A compliance audit is a review performed to ascertain an enterprise’s adherence to regulatory requirements. The audit evaluates the strength and comprehensiveness of an organization’s compliance preparations, security policies, user access controls, and risk management procedures. It results in a final audit report, which stakeholders can read.
How Important is a Compliance Audit?
Compliance audits are crucial to assure that a company is abiding by external rules, regulations, policies, and procedures while accurately tracking how private information, such as protected health information (PHI), is stored and secured.
Healthcare organizations are required to adhere to strict security measures and remain compliant with the Health Insurance Portability and Accountability Act (HIPAA), where compliance audits are required. Retailers working with credit card data must comply with the Payment Card Industry Data Security Standard (PCI DSS), where compliance audits are also required for businesses with large volumes of credit card transactions.
Without such audits, organizations can be in violation of their compliance duties. That might lead to regulatory enforcement, including monetary penalties; or to loss of certain business privileges, such as the right to process credit card transactions.
Who Can Perform a Compliance Audit?
A company’s employees, such as an internal auditor, may perform internal audits to identify the overall risks to compliance management and security. They also can determine whether the company is following internal controls and guidelines, such as corporate bylaws, policies, and procedures.
Company executives can use the reports generated by these internal audits, performed throughout the fiscal year, to detect shortcomings in their regulatory compliance processes and determine areas that require improvement or corrective action.
External audits, on the other hand, are formal compliance audits performed by independent companies. These audits follow specific formats based on the compliance programs that are being assessed. Depending on the scope of the audit, external audit reports gauge whether an enterprise complies with federal, state, or corporate regulations and standards. Certified public accountants are often compliance auditors.
Regulators routinely use an auditor’s report to assess possible fines for noncompliance. Executives use the reports to prove that their organizations are complying with regulations.
The information gleaned from a compliance audit may also help organizations reduce risk and avoid possible federal fines or legal problems associated with noncompliance.
What is the Objective of a Compliance Audit?
The objective of a compliance audit is to assess an organization’s adherence to laws, norms, internal bylaws, and codes of behavior. The efficacy of an organization’s internal controls may also be examined as part of an audit. Multiple departments may use various audit types. For example, the accounting department might use internal, compliance, and operational audits. In addition, different tiers of government may demand audits such as:
Although some people mix up the concepts of internal audits and compliance audits (which often employ staff from an internal audit team), these two types of audits reflect distinct methodologies. Internal audits assure that a company adheres to its internal controls, including its policies, processes, and standards.
Unlike internal audits, compliance audits focus on the outside world, checking that the business conforms to laws or norms of behavior. Ideally, internal and compliance audit operations will use the same terminology (and even software) to assure thorough and consistent evaluations.
Operational audits assess the effectiveness and efficiency of various departments and operations to see whether those teams are carrying out the organization’s goals and objectives in a sufficient manner.
What are the Types of Compliance Audits?
Many compliance audits look at technical, financial, operational, and cybersecurity issues. Some of the more well-known compliance audits include:
HIPAA (Health Insurance Portability and Accountability Act)
The Health Insurance Portability and Accountability Act (HIPAA) set guidelines for the privacy and security of personally identifiable information. In addition, HIPAA imposes restrictions on employer-sponsored group health plans, insurance companies, and health maintenance organizations and protects people who change jobs, are self-employed, or have previous medical problems.
To protect cardholders’ private information and boost the security of transactions made with credit, debit, and cash cards, the Payment Card Industry Data Security Standard (PCI DSS) spells out security controls to keep payment card data secure.
SOC 2 audits are used to assess the cybersecurity of service providers such as data storage firms, payroll processors, law firms, or others that might provide services to corporate organizations. They are based on the Trust Services Criteria developed by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA).
The SOC 2’s objective is to assess an organization’s information systems regarding security, accessibility, processing integrity, confidentiality, and privacy.
SOX (Sarbanes-Oxley Act)
In reaction to many accounting scandals in the early 2000s, the Sarbanes-Oxley Act (SOX) was passed in 2002 with backing from both parties in Congress. Its goals were to enhance auditing and public transparency. The law requires large publicly traded companies to have annual external audits of their internal controls over financial reporting.
How Often Should Compliance Audits be Performed?
Different compliance audits can happen on different schedules. SOX audits, for example, are annual exercises. Other audits might happen every few years, depending on what regulations and laws require for the audit. A company can also carry out audits more frequently than required, if it wants to do so.
RiskOptics ROAR is the Compliance Solution for Businesses
The compliance workflow management system from RiskOptics ROAR is an intuitive, simple-to-use platform that helps compliance and audit teams manage their duties – which are often far too onerous to manage with spreadsheets and manual processes.
The RiskOptics ROAR Platform provides a single dashboard that displays your control efficacy in real-time, to keep your documentation simple. Recording and correcting activities also help you to develop an audit trail by supporting your responses to auditor inquiries.
By delivering the necessary documentation and accelerating internal and external stakeholder contacts, ROAR’s single source of information platform may reduce the need for follow-up requests from external auditors.
Schedule a demo to learn more about how ROAR assists companies with compliance management.