15 February 2019
All businesses face the challenge of maintaining healthy compliance records. Overwhelmingly, companies invest time and resources to stay within the regulatory boundaries of their industry. But, as regulations shift or the company expands into unfamiliar jurisdictions, even organizations with the best of intentions can sometimes fall short of their compliance obligations. Businesses can lose sight of where their company stands in relationship to the pressures of various compliance initiatives. As a corrective to this, audit compliance reports help examine an organization’s compliance environment and suggest avenues for improvement.
A compliance audit is a process of comprehensive reviews that focus on an organization’s commitment to a set of regulatory guidelines or its adherence to specific obligations within a contract or terms of agreement. Audit compliance reports can reveal potentially troublesome areas that might expose the organization to the risk of fines or litigation. If an auditor determines that rules are being violated or neglected, the auditor is then in the position to determine the cause of the violation and recommend ways to prevent future problems.
Audit Compliance Report Process
The process of conducting a compliance audit will depend, in part, on whether the report is being developed for an external or internal reader.
External auditors are typically connected to a regulatory agency such as the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA) or the Internal Revenue Service (IRS). Their involvement in an audit process is usually part of a larger review that may determine whether a company faces fines, sanctions or other penalties surrounding compliance measures. A thorough compliance report indicates that the organization is operating in good faith and may sway a regulatory board to work with the company toward remediation.
Internal auditors may include a wide variety of people. For example, it is not uncommon for an organization to hire a certified public accountant if finances are involved, an IT consultant if the audit revolves around data usage or a cybersecurity professional if the issues concern security measures. Internal audits may also be conducted by an employee in the company, provided he or she has expertise in both the business operation under review and the regulations or mandates involved in the compliance initiative. It is mandatory that the auditor be thoroughly acquainted with the policies and standards being reviewed, be able to recognize when a deviation has occurred and understand how to evaluate evidence gleaned from compliance tests. Additionally, the auditor must be aware of the degree of deviation from standards considered tolerable by the audit sponsor.
Before the audit begins, auditors typically meet with both parties listed in the contract or terms of agreement. At this time, the scope of the audit is reviewed and agreed upon. The scope sets useful constraints on the audit; for example, it might delineate precisely which processes and activities are under review and set up the time and location in which the audit will occur.
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4 Steps in Compiling a Compliance Audit Report
Once the compliance audit has been conducted, the findings need to be communicated to regulatory agencies, boards of directors or other departments within the organization. External reports intended for oversight agencies may have varying mandatory requirements, but the basics of the report are as follows:
Step #1: Identify the Auditors
Provide background information on the auditors, whether those persons be company employees or consultants called in specifically for this report. Foremost among your purposes for this section of the report is to establish the auditors’ authority and professional expertise. Readers need to know what qualifies them to make informed judgments on the compliance initiatives.
Step #2: Specify the Logistics of the Audit
In this portion of the report, the auditors need to give a clear and thorough accounting of the audit itself. What processes or activities were examined? What checklists or guidelines were used as measurements? What were the times and locations of the auditors’ inspections? If statistical sampling techniques were used in compiling the results of the report, auditors need to explain those techniques and account for any possible variations. In short, this is where auditors establish the criteria of the audit.
Step #3: Present the Findings of the Audit
This section includes an executive summary of the audit’s findings. It should present overall conclusions and recommendations based on the audit’s purpose and logistics. Within this summary, it is useful to address the condition, cause and effect of the audited processes. The condition describes whether or not the processes or activities meet compliance obligations. The cause determines the reasons for the process’s success or failure. The effect extrapolates the impact the conditions have on the organization. This may include loss of revenue, disruption of workflow or risk of litigation.
Step #4: Recommend Improvements
While it is not the auditors’ duty to solve the organization’s compliance issues, it is standard for the report to provide useful recommendations for moving forward. Advice for strengthening compliance protocols and concrete steps that might be taken to reduce deviations are all included within this section of the report.
Turning an Audit Into Action
Responses to an audit compliance report can be hard to predict. External audits may require the company to change its practices or face legal penalties. In such cases, change can be rapid and sweeping. In other instances, particularly in response to an internal audit, management and the board have the option to make policy changes or not. If action is taken, management has the responsibility to gauge progress on the matter and ultimately assure that conditions have improved. If management chooses not to act, internal auditors have the responsibility to determine whether management and the board understand and assume the risks of inaction.
Technology Facilitates Compliance Audits
Regulatory compliance is an operational reality for organizations of all sizes. Maintaining the company’s good standing in compliance issues protects you and your employees from allegations of fraud and criminal wrongdoing while ensuring a safe and ethical work environment. Compliance audit reporting is one more way to gauge your organization’s effectiveness and better prepare it for further success. If you have further questions about compliance audit reporting, please contact a Blueprint representative.