Compliance Auditing: What it is and Why it’s Important
Compliance auditing is the process of evaluating an organization’s adherence to legal, regulatory, and internal policy requirements. The primary objective of compliance auditing is to ensure that organizations are operating within the bounds of applicable laws and regulations, as well as established internal governance frameworks.
There are numerous reasons why compliance auditing is important to organizations. Compliance failures can lead to costly fines, legal liability, damage to reputation, and loss of customer trust. Effective compliance auditing helps organizations identify and mitigate risks to their reputation, bottom line, and operations.
In this article, we’ll explore the key principles and concepts related to compliance auditing, including the regulatory framework, audit process, reporting requirements, and best practices. We’ll also look at the latest trends and governmental resources that can be used to help organizations effectively assess compliance.
Regulatory Framework
Compliance auditing is a critical aspect of the regulatory framework for most industries. Regulatory compliance refers to an organization’s adherence to the rules and regulations that govern their operations. The regulatory framework varies depending on the industry. However, there are a few regulatory requirements that are universal across all industries.
The most universal regulatory compliance requirement is the need to comply with Federal and State laws. There are strict laws and regulations established by Federal and State governments that organizations need to abide by. These are governing bodies that have a strong regulatory framework in place to ensure that organizations are in compliance with established laws and regulations. Compliance with these laws is the main requirement for any organization that operates in the United States.
Another important regulatory requirement is the need to adhere to industry-specific regulations. For example, healthcare providers need to comply with HIPAA, which governs the security and privacy of personal health information. Financial institutions need to comply with anti-money laundering regulations and cybersecurity requirements established by government bodies such as the Financial Crimes Enforcement Network (FinCEN) and the National Institute of Standards and Technology (NIST).
Audit Process
The audit process is the backbone of compliance auditing. The audit process serves as a systematic review of the compliance of an organization. The audit process typically follows these steps:
1. Preparing the Audit Plan
The auditor prepares an audit plan that details the objectives, scope, and methodology of the audit. The plan includes a checklist of the compliance requirements that need to be evaluated.
2. Conducting the Audit
The auditor assesses the organization’s compliance with the requirements in the audit plan. This involves reviewing documents, interviewing employees, and observing processes to understand the organization’s practices and potential compliance gaps.
3. Audit Reporting
After the audit is completed, the auditor prepares a report that details the findings of the audit. The report includes an assessment of the organization’s compliance posture, identifies areas of non-compliance, and recommends corrective actions to address identified issues.
4. Corrective Actions
The organization addresses the findings reported by the auditor. The corrective actions are designed to remediate the non-compliant practices, and ensure that the organization is fully compliant with applicable laws and regulations.
Reporting Requirements
The reporting requirements of a compliance audit are governed by various regulatory agencies. Organizations need to report the results of their compliance audits to regulatory agencies such as SEC, CMS, and OCR, to name a few. Reporting requirements will vary depending on the laws and regulations that apply to the organization.
It is critical for organizations to properly report the results of their compliance audits to avoid any legal repercussions. Non-reporting or inaccurate reporting can result in hefty fines and penalties from regulatory authorities.
Best Practices
Effective compliance auditing requires organizations to adopt best practices. Here are some key best practices organizations can use to ensure effective compliance auditing:
1. Establishing A Compliance Culture
Organizations should establish a corporate culture that prioritizes compliance as a core value. A strong culture of compliance can significantly reduce the likelihood of a breach or non-compliance. This can be achieved by creating a compliance training program for employees and highlighting the importance of compliance in all organizational communications.
2. Internal Controls And Risk Management
Effective internal controls help ensure that organizational processes are consistent, and compliance risk is minimized. Organizations should adopt an effective risk management framework that identifies potential compliance risks and establishes mitigation measures.
3. Outsourcing Compliance Auditing
Outsourcing compliance auditing can be an effective strategy for organizations. By outsourcing to a compliance auditing firm, organizations can leverage the expertise of the firm’s auditors and tap into their knowledge of industry-specific regulations.
Latest Trends and Governmental Resources
Compliance auditing is an ever-evolving area of business. Regulatory bodies are continuously updating and introducing new laws and regulations. Keeping abreast of these changes and identifying best practices is critical for compliance auditing.
The United States Government has various resources that organizations can use to ensure effective compliance auditing. Here are some of the government resources that can be used:
1. The Security Exchange Commission (SEC)
The SEC is responsible for enforcing federal securities laws. The SEC provides guidance to organizations and sets out compliance requirements for various regulations, such as those governing cybersecurity.
2. The Department of Health and Human Services (HHS)
The HHS oversees OCR, which is responsible for enforcing HIPAA regulations. HHS maintains a wealth of resources on HIPAA, including the Privacy Rule, Security Rule, and Breach Notification Rule.
3. The Department of Justice (DOJ)
The DOJ enforces a wide variety of regulations, including the Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign officials. The DOJ offers guidance on FCPA compliance, including best practices for due diligence.
Conclusion
Compliance auditing is a critical component of any organization’s operations. By understanding the regulatory framework, audit process, reporting requirements, and best practices, organizations can ensure effective compliance and reduce the risk of non-compliance. The use of governmental resources and staying abreast of the latest trends is crucial for maintaining an effective compliance program. Thus, organizations should remain proactive in adopting best practices and ensuring compliance with all relevant laws and regulations.
Compliance auditing is done to receive a comprehensive understanding and documentation of whether or not a company is following set guidelines. During an audit compliance auditors will review security policies, risk management procedures, and user access controls.
Many aspects of a company can cause the compliance auditing to vary such as: if a company is public verses private, what type of work is done within the company, and if finical data is transmitted or stored within the company.
During an audit compliance, auditors will ask questions to determine who has started working with the company as well as who no longer works there, as well as if these individuals still have access to any files or if their ID’s were revoked upon them leaving the company.
Compliance auditing may also include using the use of computer software to determine any changes in the computer systems as well as to help track all documentations of the company.
An IT audit, or an information technology audit, generally goes hand in hand with audit compliance. During an IT audit, an auditor will examine the computers of a company to help determine if the company is safeguarding assets, maintain data integrity, and operating properly to obtain to goals of the company.
An IT audit is commonly referred to as and automated data processing audit.  Since both compliance auditing and an IT audit deal with accessing a company’s computer information and files, it is vital for companies who rely on computer technology to undergo in either of these if need be.
