Although people occasionally mention that “an apple a day keeps the doctor away,” this well-known proverb unfortunately doesn’t apply, and it’s best practice to schedule an annual checkup. Whether you’re a newborn getting screened for weight or an adult being tested for a genetic disease, you often undergo intense scrutiny at the doctor’s office. From head to toe, you are examined and then deemed either fit as a fiddle or in poor health. Depending on the results of the checkup, you may be prescribed a treatment plan. 

A compliance audit is like the business version of a health checkup. But, while it is entirely at your discretion whether you follow the doctor’s advice, organizations that conduct business are obliged to comply with the law after a compliance audit. The purpose of conducting these audits is to verify that a company adheres to various regulations and standards set forth by the industry they are in. 

In this article, we will learn all about the compliance audit process and how businesses should use it to maintain a favorable reputation and avoid landing on the wrong side of the law.

What are compliance audits?

Are you following or breaking all the rules? Your business can find out by conducting a compliance audit, which is essentially a systematic examination of your processes, procedures, and controls. Unlike internal audits that evaluate whether your organization follows its own code of conduct and procedures, the goal of a compliance audit is to determine if you are adhering to certain laws, regulations, and industry best practices. 

If you pass the audit, you can use the results to show your investors and customers that your organization operates ethically and responsibly. You can even use the audit as a way to boost your internal controls and risk management processes, as this process typically highlights your company’s potential weaknesses and vulnerabilities. 

However, if red flags come up during the audit, be aware that you may be slapped with costly penalties and lawsuits. Government agencies that performed your audit can even flag your company for being problematic, which can erode your business reputation. 

The role of compliance auditors

Before we get into the different types of compliance audits and the step-by-step process, let’s discuss how compliance auditors help companies meet legal and regulatory requirements. 

First, compliance auditors need to be efficient and detailed planners. Because these audits can be complex, auditors are responsible for developing a strategic audit plan, deciding on the scope of the audit, and choosing appropriate audit techniques. Remember, every policy, procedure, and piece of documentation will need to be examined against the backdrop of the rules and regulations governing that specific company’s industry. Being thorough helps with flagging risks and deficiencies, as these items need to be dealt with as soon as possible.  

Also, compliance auditors must be superior communicators who can explain their recommendations and findings to the managers and relevant stakeholders. It’s important they are able to prepare concise audit reports that highlight areas of non-compliance and offer suggestions for remediation. When it comes to interacting with employees, compliance auditors need to educate and train staff on compliance-related matters. This means pointing out the laws, regulations, and industry standards to be abided by, to avoid rocking the boat. 

Audit documents and materials laying on a white table
Photo by Kelly Sikkema on Unsplash

Types of compliance audits

Compliance audits can be conducted internally or by external third-party auditors. Let’s go over these differences so that you know how to implement your compliance programs.

Internal compliance audits

Internal auditors or compliance officers are employees within an organization who must conduct an internal compliance audit. They are insiders who have exclusive access to your company’s operations and culture because they also happen to be employed by you. Using this knowledge, auditors can run a more tailored evaluation of compliance risks and controls, saving valuable time and money.

During an internal compliance audit, documentation is reviewed, employees are interviewed, and data is gathered and analyzed to get a big-picture idea of the company’s compliance practices. If there are any visible gaps or weaknesses, auditors can hold meetings and training workshops with the staff to give them a brief rundown of the situation. 

External compliance audits

As for external compliance audits, these are conducted by independent auditors who do not work for the organization being audited. They are typically employees at certified public accounting or specialized compliance consulting firms. The benefit of having these people conduct your company audit lies in the fact that they will not be influenced by internal office politics or biases as an internal employee might. Moreover, their lack of a conflict of interest can offer your business a fresh perspective on how you can improve against industry standards.

During an external compliance audit, the company in question is approached with intense scrutiny, but not necessarily suspicion. Similar to internal audits, policies, procedures, and any relevant documentation will be reviewed to determine compliance with applicable laws, regulations, and industry standards. The internal controls and risk management processes are also assessed, to see if there is anything that can be done differently in the future.

The compliance audit process

It’s time to look into the various stages of the compliance audit process. Let’s dive in now!

1. Complete pre-audit activities

Before the audit begins, auditors must complete several tasks to gather information and assess the organization’s compliance risks. 

First, they must closely study the legal framework and regulations that govern the company’s specific industry. Getting up to speed with this information makes it easier for auditors to flag potential compliance risks and focus on the most glaring issues. 

Then, auditors must interview the managers and key personnel to learn more about the company’s compliance culture and internal controls. The goal of these pre-audit activities is to gain a holistic view of the business’s compliance framework before beginning the actual audit.

2. Conduct the audit

After preparing for the audit, it’s time to execute it. Auditors will look over every single policy, procedure, and control to evaluate whether any rules have been broken. They are well within their rights to perform sample testing to validate compliance and hold interviews to determine if there are any holes in the compliance framework. 

Using their working knowledge of the rules and industry best practices from the pre-audit activities, auditors will mark down any evidence of non-compliance or risk.

3. Complete post-audit tasks

To wrap up, auditors need to compile their findings and prepare a comprehensive report. They will include sections for areas of non-compliance, weaknesses in controls, and recommendations for improvement. 

This report is then shared with management and investors, who can work together to develop action plans that address the identified issues. Auditors may follow up with the company later on to confirm that it’s implementing remedial actions. After all, compliance auditing is not a one-time thing that should be forgotten after it occurs. 

Woman standing and pointing to visuals on a board
Photo by Christina @ on Unsplash

Challenges in compliance auditing

If perfection existed, everything would be running smoothly 24/7. Since this is not reality, it is no surprise that compliance auditing can be particularly difficult at times. Let’s discuss some common challenges. 

  • Limited resources and time constraints make it difficult to properly evaluate all aspects of an organization’s compliance practices. 
  • Complex and ever-changing regulations can confuse auditors, who may have to unlearn old rules and apply new ones when auditing. 
  • Uncooperative employees can slow down the audit process, making it challenging to gather the necessary information and evidence.

Potential solutions

While compliance audit challenges are inevitable, there are several things your company can do to work around these issues. 

  • Effective planning and resource allocation help ensure audits are comprehensive and conducted within the set time frame. 
  • Regular monitoring and continuous education on regulatory changes prevent companies from falling behind when compliance requirements change.
  • Establish a positive and open compliance culture to bring your staff to the other side. After all, getting your employees on board will make it much easier to carry out compliance audits. 

Use Wrike to navigate the world of compliance audits

Compliance audits can bring up uncertainty and anxiety, especially when your finances and reputation are on the line. There’s nothing to worry about because Wrike can help you manage your audit processes, maintain compliance, and uphold your business integrity.

Your friend when it comes to all things compliance auditing, Wrike provides users with several important features. These include: 

Screenshot of Wrike locked space

If you want to take on compliance audits with confidence and keep your business out of trouble, you’re in the right spot. Start your free trial of Wrike today.

Note: This article was created with the assistance of an AI engine. It has been reviewed and revised by our team of experts to ensure accuracy and quality.