Compliance auditing is an integral part of corporate governance. However, with corporate hierarchies and business structures becoming so complex, the question arises of how to maintain an organization's compliance with applicable laws? More importantly, how to conduct a successful corporate compliance audit that considers all compliance risk areas and appropriate policies?
The answer depends on various factors such as the 's compliance standards, legal action plans, and each department's own compliance policies.
In this article, I'll give a full breakdown of the ideal compliance audit, as well as the necessary steps to take when building a regulatory compliance program.
Let's get into it.
What is a Corporate Compliance Audit [A 2021 Overview]
Basically, a compliance audit is an evaluation that finds out whether a is following both internal, as well as, state, and federal laws and regulations.
These laws could relate to multiple areas, such as recruitment, operational procedures, transactions, mergers, etc.
For example, healthcare providers have to adhere to the Health Insurance Portability and Accountability Act (HIPAA) that protects the data of patients from being lost or unfairly traded.
Generally, compliance audits are carried out by regulatory agencies that send over compliance auditors. External audits are usually performed after contacting the internal compliance department.
On the other hand, internal audits are performed by the 's own compliance officers who act as internal auditors and observe all departments for compliance issue risk assessment.
Different companies have different regulatory requirements. Auditing success really depends on their approach to the perfect corporate compliance program.
How to Conduct a Corporate Compliance Audit in 2021
The nature of the compliance audit function depends on the size, scope of the , as well as the industry in which it operates.
However, there are some steps that are constant across most audit types, internal or otherwise.
Here is a step-by-step guide to performing a corporate compliance audit in 2021.
1. Hiring/Contacting the Auditor(s)
The first step is to contact the auditor and schedule the audit for a certain date.
Whether the auditor is a consultant or an in-house member of a compliance committee, they need to be kept at a figurative distance from the inner workings of the . this is to ensure an impartial evaluation.
In case you're contacting a consultant or external compliance team, you need to discuss the extent of the auditing needs to determine whether the individual fits the evaluation needs of the .
2. Building Legal Safeguards
Once you have hired or confirmed an auditor, they will send a proposal to either the 's legal counsel or the internal legal officer.
This is to remind them of instances where they may invoke legal privilege between the attorney and the client.
The reason for this step is to alert the auditor of details that may result in financial losses for the , should they have to undergo corrective action due to noncompliance.
3. Preliminary Meetings
After the legal necessities have been discussed, the auditors will either meet with the representatives or forward them a list of requirements for the audit.
In case the auditing party has confirmed the specific evaluation needs of the beforehand, they will prepare an auditing checklist and discuss the requirements with the concerned party.
This is done to allow management to get their affairs in order before the audit. It's important to note that this level of allowance will mostly be given for internal audits, as government authorities usually don't send repeated follow-ups for confirmation.
4. Performing the Audit
Depending on the size and evaluation requirements of the , the auditor will then perform an audit via phone/video call, or in person.
In the case of a virtual assessment, the auditor will send various questionnaires and required document lists to the management, which they then supply as per the demands.
When conducting an in-person audit, the auditor might do the above in addition to visiting the facility, conducting a visual inspection of the , and even interview the staff to gauge the prevalent code of conduct.
The extent of the evaluation is always up to the auditor and they may change the nature of the audit depending on the viability of each method.
5. Providing Audit Reports
Once they have covered all the relevant areas in the assessment, the auditor generates an audit report and presents it during a final meeting.
If the compliance audit covers just the facility, then the turnaround time of the report should be 1-2 business days. Full-scale audits may take longer to conduct and generate reports for.
During the final meeting, the auditor will discuss the compliance status of the with the senior management and any and all legal/regulatory risks the might face. Additionally, they might offer risk management assistance, in case the needs post-audit follow-up support.
Whether the compliance audit is purely internal or in accordance with government standards, management needs to ensure consistent compliance regardless.
The leadership needs to develop effective internal controls and compliance functions, while also providing compliance training to all concerned parties to prevent noncompliance.
7 Components of a Successful Corporate Compliance Audit
Compliance auditing can be a complex process, especially for bigger companies with multiple sites and a wide array of operations.
Today, when companies are diversifying operations and have to comply with so many regulations, there is a chance that in an effort to be totally compliant, they may overlook one or more key legal areas.
This creates the need for companies to upgrade their compliance methodology and implement a few best practices that will help them become more compliant.
Here are some of the considerations all companies should make in order to become more compliant and pass any audit, no matter how detailed.
- Knowledge of Operations: The management should know the extent of their operations and should know the legal risks they might face in case of noncompliance. Being honest about the compliance requirements will help the implement long-term compliance measures and contingency plans for any eventuality.
- Active Compliance Management: It's not enough to form an internal audit committee and leave compliance management to them. Instead, the management should take an active role in ensuring compliance across the board. Furthermore, they should develop compliance plans and provide continued compliance training for all employees.
- Developing a Compliance Culture: Becoming compliant starts with adopting a culture that runs on the ideals of accountability and integrity. Management should instill values and a code of ethics that prevents noncompliant activities from the start. Furthermore, they should implement incentive programs for anyone who successfully follows the compliance culture.
- Training for Compliance: The compliance requirements shouldn't just exist within the operational level. Management needs to train even high-level employees on compliant practices when implementing operational changes or putting mergers/transactions into effect. Additionally, they should have an onboarding plan that includes dedicated compliance training for all employees.
- Establishing a Compliance System: Compliance can't be maintained by simply changing things around after a risk assessment session. There needs to an effective compliance management system in place to prevent, identify, and rectify compliance risks before they become full-fledged legal issues.
- Extensive Preparation: Auditing can involve both written questionnaires and in-person inspections, interviews, and observation. Gauge the evaluation needs of your and prepare in advance by selecting participants, setting expectations, and providing adequate reference criteria to meet the requirements.
- Setting Controls: Even if you have prepared for the audit, chances are it might reveal some vulnerabilities and legal risks. To counter that, develop an audit control plan with contingencies and risk-aversion strategies for each perceived risk. Additionally, conduct regular internal audits to identify risk areas in order to develop contingencies for them.
Furthermore, companies should set up compliance management systems as per legal guidelines such as the United States Sarbanes-Oxley Act and other state-level regulations. This will help them prepare for more stringent audits by government entities.
A corporate compliance audit can help companies prevent serious legal repercussions from multiple authorities.
However, management should always look towards more proactive noncompliance-prevention methods such as periodic internal auditing and inspections.
In conclusion, it's better to breed a culture of active compliance and ensure that each employee adopts it as best as they can.