Compliance audits are key to avoiding penalties and reputational damage. We explain the benefits, process, spotting gaps and provide a downloadable compliance audit checklist.
Navigating complex compliance regulations is a challenge, whether you work in a compliance-related team in a large business or it is one of your many responsibilities in a general role in a smaller business.
The most confusing regulations create gaps, leading to unintentional compliance breaches and unintended consequences.
Guide to a compliance audit
- What is compliance?
- What is a compliance audit?
- Why are compliance audits important?
- What are the benefits of compliance audits?
- How do you conduct a compliance audit?
- Where do you find compliance auditing resources?
1. What is compliance?
Most HR professionals and business owners are familiar with the meaning of compliance in business, but it can be a bit of a head-scratcher, and there are occasional grey areas that can lead to inadvertent non-compliance, which has financial and reputational repercussions.
Compliance is all about following rules and staying out of legal hot water. The idea is to ensure your business is doing things correctly, keeping up with industry standards and government requirements. It's all about playing by the book and staying on the right track.
2. What is a compliance audit?
Compliance audits systematically examine an organisation's activities to determine whether they meet all applicable legal requirements and/or internal guidelines, such as corporate bylaws, controls and policies.
The audit report will cover the strength of compliance preparations, security policies, risk management procedures, and user access controls. It will identify any gaps in compliance while making recommendations to resolve potential issues.
3. Why are compliance audits important?
Compliance programmes are constantly in flux as existing rules are updated and new regulations are introduced. Auditing outlines internal business processes that must be changed or improved to ensure compliance with regulations and requirements. Key areas to consider are the security of sensitive data, financial reporting, payroll, HR policies, management standards, and health and safety.
4. What are the benefits of compliance audits?
The key benefit of a compliance audit is the mitigation of risk. You can make changes to avoid their negative consequences by understanding weaknesses in compliance practices and processes.
- Providing a safe working environment and promoting a secure and stress-free workspace
- Preventing penalties and avoiding any legal issues and consequences
- Establishing a good reputation, and gaining public trust, and dominating your industry by staying aligned with industry protocols
- Ensuring continuous operation and avoiding disruptions or cessation of operations.
5. How do you conduct a compliance audit?
A. Decide who will conduct the audit
Your audit needs to involve the right people. The team should include individuals with the necessary knowledge and skills to conduct the audit effectively.
The audit team should be impartial and objective in their findings. Then, you can ensure that senior management receives all the assurance they need to make a truly informed opinion about how well their organisation is run.
You may appoint someone from within your organisation, such as a compliance officer. However, if you work for a smaller business with limited resources, you may choose to engage an independent auditor.
External compliance auditors may work with many assurance providers, including risk management professionals, fraud investigators, quality managers and security experts, to name just a few.
B. Establish the scope of the audit
Audits often begin with a meeting between senior stakeholders and auditors to outline compliance checklists, guidelines and the audit scope.
Be clear about the purpose of the audit. What are you trying to achieve by conducting the audit? First, you need to address some key questions:
- What risks will your audit address?
- What was the outcome of any previous compliance audits?
- Have there been significant changes since the previous audit?
The answers to these questions enable you to create an audit programme outlining the specific procedures to be used to gather evidence and assess compliance.
C. Conduct a risk assessment
Because organisations' appetite for risk differs, auditing techniques have changed from reactive, control-based to proactive, risk-based approaches.
The risk assessment involves identifying the risks to compliance and assessing the likelihood and impact of those risks.
Then the internal auditor can anticipate possible future concerns and opportunities, providing assurance, advice and insight where it is most needed.
D. Review compliance policies, processes & controls
This step involves reviewing policies, procedures, and other records to assess whether they are in compliance with applicable requirements.
Employees and other stakeholders are interviewed to gather information about compliance practices. Then, the auditor needs to test the effectiveness of the organisation's controls to ensure that they prevent, detect, and correct non-compliance.
For instance, an IT department audit may involve interviewing C-suite and IT administrators. Policies regarding access to IT systems would be reviewed, and then stakeholders' practices in allocating, changing and revoking access would be assessed using data and interview responses.
E. Analyse, report & suggest corrective actions
It is important to communicate effectively, keeping management and other stakeholders informed of the progress of the audit.
The compliance auditor must be well-versed in the organisation's strategic objectives and the sector in which it operates. They need a clear understanding of how any given part of the organisation fits into the bigger picture to be able to create effective corrective actions.
The final audit report should be provided to management and other stakeholders. It details areas of non-compliance identified, the root causes and suggests corrective actions to avoid future non-compliance risks.
And remember to follow up on any corrective actions to ensure they have been implemented and are effective.
6. Where do you find compliance auditing resources?
Checklists are a valuable resource in the compliance audit process. They help to benchmark existing processes and reveal any gaps.
Data Protection
Our GDPR self-assessment questionnaire contains 140 checks to help you assess your GDPR compliance effectiveness. Benchmark your existing processes to identify any missing GDPR procedures and controls.
Equality & Diversity
Web Content Accessibility Guidelines (WCAG 2.0) stipulate that e-learning content must be Perceivable, Operable, Understandable and Robust (POUR). Our accessibility checklist details the 60 key checks you need to make.
Financial Crime
Ensure that there are no gaps in your AML processes with the help of our MLRO Responsibilities Checklist detailing key areas of the MLRO's remit.
To reduce the risks of bribery and corruption, our Gifts & Hospitality desk aid will help your employees understand where bribery starts and goodwill ends.
Health & Safety
With hybrid working becoming the norm, staff must comply with the official guidance for working safely under this policy.
And for those working exclusively at home, we have a Working from Home Self Assessment to help ensure your team stays safe, healthy and legally compliant.
Modern Slavery
Large businesses across the UK must carry out the necessary due diligence in their own company and supply chains to help combat modern slavery and human trafficking.
Under Section 54 of the Modern Slavery Act (MSA), companies with an annual turnover of £36m or more must publish a Modern Slavery Act Statement at the end of each financial year, covering their own business and supply chains.
To help, we have a Modern Slavery Audit Checklist.
Risk Management
During times of disruption, it is easy to lose focus, and things slip through the cracks. Our 20-point Compliance Continuity Management checklist covers five critical areas of compliance that need careful consideration.
Beyond compliance, how can you plan ahead to ensure your business-critical functions are resilient to crises like the pandemic? Our Business Continuity Management checklist will help benchmark your crisis planning.
And if your employees travel for business, our Business Travel Risk Assessment contains over 200 checks to ensure they stay safe.
Looking for more compliance insights?
We have created a series of comprehensive roadmaps to help you navigate the compliance landscape, supported by e-learning in our Essentials Library.
We also have additional free resources such as e-learning modules, microlearning modules, and more.
Written by: Emmeline de Chazal
Emmeline is an experienced digital editor and content marketing executive. She has a demonstrated history of working in both the education management and software industries. Emmeline has a degree in business science and her skillset includes Search Engine Optimisation (SEO) and digital marketing analytics. She is passionate about education and utilising her skills to encourage greater access to e-learning.
