Any successful business will have a selection of codes of conduct, guidelines and internal controls in place that organise and define the inner workings of a business, in accordance with the externally set requirements to operate the business. Although most of these are up to the decision-making of CEOs and business owners, there are predominantly driven by some standards which are enforced by regulations put in place by the government or other organisations for different industries.
These standards are set in the law, and therefore any business that is found to be in breach of these compliances could face legal consequences.
A compliance audit is an independent investigation into whether a company is following these legal or regulatory standards through an analysis of its policies, processes, procedures, documentation, systems and files to ascertain if the company is acting within the regulations set for its industry.
Compliance audits vs Internal audits
It is important to remember that although similar in principle, an internal audit and a compliance audit are not the same things.
An internal audit works to determine if a business is complying with its own codes of conduct, and does not always need an independent third-party auditor to prove that a company is compliant. Additionally, it should be noted that the results of an internal audit are not shared with the public.
A compliance audit, however, is checking if that business is complying with external government-set regulations. While compliance audits are legal investigations, an internal audit may be used to prepare a business for an upcoming compliance audit and identify any areas that require improvement to allow the business time to implement any changes required in advance of the compliance audit.
Why are compliance audits necessary?
Compliance audits are necessary because they ensure fair and safe practices in all businesses. It means that a company is forced to look at more than just profits and be strict on the inner goings-on in the company. Bank organisations and other partners, such as card schemes, often require a copy of recent audit report for the purpose of their due diligence.
Compliance regulations are necessary for all businesses to ensure a safe working environment and legal practice for all companies, and compliance audits are necessary to prove that businesses are adhering to these regulations. Compliance audits in certain areas (for example financial crime audit) are often requested by banking and other partners, such as card schemes.
Compliance audits are not designed to punish businesses instead they are meant to serve as a motivation for businesses to adhere to certain standards in the interests of the company as a whole, including employers, employees and any entities which interact with a company on any level.
Although different industries will each have different compliance standards, all compliance regulations are working to serve one of the following functions:
- Outline sufficient policies and procedures
- Ensure compliance with regulatory, legal or other requirements
- Protect the security of sensitive personal information
- Outline proper management standards
- Ensure proper health and safety in the workplace
- Taxation purposes
- Supervise user access controls
- Ensure environmental protection standards
What is the procedure for compliance audits?
Compliance audits can either be commissioned by regulatory bodies if they are looking to investigate a compliance disagreement, or else the company itself can get in touch with an external compliance auditor to hire their services. If a company is being investigated by a regulatory body, the regulator will either send their own compliance auditors or require the business to hire an independent third-party auditor.
Once both the auditor and the company have agreed to carry out the audit it is important to schedule a preliminary meeting with both parties to outline the regulations for the audit. This can include the scope of the audit as well as any documentation or data that the auditor may require to allow the business to begin preparations.
Some businesses are able to carry out a compliance audit remotely by answering questions to fill out a compliance questionnaire and providing any required documents under what is commonly known as RFI (Request For Information).
Where a virtual/remote audit is not possible or is not considered appropriate, the compliance auditor will be required to visit the premises of the business to properly investigate its internal controls, the building and infrastructure, and the working environment and then carry out any required interviews.
After the compliance audit is finalised, the auditor will be required to present their findings in a report which will outline any areas that the company has done well, as well as any areas that the company failed. The auditor will then recommend steps that the business can take to ensure future compliance.
Businesses are recommended to begin corrective measures within the first 120 days of the report being released. A business that waits too long could face non-compliance penalties if another audit is carried out.
Contact Neopay today to gain a better understanding of compliance audits and how we can help you.