Compliance Audit: What It Is, What It Comprises & In What Areas It Can Be Applied

The compliance audit is the appropriate formula to evaluate and verify that an organization complies with all its voluntary or regulatory obligations. Compliance is important to organizations for two reasons: the financial impact of non-compliance and the need to protect the reputation and brand equity.

Talking about assessing compliance involves considering too many areas. A total compliance audit could be endless if the magnifying glass is not put on strategic critical points.

Verifying compliance with the ISO 37301 compliance standard should be a way to indirectly check compliance in all fields. But senior management or regulators are likely to demand a timely approach to certain areas. That’s why it’s so important to understand what a compliance audit is, what its purpose is, and what the priority areas to evaluate are.

What is a compliance audit?

The compliance audit is an evaluative inspection that looks for irrefutable evidence that an organization is meeting all of its obligations.

These obligations may be internal, external, voluntary or regulatory. But, in addition to the nature of the obligation, it is necessary to consider that these commitments or duties are related to a wide number of areas: legal, financial, fiscal, environmental, Quality, Human Resources, commercial …

People have a common idea in mind about what an audit is: a stern, serious inspector looking for evidence that something very bad has happened. This is not the case with compliance auditing.

It is, on the contrary, a friendly exercise that seeks to give peace of mind to the organization, its regulators, its partners and its Senior Management. But, above all, compliance auditing is today an essential tool, within a GRC management model – Governance, Risk and Compliance -, in which clearly, compliance is one of the three pillars that sustain it.

The compliance audit is valid evidence to demonstrate to a government agency or regulatory body, that the organization designs and implements effective controls and that it has published and communicated policies in which it declares its commitment to the fulfillment of all its obligations, in all fields.

What is compliance auditing for?

Not all compliance audits pursue the same goals. Some are general, others specific. A compliance audit can be restricted to a specific area or some defined process.

The origin of the audit also affects its purpose. We basically find compliance audits:

1. Internal

Internal audits can have scope on internal or external obligations of the organization. Likewise, they can be carried out by professionals employed by the organization or external consultants. The character of “internal” is provided by the autonomous and own decision of the organization to carry it out.00

An internal compliance audit can be performed for several reasons:

• Check the effectiveness of specific controls.
• Verify compliance with defined obligations.
• Respond to the recommendation of another auditor, internal or external.
• Comply with an audit program.
• Address an obvious problem.
• Verify the efficiency of a Management System in preparation for a certification audit.
• Check the result of a corrective action recommended or requested by a previous audit, whether compliance or otherwise.

2. Compliance audit

When this is expressed, reference is made to a comprehensive, total evaluation that addresses all areas, all departments and all levels of the organization.

3. Specific audits

A specific audit responds to an obvious need, which may be the result of an ongoing investigation or a problem that has already manifested itself as a violation, a call from a regulatory body or the imposition of a fine or sanction.

4. External or certification audits

The usual reason for ordering, and admitting, an external compliance audit is to obtain certification of a program or Compliance System. But an external audit can also be submitted in response to a request from a regulatory body, investor, customer or other interested party.

In what areas can a compliance audit be applied?

Compliance audits, particularly internal ones, can address any area of the organization. As noted above, even the audit can be limited to one process.

In many cases, the compliance audit is associated with verifying compliance with a standard, regulation or law. Some of the most representative areas are:

1. Financial

Usually required by entities of the financial sector, potential partners or investors, government entities or recommended by the accounting and financial area of the organization.

2. Social responsibility

They are mandatory for organizations that adopt ESG management criteria – Environment, Social Responsibility and Corporate Governance -. It is a type of audit that can have scope on areas such as Safety and Health at Work or Environmental Management.

3. Occupational Safety and Health

Auditors seek to verify compliance with the ISO 45001 management standard, but also with the legislation that applies to the organization according to its industry and with the commitments it has made with associations such as unions or other groups of workers.

4. Data protection

In addition to well-being and reputation protection, a compliance audit in this area seeks to ensure and verify compliance with regulations as strict as GDPR, in the case of Europe, or its analogues in other regions of the world.

5. Human Resources

Although it addresses the field of occupational health, it is also responsible for verifying compliance with legal and social obligations, particularly those applicable in terms of working hours, training, vacations and minimum wages, in force in the country.

6. Tax

The compliance audit in the fiscal and tax area has a special relevance: infractions in this area can lead to interruptions of activity, criminal sanctions for managers, very high sanctions and even closure of the operation.

7. Information Security

Among those that have the greatest impact to safeguard and protect the reputation of the organization is undoubtedly the compliance audit of the information security management system.

8. Best practices

Ethics and best business or management practices are also under the control of compliance management. This is a sensitive area for organizations that have adopted the GRC model.

9. Environment

It is also a critical area for ESG organizations and those that have implemented the ISO 14001 standard. Even without these obligations, for some industries it is a requirement to obtain operating licenses.

10. Anti-corruption management

This guide ends sensitive areas in a compliance audit, with anti-corruption management that, in many points, finds common interests with compliance management, particularly for organizations that have implemented ISO 37301 and ISO 37001.