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Compliance audit
A compliance audit is an independent, systematic review of an organization’s procedures, records, and operations to ensure adherence to external laws, regulations, industry standards, and internal policies. It identifies non-compliance gaps, assesses control effectiveness, and recommends improvements to mitigate risks, bolster security, and build trust with stakeholders. Compliance may be internal as well as external.
Compliance audits may be planned, performed and reported separately to the Board, senior management or Regulators. The compliance audit is completely different from the audit of financial statements and from performance audits. The compliance audits may be conducted separately on a regular basis, as distinct and clearly-defined audits each related to a specific subject matter.
The Compliance audit is the independent assessment of whether a given subject matter is in compliance with applicable authorities identified as criteria. Compliance audits are carried out by assessing whether activities, financial transactions and information comply in all material respects, with the authorities who govern the audited entity.
Compliance auditing may be concerned with-
- Regulatory - adherence of the subject matter to the formal criteria emanating from relevant laws, regulations and agreements applicable to the entity.
- Propriety - observance of the general principles governing sound financial management and the ethical conduct of public officials.
Objectives
The following are the objects of the compliance audit-
- Contracting and Procurement;
- To verify whether procurement was carried out as per extant rules and in accordance with delegated financial powers;
- To verify whether financial propriety was ensured during the stages of tendering, evaluation and award of contract;
- In case of Plant efficiency-
- To verify whether the usage of power, fuel are as per approved norms;
- To verify whether plant shutdowns are as per approved norms;
- To verify whether plant shutdowns are as per approved norms;
- To verify whether the production is as per the prescribed scale;
- To verify whether the installed capacity of the plant is designed as per regulatory approvals;
- To verify whether the operation of plant complies with environmental norms.
- Corporate Social Responsibility-
- To verify whether corporate social responsibility framework is as per regulatory approvals;
- To verify whether activities of corporate social responsibility are as per corporate policy;
- To verify whether the corporate policy is in consonance with relevant regulations and DPE guidelines.
Performers of compliance audit
A compliance auditor is a professional responsible for making sure that an organization adheres to external regulatory requirements and internal policies. Their role is crucial in various sectors such as healthcare, finance, manufacturing, and more. Compliance auditors evaluate a business’s practices and processes and if they are aligned to regulatory requirements. They also identify potential risks and areas of non-compliance and provide the final certification or attestation, confirming that a business meets the required regulatory standards.
Compliance auditors conduct thorough audits, identify areas of non-compliance, recommend corrective actions, monitor changes, and report findings for compliance.
A compliance auditor assesses, analyzes, and reports on compliance-related risks, missing or inefficient controls, and sets standardized processes. Their day-to-day activities can be summarized as per the following responsibilities-
- Audits are one of the key responsibilities of compliance auditors. They assess whether all your policies and procedures comply with relevant laws, regulations, and industry standards while checking all security controls.
- During audits, auditors also discover issues and incompetencies. They review documentation, interview staff, and observe operations to uncover areas of non-compliance that need addressing.
- After conducting audits, auditors provide recommendations for corrective actions. Here, they need to work closely with the management team to implement necessary changes to improve compliance.
- Identifying issues is not the end. They also track the implementation of compliance programs and monitor the effectiveness of controls over time. This is continued with regular follow-ups with the organization.
- Reporting is done hand-in-hand during audits, along with the organization’s help. These reports usually contain all the documents of their findings, along with compliance issues, measures to resolve them, controls implemented, etc.
Involvement of compliance audit
The Compliance audit involves the following-
- Setting up systems to track compliance indicators;
- Reviewing the processes and controls regularly;
- Conducting both internal and external compliance audits;
- Analyzing trends and patterns in the data.
Types of audit
Compliance auditors can work across different industries, each requires specific knowledge and skills. Some common types of compliances are as below-
- Financial compliance;
- Health care compliance;
- Environmental compliance;
- Data Security compliance;
- Corporate Governance compliance.
Importance of Compliance Audit
- It reduces legal risk;
- It enhances of the reputation of the entity;
- It prevents fraud;
- It improves efficiency;
- It boosts customer trust.
Skills required for Compliance Auditor
- Analytical thinking;
- Attention to detail;
- Communication skills;
- Problem solving abilities;
- Technical expertise.
Future of compliance audit
- Digital compliance tools;
- Cyber security regulations;
- Environmental and ESG Audits;
- Global compliance standards.
Conclusion
Compliance audits may be planned, performed and reported on separately from the audit of financial statements and from performance audits. Such audits may be conducted separately on a regular basis, as distinct and clearly-defined audits each related to a specific subject matter.
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