A compliance audit is a formal independent evaluation of a company’s procedures, operations and more, to ensure that they adhere to local laws and regulations. As more laws and regulations are introduced, compliance concerns may rise since it can be challenging to fully understand their expectations. A compliance audit can bridge the gaps in understanding and help the business improve its processes to avoid potential consequences.
It is recommended that businesses perform their own review of their current compliance controls on a regular basis. Ultimately, the compliance audit should help companies identify and control risks until only minor risks remain.
Why are compliance audits important?
Beyond ensuring that the business is operating according to laws and regulations, compliance audits can:
- Detect risks
- Improve operational efficiency
- Maintain trust
- Assist in certification
Detect risks
Compliance audits should be able to point out potential weaknesses in a company’s compliance programs, risk controls, data handling and financial reporting. By detecting those risks it will alert the company to take action before they escalate. For example, the company may have poor monitoring of financial activities and records. If it does not take steps to improve its monitoring and review who has access to funds, this may lead to fraud in the longer term.
This can have a snowball effect, as misconduct within the company can lead to legal trouble. A compliance audit can spot these risks and give recommendations for strengthening or implementing controls.
Improve operational efficiency
While conducting a compliance audit, it might be possible to identify inefficiencies in the way that the entity currently operates. Auditors can give suggestions for process improvements or activities that should become redundant. Addressing bottlenecks can be very beneficial as it will reduce costs and improve the productivity of the company.
Conducting a compliance audit can actually save a lot of money. In a survey, it was reported that compliance audits can reduce total compliance costs by $2.86 million.
One of the reasons for this reduction could be that a compliance audit can bring employees along the journey. It can show them that the company takes compliance seriously and encourage them to learn more about how they can contribute to a more efficient and compliant workplace. It can also discourage misconduct as ill-intended individuals see that they will get caught if they try something.
Maintain trust
Conducting a compliance audit can help the company maintain its current reputation with its customers, community and other stakeholders. It shows that the organisation is taking steps to review its compliance and is trying to stay away from negative publicity. If people never hear something negative about an entity’s practices, it is less likely that they will label them as an unethical organisation.
The business also builds and maintains trust with potential investors, who are more likely to trust a company that adheres to laws and regulations.
Assist in certification
Certain certifications require that the business conducts compliance audits. For example, at Polonious we undergo regular compliance audits to maintain our ISO 27001 and ISO 9001 certifications. ISO (International Organization of Standardization) has high standards for compliance, quality and safety, which have been agreed upon by experts. If a company wants to attain an ISO certification, then it needs to highlight that it meets those standards within its operations.
Polonious has maintained its ISO certification for years and we help other companies attain or continue to get re-certified every year.
Types of compliance audits
One audit will not cover everything.
Each country has its own audit requirements but there are some audits like ISO, which are international. ISO certification can be obtained by international companies which means that they will need to comply with its requirements. If a company is interested in getting a certification, an auditor will go through their processes and management systems. ISO compliant and ISO certified are two different things: ISO compliant means that the company has done the work to meet the standards, but has not completed the formal compliance audit. ISO-certified means that the company has gone through a long auditing process by an independent auditor who has evaluated their current business practices.
Other compliance audits include:
- HIPAA (Health Insurance Portability and Accountability Act of 1996)
- Sarbanes-Oxley Act (SOX)
- Medicare compliance audits
- Workplace Health and Safety (WHS) Audits
- Data privacy audit
HIPAA (Health Insurance Portability and Accountability Act of 1996)
In the US, health insurers and healthcare providers have to undergo a compliance audit that oversees how the data of American patients are used, shared and stored. Healthcare and insurance companies need to have strong controls in place that will prevent patient information from getting into the wrong hands. While this is an American audit, the 2023 MediSecure incident in Australia shows how important data storage and protection are.
Sarbanes-Oxley Act (SOX)
In the US, all public companies must comply with the Sarbanes-Oxley Act 2002. The compliance audit that is associated with this act looks at whether a company is adhering to financial reporting standards and expectations around information security.
Medicare compliance audits
These compliance audits oversee whether healthcare clinics and professionals are billing correctly for the services they provide to patients. The audits can uncover whether the patient is the one getting the treatment, whether unnecessary treatments are being billed and if documentation is carried out correctly. While this kind of audit can be random, unusual billing practices can trigger a compliance audit.
Workplace Health and Safety (WHS) Audits
Most countries have work health and safety laws that need to be followed to create and maintain a safe working environment. Failure to adhere to these laws hurts not only employees but also the business. In Australia, the act that must be followed is the Work Health and Safety Act 2011. Compliance audits that are conducted at companies evaluate whether the premises meet the standards required. That could include safety procedures, workplace layout tool organisation, maintenance schedule and training to minimise risk. The riskier the type of work, the more compliance audits are necessary.
Data privacy audit
How many times do you hear about a data breach or a company mishandling customer information for its benefit? Data privacy audits assess how data is collected, processed, and stored at organisations. They check whether there are policies in place that dictate what steps need to be followed and company procedures in relation to data deletion and sharing.
Without data privacy audits, there would be little transparency into how businesses protect their customers.
Is there a difference? Compliance audit vs internal audit
People tend to confuse compliance audits and internal audits because they both essentially look at business compliance. However, the key difference is that an internal audit looks at company policy and procedures rather than external laws and regulations. Internal audits are also less likely to be trusted as they are usually carried out by the business itself.
Compliance audits are performed by external auditors and are more trustworthy by third parties. Along with objectivity, they bring in a fresh pair of eyes and can detect issues the entity may not have noticed before. They evaluate compliance with laws and regulations but also internal policies and procedures. Compliance audits tend to be mandatory in certain industries.
The two complement one another as they build a better culture within the business and emphasise a commitment to operating in a legal and transparent way. Audits also promote accountability and promote improvement. They are both very effective at identifying fraud or other types of misconduct.
Tips for a successful compliance audit
- Try not to hit too many birds with one stone: Set out what you want to achieve through each audit. One audit doesn’t cover all areas.
- Prioritisation at every step: Look at where the most impactful gaps are and try to address them first. Then you can get to less serious ones.
- Plan ahead: Ensure that you are following local laws and regulations and are always thinking of how new changes in legislation can affect the organisation. Attend webinars, check the news or follow social media accounts that are relevant to the business.
- Welcome change: Compliance audits can be great at discovering inefficiencies. If certain suggestions mean an overhaul of current processes, implement the changes gradually.
- Keep an accurate audit trail: Audit trails record the actions that the business has taken, including transactions, user movements, account openings and more. Audit trails can make investigations into a problem easier.
- Employ a reliable case management system: At Polonious, we offer our clients tight process controls and help them document their audit trail, ensuring a hassle-free compliance audit.
We don’t offer our clients anything that we don’t use ourselves. Through our system, we ensure that our compliance meets the highest standards, which helps us pass multiple compliance audits every year. Not only do we keep our certifications, but we also commit to providing our customers with a high-quality system that can address various needs.
If you want to know more about Polonious, book a free demo with one of our helpful experts today. If you want to learn more about audits, consider reading one of our other articles:
How can financial audits help?
Internal vs external audit: Is there a big difference?
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