What is a compliance audit?
A compliance audit is a comprehensive review of your organization designed to determine if it abides by relevant laws, regulations, and industry guidelines. These assessments are performed by external auditors to ensure that your company is functioning in a legal and ethical way while also making recommendations for achieving better compliance.
What is the difference between a compliance audit and an internal audit?
An internal audit is conducted by individuals who are employed within your organization. Typically, internal audits measure how well a company is meeting its own benchmarks. Internal audits can often take place in preparation for compliance audits.
Compliance audits are conducted by external or third-party auditors. As company outsiders, they provide unbiased information and a fresh perspective. While an internal audit may ensure that your organization’s internal controls are followed, a compliance audit determines whether said internal controls ensure adherence to laws and regulations.
What are the benefits of a compliance audit?
Your organization may benefit from a compliance audit in numerous ways. Here are just a few possibilities:
- Mitigate risk: By identifying gaps in compliance, your organization can avoid potential fines, penalties, legal repercussions, and any resulting blemishes that could harm its public image.
- Increase stakeholder trust: Conducting a compliance audit demonstrates a dedication to regulatory adherence and ethical business practices, boosting stakeholder confidence.
- Enhance compliance efforts: Compliance auditing can shed some light on processes that are ineffectual or obsolete while providing more effective solutions.
- Strengthen safety measures: A compliance audit can ensure that your occupational health and safety policies adhere to laws and regulations, safeguarding your employees and customers.
- Improve environmental protection efforts: These audits can ensure that environmental regulations and laws are being adhered to, offering greater protection to the environment and, subsequently, your company’s public face.
- Prepare for inspections: A compliance audit can enable your company to address areas of non-compliance, making it ready for inspections by regulatory bodies.
- Maintain a stellar image: Exhibiting a commitment to upholding laws and regulations—and avoiding the pitfalls of non-compliance—can greatly enhance your organization’s reputation and brand image and decrease reputational risk.
What does a compliance audit entail?
A compliance audit involves the following steps:
- Choosing your auditor: The entire process begins with your organization selecting a compliance auditor familiar with your industry.
- Preparing for the audit: The compliance auditors and representatives from your organization will meet. The auditors will discuss the scope of the audit, present a compliance checklist, and provide you with a list of the evidence and documents required.
- Reviewing and testing: The auditors will review documents, employee performance, processes, and internal controls to ensure compliance. They may interview or shadow team members or observe entire processes from beginning to end.
- Creating the compliance report: Once the compliance audit is complete, the auditors will generate a final report providing your organization with their findings, including an assessment of your company’s level of compliance, areas that need to be improved, violations, and recommendations. Usually, the auditors will assist an organization in addressing potential risks and confirm that violations have been remediated.
How can your organization prepare for a compliance audit?
If you’ve decided your organization could benefit from a compliance audit, you may be wondering what happens now. There are steps you can take before initiating a compliance audit to ensure that your company is prepared.
Assess your company’s risk
The first step is to perform a risk assessment to identify areas within your organization that are potential threats to compliance. Pinpoint areas that pose the highest risk and the greatest possible impact on your company and prioritize these. It is also wise to examine previous internal or external audits to ensure that past problems have been fully resolved.
Mitigate risks
Once you’ve identified potential risks, it’s time to create and establish controls designed to correct potential problems. Prioritize your corrective actions based on urgency and the potential for negative impacts. Get the right people on board to execute these solutions promptly and efficiently. And take any necessary steps to train or retrain team members.
You may also wish to implement a compliance management system. This valuable tool brings all of your organization’s processes, systems, policies, applicable laws and regulations, and licences and certifications together to ensure its compliance.
Create a paper trail
It is now time to compile any documentation that reflects your organization’s compliance with regulations and laws. This includes a record of your policies and procedures, training materials, employee logs, meeting minutes, previous internal audit and compliance audit reports, and any other documents that illustrate compliance efforts.
Perform internal audits
Conducting an internal audit can serve as a type of “dress rehearsal” for an external compliance audit. By thoroughly combing through your organization’s policies, processes, and systems, you can more readily identify areas that require improvements. Furthermore, you can ensure these changes are in place and well-established before embarking on a compliance audit.
Prepare your team
Be open and honest when it comes to informing your team members about an upcoming compliance audit. Let them know they may be interviewed or shadowed by auditors, especially those with expertise in key areas. Ensure that your employees adhere to requisite policies and procedures, offering refresher courses and retraining as necessary.
Take care of logistics
If your auditors are performing an onsite audit, you will need to ensure that they have somewhere to work. You will also need to identify team members who possess expertise in relevant areas and have employee interviewees schedule time to respond to auditor questions.
What are some examples of industry-specific compliance audits?
While most compliance audits undertaken by Canadian organizations take a comprehensive look at an organization as a whole, some are more focused and industry-specific. Here are some examples of specialized audits:
- Charities Directorate: In order to protect the interests of Canadian donors and ensure that Canada’s charities are trustworthy, the Charities Directorate monitors and audits their compliance with Canada Revenue Agency’s Income Tax Act.
- Employment Equity Act: The Canadian Human Rights Commission performs compliance audits—typically at companies with 500 or more employees—to ensure compliance with the Employment Equity Act and that you are maintaining equal employment opportunities.
- Environmental audits: These audits ensure that organizations adhere to the legal and regulatory requirements. According to Environment and Climate Change Canada, these audits are performed on a voluntary basis.
- Non-governmental organizations (NGO): The Department of Justice provides funding to several NGOs who, in turn, provide services to communities. These contributions can be audited to ensure that the NGO is complying with the terms outlined in the agreement.
- Notice of Compliance (NOC): Health Canada explains that pharmaceutical manufacturers must demonstrate compliance to Food and Drug Regulations before receiving an NOC.
- Procurement Strategy for Indigenous Business (PSIB) audit: Indigenous Services Canada performs these audits to ensure businesses that are listed in the Indigenous Business Directory or receive contracts under the PSIB are eligible to do so.
While a compliance audit may seem like a massive undertaking, it has the potential to protect your organization from possible fines, legal repercussions, and harm to its reputation. By following a few actionable steps, you can prepare to undertake this endeavour and safeguard the future of your company and its employees.
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