top of page
Engineers Pointing At Something

COMPLIANCE AUDITS

What is a Compliance Audit?

​​

A compliance audit is an independent review of an organization's adherence to external regulations, industry standards, laws, policies, or contractual obligations. Unlike financial audits, which focus on the accuracy and fairness of financial statements, compliance audits evaluate whether an organization is following the rules, guidelines, and standards that govern its operations.

​

These audits are typically carried out to verify that the organization is operating in line with specific laws, regulations, and contractual requirements relevant to its industry, such as environmental laws, financial regulations, data privacy laws, and labor laws, among others.

Benefits of a Compliance Audit:
  1. Mitigates Legal and Financial Risks:

    • By identifying non-compliance early, compliance audits help organizations avoid legal penalties, fines, and reputational damage that could arise from regulatory violations.

  2. Improves Operational Efficiency:

    • Audits help identify gaps or inefficiencies in internal processes and procedures, leading to improvements in operational performance and cost reductions.

  3. Enhances Reputation and Trust:

    • Being compliant with industry standards and regulations enhances the reputation of the organization, building trust with customers, investors, and regulators.

  4. Supports Better Decision-Making:

    • By providing a clear picture of regulatory compliance, these audits enable senior management to make informed decisions and implement necessary corrective actions or preventive measures.

  5. Preparation for Future Audits or Inspections:

    • Compliance audits prepare the organization for external audits or inspections by regulators, ensuring that they are always in a state of readiness and can demonstrate their adherence to all relevant standards.

Some Specific Client Need:

​​​

"How can I ensure my company is complying &/or improve compliance with pertinent laws, rules, regulations, policies, contracts, standards, tax regulations, and other legal requirements, avoiding penalties or legal issues and costly mistakes?"​

Why Choose Us?

We are committed to driving tangible results for your business. With specialized &/or expert knowledge, skills, competence & experience in Compliance Auditing, our proven track record and dedication to excellence make us the ideal partner for your business needs & requirements.

​

Following are three (3) useful actual STAR Scenarios allowing us to provide clear, concise examples of our expertise, skills, competence & knowledge in action. It demonstrates our problem-solving abilities, highlights our strategic approach, and emphasizes the tangible outcomes of our work. By focusing on real results, we can effectively show you how we turn challenges into opportunities and drive success for our clients. Whether you're looking for increased profits, improved efficiency, risk management, internal controls & business processes, or innovative solutions, the STAR method helps you understand exactly how we deliver value.  You will see more of these as you continue to browse our services and get to know The CFBS Advantage.

​​

In these three (3) STAR Scenarios we demonstrated the following skills, among others: 

Risk Assessment Skills
Internal Controls Evaluation
Audit Planning & Execution
Sampling Techniques
Report Writing & Communication Skills
Teamwork Skills
Leadership Skills
Independence & Objectivity
Analytical & Critical Thinking
Attention to Details
Accounting Principles & Standards
Client Management
Project Management

STAR Scenario #1:
Procurement Process & Compliance Audit of a Power Group of Companies

SITUATION:

Based on risk-based audit planning I conducted, we need to conduct a Procurement Process & Compliance Audit.

TASK:

Audit the Procurement Processes.

ACTION:

1) Perform walk thru of Procurement Processes identifying and documenting risk-control assessment;
2) Identified weaknesses in internal controls and risk exposures recommending appropriate mitigating controls and action plans to take;
3) Perform analytical and substantive tests including test of controls determining adequacy and effectiveness.

RESULTS:

1) On an overall basis, significant weaknesses were noted that could expose the auditable unit to unacceptable levels of risks if left uncorrected.  Likewise, existing practice and/or processes collectively calls for further enhancements and strengthening like implementing the following:

  • For purchasing to revisit lead times & communicate it with end-users/ requestors so they can plan ahead & avoid emergency requests.

  • For the buyer, to (1) always indicate date needed in POs, (2) require requestors to indicate date needed in Purchase Requisition Slip (PRS), and (3) put a date received upon receipt of approved PRS.

  • For purchasing to implement accreditation policy i.e. obtaining vendor accreditation approval from the Group CFO & Executive Directors and have suppliers comply with the requirements as per procurement policy.  For AP Accountants to create suppliers in Oracle base on approved vendor accreditation as per procurement policy.

  • For purchasing to include in Procurement Policy the Policy on Accrediting Suppliers with transactions exceeding P500k via Dun & Bradstreet Philippines Inc. and also the acceptable vendor rate of at least "Fair".

  • For purchasing to conduct a formal performance evaluation of vendors taking inputs from end-users.

2) The uncovered issues and weaknesses in internal controls were discuss with appropriate personnel for execution of appropriate change implementation action plans that were recommended and agreed upon.

STAR Scenario #2: Inventory Returns Business Process & Compliance Audit of a Distribution Company

SITUATION:

As revealed by risk-based audit planning I conducted, we need to conduct an Inventory Returns Business Process & Compliance Review.

TASK:

Audit the inventory returns business processes and determine compliance.

ACTION:

1) Perform walk thru of inventory returns processes identifying and documenting risk-control assessment;
2) Identified weaknesses in internal controls and risk exposures recommending appropriate mitigating controls and action plans to take;
3) Perform analytical and substantive tests including test of controls determining adequacy and effectiveness.

RESULTS:

1) Uncovered internal control weaknesses in inventory returns were:

  • undocumented computerized systems, policies and procedures, 

  • lost monitoring of accountability for returned items, 

  • manual processing and monitoring of returned items, 

  • multiple encoding of same transactions, and 

  • no system approval for Credit Memos (CMs), Customer Return Slip (CRS) and MPOS Amount Validation, among others.

2) The uncovered issues and weaknesses in internal controls were discuss with appropriate personnel for execution of appropriate change implementation action plans that were recommended and agreed upon.

STAR Scenario #3:  Sales Commission Business Process & Compliance Audit of a Distribution Company

SITUATION:

Management requested to conduct an audit of the Sales Commission.

TASK:

Audit the sales commission business processes and determine compliance.

ACTION:

1) Perform walk thru of sales commission processes identifying and documenting risk-control assessment;
2) Identified weaknesses in internal controls and risk exposures recommending appropriate mitigating controls and action plans to take;
3) Perform analytical and substantive tests including test of controls determining adequacy and effectiveness.

RESULTS:

1) Unconvered internal control weaknesses in Sales Commission were:

  • Erroneous computation of sales commission due to outdated system program and human error;

  • Manual processing of sales commission;

  • Undocumented policies and procedures;

  • Long processing of returns; and

  • Collection receipts with pending MPOS

2) The uncovered issues and weaknesses in internal controls were discuss with appropriate personnel for execution of appropriate change implementation action plans that were recommended and agreed upon.

Key Features of a Compliance Audit:

  1. Objective:
    The primary goal of a compliance audit is to determine whether an organization is following the legal and regulatory requirements relevant to its industry and operations. It aims to identify non-compliance and mitigate legal risks.  It also includes assessing the organization's or third parties' compliance with policies, procedures and contracts.

  2. Scope:
    Compliance audits cover a broad spectrum of topics, depending on the organization’s business activities. These could include:

    • Environmental regulations

    • Health and safety laws

    • Data protection and privacy (e.g., DPA, GDPR, HIPAA)

    • Labor and employment laws

    • Tax compliance

    • Industry-specific regulations (e.g., financial regulations for banks, FDA regulations for pharmaceutical companies)

  3. Approach:
    Compliance audits may involve:

    • Reviewing the company’s policies, procedures & contracts.

    • Evaluating internal controls.

    • Interviewing key personnel.

    • Analyzing transactions and documentation.

    • Testing compliance against the laws, regulations, and contracts applicable to the business.

Steps Involved in a Compliance Audit:
  1. Planning & Risk Assessment:

    • Identify Relevant Regulations: The first step is to identify the relevant laws, regulations, and contractual requirements that the organization &/or third parties must comply with.

    • Develop an Audit Plan: The audit plan is crafted based on the identified risks and compliance requirements. This plan outlines which areas will be reviewed and which procedures will be followed.

  2. Document Review:

    • The auditors examine the policies, procedures, and records to assess the organization's compliance efforts. This may include reviewing:

      • Internal manuals and guidelines

      • Contracts and agreements with third parties

      • Employee training and safety records

      • Financial and tax records

      • Correspondence with regulatory bodies

  3. Interviews & Observation:

    • Auditors may conduct interviews with staff members, department heads, and compliance officers to understand how compliance is managed within the organization.

    • Observations of operations, procedures, and controls are made to ensure they align with the documented processes and regulatory requirements.

  4. Testing & Evaluation:

    • Compliance auditors often perform test procedures to verify whether compliance protocols are actually being followed in practice.

      • For example, auditors may sample transactions to verify that they comply with specific industry regulations or review employee training records to ensure that workers are trained on mandatory safety protocols.

  5. Reporting Findings:

    • After the audit is completed, auditors will compile a report detailing their findings.

    • The report typically includes:

      • The scope of the audit

      • An assessment of whether the company is compliant with the regulations.

      • Identified gaps or non-compliance issues.

      • Recommendations for remediation.

  6. Follow-up and Corrective Actions:

    • In many cases, if non-compliance is found, the auditors will recommend corrective actions. This may include implementing new policies, strengthening internal controls, or offering additional staff training.

    • Auditors may also follow up on corrective actions to ensure that issues are addressed properly.

Types of Compliance Audits:
  1. Regulatory Compliance Audits:

    • Focus on ensuring that an organization complies with government regulations and industry-specific standards. Examples include:

      • Environmental compliance (e.g., pollution control laws, waste disposal)

      • Occupational Health and Safety (e.g., OSHA regulations)

      • Financial services compliance (e.g., anti-money laundering laws, securities regulations)

  2. Contractual Compliance Audits:

    • Focus on whether the organization or third party is meeting the terms of contracts with clients, suppliers, or partners.

    • For example, auditors might review a supply chain contract to ensure that the supplier is meeting agreed-upon delivery times, pricing, or product specifications.

  3. Tax Compliance Audits:

    • Ensures that the organization is correctly filing taxes and following tax laws, including corporate income tax, sales tax, payroll taxes, and international tax rules.

  4. Internal Compliance Audits:

    • Conducted internally by the organization’s own audit or compliance department to ensure the business is following its own established policies and procedures.

  5. IT Compliance Audits:

    • Focus on compliance with data protection and privacy laws, such as DPA (Data Privacy Act), GDPR (General Data Protection Regulation) or CCPA (California Consumer Privacy Act).

    • Auditors assess whether the organization's systems, data handling, and security measures comply with relevant standards.

When Are Compliance Audits Required?

  1. Regulatory Mandates: Certain industries require periodic compliance audits by law. For example, healthcare organizations must comply with HIPAA regulations, while financial institutions must adhere to anti-money laundering laws.

  2. Voluntary or Internal Audits: Even in the absence of a legal requirement, organizations may choose to perform compliance audits to ensure they are operating efficiently and are prepared for potential regulatory inspections.

  3. Contractual Obligations: Companies often face compliance audits as part of their agreements with customers or business partners to ensure that they meet contractual terms and conditions.

Summary:

A compliance audit is a vital process that evaluates whether an organization is adhering to external regulations, industry standards, and internal policies. It provides assurance that the company is operating legally, ethically, and in line with its regulatory and contractual obligations. By identifying non-compliance issues early, organizations can avoid legal risks, improve internal processes, and maintain stakeholder trust.

Audit
Why CFBS?

​

CFBS’ Internal Audits provides an independent, objective assurance and consulting activity designed to continuously add value and improve an organization’s operations. We help organization’s accomplish its objectives by bringing a systematic, disciplined approach to continuously evaluate and improve the effectiveness of risk management, control, and governance processes. Our more than fifteen (15) years of experience, professional service practice & recognized excellence, education & training gained from various industries can give you much leverage & advantages.

Continuously improve & reach your objectives in the midst of the ceaseless & speedy changes in market conditions!
Contact us now for a FREE QUOTATION!

We’ll be glad to hear from you, including about your special or customize requirements.

Why CFBS
bottom of page