What is a Compliance Audit? How to Prepare and Avoid Penalties

Compliance is vital for every organization, large or small. Whatever your industry, and whether your business provides products or services, there are certain rules to follow and standards to meet for the business to be successful.

Compliance with rules and regulations is more than a check-box exercise.

It’s an integral part of:

  • Keeping people safe
  • Protecting business and personal data
  • Ensuring all business operations are within the law

 

Failing to meet basic standards can mean big trouble for an organization.

Non-compliance is a costly problem for organizations. Penalties, fines, and lawsuits are all possible consequences of failing to keep up with required standards. Here’s a closer look at compliance auditing and what it means for you and your organization.

A compliance audit is an independent review that checks whether an organization follows all of the standards, rules, regulations, and laws that it’s supposed to.

The audit also checks that you’re doing what you say you do. In other words, the audit reviews whether employees are actually following documented procedures and policies.

Regular compliance audits are key to ensuring all business operations are kept in order.

What is the Difference Between an Internal Audit and a Compliance Audit?

Internal audits and compliance audits are often conflated. But a compliance audit is not the same as an internal audit.

An internal audit checks how well an organization follows its own procedures, policies, and codes of conduct. These audits are carried out internally, often by an in-house compliance auditor (or team of auditors), CTO, CSO, or IT leader. The findings of internal audits are used for identifying areas for improvement and are rarely made public. Despite that, most companies will still follow a formal internal audit methodology.

On the other hand, a compliance audit checks how well an organization follows outside laws, regulations, agreements, and industry standards.

To keep things fair, these audits are usually carried out by independent auditors from outside the organization. The report that comes out of a compliance audit is meant to be shared with stakeholders and regulators for maximum accountability and transparency.

Why are Compliance Audits Necessary?

While preparing for an audit may feel like a pain, compliance audits do have a range of benefits for your organization and customers. For instance, a compliance audit will allow your organization to:

 

  • Identify areas for improvement. Your compliance audit results enable you to identify inconsistencies in policies, processes, and documentation. If an audit uncovers any gaps, the auditor will make recommendations for ways to correct the issues and prevent them in the future.
  • Build a good reputation. Compliance audits ensure that organizations perform their duties up to the industry standards expected. This keeps organizations accountable for maintaining standards of work that their customers can trust.
  • Adapt to changing requirements. The regulatory landscape surrounding compliance is prone to change. Compliance audits ensure that organizations are up to date with the latest rules, regulations, and guidelines that govern their industry. You could miss an update, but an auditor won’t.
  • Ensure business continuity. Non-compliance with regulations can lead to business interruption. Compliance audits are a vital part of risk management as you’ll identify key risks and ensure adequate preventative measures are in place.
  • Prevent penalties or legal trouble. Compliance audits identify nonconformities and areas at risk of non-compliance. If these are caught and corrected before they become a problem, the audit will prevent future penalties, fines, or legal trouble.
 

Is Compliance Auditing Mandatory?

In short, it depends. No organization is immune from audits.

Public and private companies, nonprofits, public authorities, and government departments are all subject to compliance audits of some kind.

However, which audits you must have done depends on the nature and dealings of your organization.

There are compliance audits that cover:

  • Cybersecurity
  • Data protection
  • Health and safety
  • Payroll and HR
  • Environmental impact
  • Quality management
 

Naturally, not all compliance audits will be necessary for all organizations.

Some compliance audits are voluntary. For example, your organization may choose to undergo ISO 9001 certification, an internationally recognized professional standard.

Of course, the business could still operate without it, but having ISO accredited management systems can improve customer confidence and give you an edge over your competitors.

Who Participates in Compliance Audits?

It depends on the type of audit, but the emphasis is commonly put on the company management. After all, management is responsible for guiding everyday behaviors. If employees aren’t compliant with key requirements, it’s usually due to a lack of proper controls and monitoring by management teams.

IT leaders and decision-makers in technical departments have a role to play too, especially if the audit focuses on data security.

Security is a big deal for all organizations as the consequences of a data breach can damage finances and reputation – sometimes irreparably. The average cyberattack costs $200,000, and 60% of small businesses that are victims of a cyberattack go out of business within six months.

This is why the decision-makers behind IT and technical choices are often of keen interest to external auditors.

An Overview of the Compliance Audit Process

There’s no single rule for how a compliance audit should be carried out. The nature of the audit depends on the size of the organization and the industry it sits in, but there are likely to be similarities between different types of audits.

Here is an overview of a typical audit process.

First, your business needs to get in contact with the auditing body and request an audit.

Once a schedule has been set, the auditor will collect evidence to review compliance. The audit may take place over a single day or take weeks (or longer). Most audits will involve some or all of the following processes:

 

  • Reviewing documents, records, procedures, and other proofs of compliance
  • Conducting interviews with employees and management
  • Vising on-site premises to view workspaces, infrastructure, and security features
 

For smaller organizations, this can often be done entirely over the phone or via video call.

Once investigations are complete, the auditor prepares the final report, including details of any nonconformities and recommendations to address them.

The audit report is presented to your organization along with an overview of the expected next steps.

Depending on the level of non-compliance, this could involve advice on fixing gaps in compliance, advice on handling upcoming penalties deemed necessary by regulators, or suggestions for improvements in the future to ensure all standards of compliance are met.

How to Prepare for an Upcoming Compliance Audit

Preparation is key to passing any compliance audit.

As the consequences of non-compliance range from mild inconvenience to fines, penalties, and even lawsuits, it’s not advisable to rush into a compliance audit without making the necessary preparations. If you do, you risk being found unprepared, and open your business up to those risks.

1. Do your research

Every country and jurisdiction has its own regulations and standards that organizations must follow. For example, the EU has different rules and regulations to the US, so depending on where your business and customers are based, you’ll need to carefully review which rules you need to abide by.

Of course, we can’t list every type of compliance audit, but here are some audits that small, medium and large companies in the US may come across.

  • SOC 2: This compliance standard applies to US organizations that use the cloud to store customer data. Tech companies must implement adequate security controls to protect their customers’ private information. The main focuses of SOC 2 compliance audits are security, privacy, confidentiality, availability, and processing integrity.
  • General Data Protection Regulation (GDPR): Any organization that has dealings within the EU must comply with the GDPR to protect their customers’ data. If you offer goods or services to the EU or process data of EU citizens in any way, you must comply with GDPR or face hefty fines of 20 million euros or 4% of global revenue (whichever is higher).
  • Sarbanes-Oxley Act (SOX): SOX compliance audits are mandatory for all public companies in the US. They focus on financial practices, electronic record management, data protection measures, and executive accountability. Payroll, financial records, and IT departments will be looked at in a SOX audit.
  • Payment Card Industry Data Security Standards (PCI DSS): This compliance audit ensures proper security standards are in place to safely handle, manage and store electronic payment information. This audit must be carried out annually if an organization processes over six million credit card transactions per year.
  • Healthcare Insurance Portability and Accountability Act (HIPAA): HIPAA compliance is essential for all US organizations that deal with personal healthcare data. A HIPAA audit checks that an organization is following the required standard for protecting personal healthcare information in how it is used, shared, and stored internally.
  • ISO: The International Organization for Standardization (ISO) works with over 160 countries to regulate industry standards. The aim is to bring all business practices up to the same level. For example, ISO 9001 focuses on quality management principles while ISO 14001 limits environmental impact through waste reduction and efficient supply usage.

The specific requirements for each type of compliance audit differ. The best place to start is to look up which compliance audits apply to your business, and from there, make a compliance audit checklist of everything you need to do to meet the standards for the specific audit you’re carrying out in your organization.

2. Prepare your documentation and proof of compliance

Your organization must have clear documentation and proof of compliance in all areas being audited. Let’s take user access controls to software and third-party apps as an example.

When we asked 100+ IT decision-makers how many tools they use in their organization, over two-thirds told us they use between 26-75 different software tools. It’s a large amount, but hardly surprising — different teams need access to different tools. Individual members of those teams need varying access rights and permissions depending on their role. The bigger your organization, the harder it is to keep tabs on all of this.

If not managed carefully, it won’t be clear who has access to what company and customer data, which is a clear compliance concern — particularly if these tools provide access to sensitive data. A platform such as onetool takes away the need to track each app manually and seamlessly integrates all tools into one view. Onboarding, offboarding, user management, access rights, and permissions can all be easily managed, making it easy to prepare and documentation when it’s time for the audit.

3. Perform an internal review before the compliance audit

Internal audits and compliance audits often go hand in hand. Think of a self-audit as a practice run that helps you catch any problems before the external auditors come in. This way, any compliance gaps can be identified and fixed ahead of time.

You can appoint someone internally to perform the audit or hire an independent compliance officer. Either way, it’s good practice to treat it like the real thing and take it as seriously as you would an external compliance audit.

Fill in all the proper documentation, implement any corrective actions the internal audit findings recommend, and follow-up with your teams to check improvements have had the desired effect.

4. Preparing your employees for audits

Your organization is only as compliant as the people within it. After all, they are the ones carrying out your documented procedures on a day-to-day basis. While an audit should represent business as usual, all employees and management should be ready and know what’s expected of them.

Depending on the type of audit, multiple departments such as finance, IT, sales, and HR may be audited. Auditors may also choose to interview employees at any level of the organization’s hierarchy. Managers and C-suite leaders are often integral to the process, but you should let all members of your team know that they may be interviewed or have their processes audited.

5. Regularly communicate best practices to train your teams

Helping everyone in your organization understand what it means to be compliant demands communication and training from the top down.

Most people won’t know the details of each rule, regulation, and standard they need to adhere to without clear guidance.

To help ensure your team is up-to-date on the standards they should be following, ask these questions:

 

  • Does everyone in the organization know what’s expected of them in terms of compliance and quality?
  • Do your team members have the necessary training?
  • Are your everyday processes compliant with rules and regulations you need to follow?
 

Face-to-face training, on-hand resources, or even online learning modules are all ways you could transfer the required knowledge to your teams. Don’t underestimate having more senior members of staff model best practice and communicate its importance, either.

6. Passing a compliance audit and maintaining standards

If you carry out an audit, that will only represent a snapshot of time. To ensure your organization doesn’t slip up on key standards, you should regularly review your processes.

This will require ongoing monitoring, training, and building standard operating procedures that consider every standard that needs to be followed.

On top of that, regular internal audits throughout the year help you keep on top of your legal obligations. Remember to watch out for updates to regulations, laws, and industry standards too.

While this does demand an investment of time and resources, maintaining high standards year-round is the best way to stay compliant, deliver high standards of service to your customers, and pass your next compliance audit with flying colors.

6. Passing a compliance audit and maintaining standards

To streamline your compliance audits, you can easily manage access to your software and cloud apps containing sensitive information, use onetool.

Our platform is the central place to manage all of your SaaS and software tools.

You can see exactly who has access to which tools, letting you know who has access to valuable customer data. You’ll be able to provision and deprovision employees from your software with a few clicks, improving data security, and ensuring there are never gaps in your security practices.

Using onetool to stay compliant

To streamline your compliance audits, you can easily manage access to your software an monitor all your cloud apps by usíng onetool.

Our platform is the central place to manage all of your SaaS and software tools.

You can see exactly who has access to which tools, letting you know who has access to valuable customer data. You’ll be able to provision and deprovision employees from your software with a few clicks, improving data security, and ensuring there are never gaps in your security practices.

onetool

Closing Thoughts

Compliance audits are an important part of ensuring business continuity. You’ll ensure your company is adhering to the standards you need to in order to avoid financial penalties.

Rather than viewing compliance audits as an annoyance, look at them as an opportunity to improve your processes, upskill your employees, and find areas to improve business performance.

Depending on your industry, customers, and location, you may be subject to different types of audits. To make sure you prepare, you can nominate internal auditors, or, work with an external auditor to help you prepare and identify any blind spots.

As organizations grow, managing compliance can become complex, so it’s something you should be thinking of from day one — or, as soon as you can.

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