
A compliance audit is a formal review of an organization's operations and procedures to ensure all applicable rules, standards, laws, and regulations are met. The audit is typically followed by a report that covers the strength of compliance preparations, security policies, risk management procedures, and user access controls throughout the audit.
A compliance audit gives an organization clarity about whether they’re doing everything they’re supposed to. The report fills any gaps in compliance and also makes recommendations for ways to solve issues. The information from the report and audit will vary depending on the organization, whether it’s a public or private company, the type of data it handles regularly, and if it stores sensitive financial data.
Organizations typically use audit management software to streamline their audit processes and comply with regulations or internal policies. Compliance professionals and operations managers use these tools to schedule the audits and properly analyze the results.
Types of compliance audits
There are different types of compliance audits an organization may choose to conduct. The type will depend on the company’s industry. Some common types of compliance audits are:
- HIPAA (Health Insurance Portability and Accountability Act of 1996): Specific to healthcare organizations and provides the privacy and security of customer medical information. It also includes regulations that protect employees who have lost or changed jobs, specifically health insurers, healthcare cleaning services, or any healthcare providers handling sensitive health information. If found to be non-compliant, fines could reach millions of dollars.
- PCI-DSS (Payment Card Industry Data Security Standard of 2006): Specifies the necessary steps organizations in the credit card industry must follow to ensure proper management and security of consumer data. Any business that processes credit card payments or transmits credit card data must run a PCI compliance audit on their IT infrastructure to identify risks to consumer data. Proof of non-compliance could result in fines up to $100,000.
- SOC 2 (System and Organization Controls): A data security audit specifically designed for service providers that store customer data in the cloud. Its goal is to ensure the safety of customer data by making sure companies have strict policies and procedures in place to protect this information.
- SOX (Sarbanes-Oxley Act of 2002): Includes auditing and financial regulations for all public companies. The main objective of this audit is to protect investors by requiring public companies to uphold integrity and honesty in their corporate disclosures. If violated, fines are brought to CEOs and CFOs.
- ISO (International Organization of Standardization): An information security compliance standard that helps companies manage asset security, such as employee or third-party data, financial information, and intellectual property. This audit involves a risk management process that includes people, processes, and technology.
- Human Resources: Although more general, there are several types of compliance audits an HR department performs to ensure a safe and friendly workplace. Typically, they promote equal and fair employment, free from bias and discrimination.
- Internal Revenue Service (IRS): The IRS compliance audits check if an organization is in adherence to set tax codes at a federal level.
- General Data Protection Regulation (GDPR): Sets guidelines for collecting and processing personal information from companies in the European Union (EU). The standard applies to all companies in the EU, plus companies outside the EU that handle the data of EU citizens. Proof of non-compliance could attract fines of up to 20 million euros or 4% of a company’s annual turnover.
Benefits of compliance audits
When done correctly, compliance audits can lead to many benefits. Some of these include:
- Workplace safety: Compliance regulations promote workplace safety and allow organizations to meet requirements that ensure a secure environment for their staff.
- Document compliance status: Properly conducted audit trails provide managers and senior leadership a better understanding of uncertainties about requirements surrounding specific regulations.
- Manage risks: Running a risk analysis identifies and addresses any compliance deficiencies. This reduces the risk of accidents, cybersecurity breaches, hefty fines, enforcement actions, and negative press.
- Verify processes: Conducting an audit can help verify processes related to the security of sensitive data, financial records, health and safety, and payroll.
Compliance audits best practices
As organizations carry out compliance audits, there are best practices to follow that ensure nothing falls through the cracks. These best practices include:
- Implement written policies and procedures, like an ethics policy or conduct guide, to reference when needed.
- Designate a compliance officer or a compliance committee to ensure the organization is always within regulations and standards.
- Conduct effective training and education for all employees for the best chance of avoiding fines.
- Develop effective lines of communication surrounding processes and procedures.
- Conduct internal monitoring, auditing, reviews, and inspections.
- Enforce standards and disciplinary guidelines to avoid fines.
- Respond quickly to detected offenses against compliance standards and promptly transition to corrective actions.
Compliance audits vs. internal audits
A compliance audit is sometimes confused for an internal audit, usually because the same person conducts them. However, each audit reviews different aspects of an organization and yields different results.
An internal audit gauges how well an organization follows its own internal codes of conduct and formal processes. On the other hand, a compliance audit evaluates how well an organization follows outside laws and regulations in various industries.
