Conducting internal compliance audits is an important part of an organization’s governance, risk, and compliance (GRC) program, but the process can be quite demanding. It’s common for internal teams to feel overwhelmed by numerous manual verification tasks and limited regulatory expertise for navigating a corresponding audit.
According to IIA’s 2022 Premier Global Research, 54% of audit executives outsource or co-source internal audits, mainly because of the extensive technical knowledge required. The knowledge gap aside, audits from a compliance perspective also call for robust reporting processes to meet the needs of different stakeholders, such as upper management and security teams.
This guide will help you explore efficient ways to deal with all the intricacies of an internal compliance audit. You’ll learn about:
- Definition and importance of internal compliance audits.
- Key elements — or the five Cs — of such audits.
- Steps for conducting an effective internal compliance audit.
What is an internal compliance audit?
An internal compliance audit is a formal evaluation of an organization’s adherence to applicable regulatory standards and frameworks. Its objective is to detect non-compliance risks and implement corrective action. It gives compliance and management teams a clinical overview of the organization’s internal controls, policies, and procedures, as well as their efficacy and alignment with relevant compliances.
Unlike external compliance audits, which are often mandatory for certification, internal audits are typically voluntary. Still, they’re an essential component of successful compliance management because they help uncover potential regulatory violations and operational inefficiencies that might harm an organization’s performance and reputation.
Other derived benefits of well-executed internal compliance audits are:
- Decreased exposure to legal, security compliance, and other risks.
- Increased stakeholder confidence due to transparent audits.
- Visibility into continuous compliance through a trail of reports.
- Cost savings due to the discovery and removal of redundant practices.
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Who performs an internal audit?
Internal compliance audits are typically performed by internal auditors employed by the organization or outsourced for the job.
In-house internal audit teams typically also include internal compliance officers who offer the necessary technical insights to the auditors. However, it's ideal not to have many overlapping members between your audit and compliance teams for the sake of integrity. If you don’t have the in-house expertise to guide a compliance audit, you can hire an external auditor with specialization in your desired compliance space to come in and do the job.
By contrast, external audits are always performed by independent auditors outside the organization. They can also be experts from the governing bodies in charge of specific regulations — for instance, the Department of Health and Human Services' Office for Civil Rights (OCR) conduct external HIPAA compliance audits.
The five Cs of internal compliance audits
An internal compliance audit is considered effective if it’s designed to address key elements — also referred to as the five-Cs framework. These five Cs standardize the data presented in various types of internal audit reports (operational, financial, etc.). Here’s what they imply for compliance audits:
- Criteria: Explains which controls, standards, or policies are to be met.
- Condition: Outlines the potential risks due to non-compliance, as well as the issues to be identified and how they relate to the organization’s expectations.
- Cause: Highlights the root cause of the issues/risks (e.g., broken policies, procedural issues, etc.).
- Consequence: Predicts the outcome of the identified issues unless they’re remediated.
- Corrective action: Suggests the best path forward and specifies any concrete actions that should be taken to fix the issue, and by when.
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How to conduct an internal compliance audit in 4 steps
The internal compliance audit process can be split into four broad steps:
- Preparation
- Execution
- Data analysis
- Reporting
Each stage involves specific actions you should take, which we’ll cover in more detail below.
Step 1: Preparation
Before you schedule an internal compliance audit, you need to define its objectives and scope and prepare a checklist accordingly. When outlining the scope, consider all the processes that need to be audited and their corresponding departments. Because of the technicalities involved, you should seek the expertise of compliance officers for this step.
Next, you should assemble the internal audit team and create a checklist addressing all the relevant matters and specifying actions to be completed. For example, if you’re auditing for GDPR compliance, a sample checklist can include the following items:
- Review the data security and processing activities.
- Check the integrity of stored data.
- Evaluate the consent mechanisms to access data.
- Review the actions taken after a data breach (if any).
- Examine the availability and quality of employee training.
- Determine if a data protection impact assessment (DPIA) is required.
For extensive compliance audits demanding granular clarity, your checklist will likely be split into several categories with focused action items.
After creating the checklist, put together a compliance audit calendar and share it with relevant parties. You’ll also define the frequency at which the audit will be performed, as well as the standard operating procedures (SOPs) to be followed.
Preparing for an internal compliance audit requires a collaborative effort, so prioritizing clear communication is crucial. Notify everyone involved in the audit of their roles and responsibilities, most notably:
- Top-level management
- Department heads
- Participating employees
Step 2: Execution
Internal compliance audits are mainly initiated through data collection techniques.
Your audit team should ideally start with indirect documentation and evidence-gathering to limit operational disruptions. This entails reviewing control policies, flowcharts, and existing documentation to collect the data that will later be turned into actionable insights.
Disparate systems and manual data processing can make this step quite challenging. Your team often has to dig through scattered data points, take screenshots, and request references to gather relevant evidence. Internal auditors also need to navigate time-consuming and inefficient tasks like working in spreadsheets and conducting asynchronous verifications via email.
To overcome these issues, it’s best to implement a robust automation-enabled compliance management system that centralizes data and gives everyone faster access to information. With automation, you can ensure repetitive data gathering tasks run on autopilot, which helps your internal audit team complete audits faster.
After gathering the necessary documentation, internal auditors can move on to the more direct assessments, such as:
- Fieldwork compliance procedure checks
- Employee interviews
- Physical process assessments
You need to plan such activities carefully to ensure your operations don’t suffer from significant delays and interferences. Make sure to notify employees of interviews so they can plan ahead, and have to-the-point questionnaires ready beforehand.
Step 3: Data analysis
Once you’ve performed assessments and collected the necessary data, it’s time to turn it into insights and document your observations. Your audit team may categorize observations according to their impact on your compliance posture. While they can define compliance risk categories at their own discretion, it’s good to have at least three levels:
- Critical
- Notable
- Minor
The auditors will then compare their observations to predefined control directives to get a precise overview of the compliance status. Based on the number and severity of observations, the status can be:
- Full compliance
- Partial compliance
- Non-compliance
Once the insights are in, the auditors form their final opinion (favorable, modified, qualified, etc.). They may suggest corrective action to bring the organization closer to full compliance.
Step 4: Reporting
The last stage of your internal compliance audit involves the preparation of the final report covering the five Cs discussed earlier. While the structure can differ depending on the audit’s scope and objectives, a typical report should contain the following elements:
- Scope: Lists all the systems and processes audited, as well as the departments or specific team members interviewed.
- Methodology/process review: Outlines everything you’ve done during the execution stage, including fieldwork checks, data collection, and procedure reviews.
- Key observations and findings: Offers an objective summary of all observations, as well as different categories of risks impacting your compliance posture.
- Next steps: Suggests a formalized plan of action based on the audit outcomes.
You need to share the finalized report with stakeholders so that they can analyze it and use it to make compliance-specific decisions.
In some cases, you may not want to create the final report immediately due to concerns about the analyzed data. The best practice here is to first submit an interim report to the relevant authority within your organization and then prepare the final report based on their recommendation.
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Importance of ongoing monitoring to support auditing processes
Internal audits should be a recurring part of your compliance program. Once an audit is completed, you’ll need to monitor any new controls that have been implemented, as well as build upon your work to achieve and maintain compliance. Typically, the next audit can be scheduled in 3–12 months, depending on your reported compliance status.
The downside of ongoing monitoring and regular internal compliance audits is that you need to repeat the same time-consuming processes over and over again, which can exhaust your team and demand lots of resources, especially if you’re handling everything through manual systems.
A much better alternative is to ensure ongoing monitoring through an automated GRC management system. You can find many reliable tools on the market to automate different aspects of your audit and compliance workflows, such as:
- Documentation and evidence-gathering
- Employee interviews
- Data analysis
With the right platform, you may not even need to commission expensive teams to review your compliance posture. Many tools come with built-in checklists to help you monitor your compliance status in real time and implement controls and corrections effortlessly.
Conduct effective internal compliance audits with Vanta
Vanta is an all-in-one GRC management solution that automates the key aspects of internal compliance audits, as well as related security processes. It comes with pre-built content and workflows for 20+ major standards and a dedicated Audit Page for compliance audits.
If you’re pursuing any certifications or preparing for audits, the platform will expedite the process by helping you test your systems and ensure necessary controls are in place. You can also use the platform’s Trust Center to showcase your compliance posture and demonstrate trust to all relevant stakeholders.
Here are some Vanta features you can use to further simplify your audit and compliance tasks:
- Centralized documentation: Vanta offers a pre-built checklist of documents/evidence for frameworks like ISO 27001 and SOC 2 and also lets you create your own. You can import audit data from various sources using 300+ integrations and even auto-generate compliance documents directly on the platform.
- Live inventory management: You can list hardware, software, and custom assets effortlessly and let Vanta pre-populate your lists by automatically pulling data from connected services, enabling shorter and more efficient audit cycles.
- Automated tests: Vanta lets you run automated tests to give you real-time visibility of your controls. Your audit team can access automated questionnaires for interviews and instantly extract findings with Vanta AI.
Vanta helps build tailored GRC programs for organizations based on their growth stage. Go ahead and schedule a custom demo to explore your favorite features in action.
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Compliance
A guide to conducting an internal compliance audit for better governance
Compliance
Conducting internal compliance audits is an important part of an organization’s governance, risk, and compliance (GRC) program, but the process can be quite demanding. It’s common for internal teams to feel overwhelmed by numerous manual verification tasks and limited regulatory expertise for navigating a corresponding audit.
According to IIA’s 2022 Premier Global Research, 54% of audit executives outsource or co-source internal audits, mainly because of the extensive technical knowledge required. The knowledge gap aside, audits from a compliance perspective also call for robust reporting processes to meet the needs of different stakeholders, such as upper management and security teams.
This guide will help you explore efficient ways to deal with all the intricacies of an internal compliance audit. You’ll learn about:
- Definition and importance of internal compliance audits.
- Key elements — or the five Cs — of such audits.
- Steps for conducting an effective internal compliance audit.
What is an internal compliance audit?
An internal compliance audit is a formal evaluation of an organization’s adherence to applicable regulatory standards and frameworks. Its objective is to detect non-compliance risks and implement corrective action. It gives compliance and management teams a clinical overview of the organization’s internal controls, policies, and procedures, as well as their efficacy and alignment with relevant compliances.
Unlike external compliance audits, which are often mandatory for certification, internal audits are typically voluntary. Still, they’re an essential component of successful compliance management because they help uncover potential regulatory violations and operational inefficiencies that might harm an organization’s performance and reputation.
Other derived benefits of well-executed internal compliance audits are:
- Decreased exposure to legal, security compliance, and other risks.
- Increased stakeholder confidence due to transparent audits.
- Visibility into continuous compliance through a trail of reports.
- Cost savings due to the discovery and removal of redundant practices.
{{cta_withimage3="/cta-modules"}}
Who performs an internal audit?
Internal compliance audits are typically performed by internal auditors employed by the organization or outsourced for the job.
In-house internal audit teams typically also include internal compliance officers who offer the necessary technical insights to the auditors. However, it's ideal not to have many overlapping members between your audit and compliance teams for the sake of integrity. If you don’t have the in-house expertise to guide a compliance audit, you can hire an external auditor with specialization in your desired compliance space to come in and do the job.
By contrast, external audits are always performed by independent auditors outside the organization. They can also be experts from the governing bodies in charge of specific regulations — for instance, the Department of Health and Human Services' Office for Civil Rights (OCR) conduct external HIPAA compliance audits.
The five Cs of internal compliance audits
An internal compliance audit is considered effective if it’s designed to address key elements — also referred to as the five-Cs framework. These five Cs standardize the data presented in various types of internal audit reports (operational, financial, etc.). Here’s what they imply for compliance audits:
- Criteria: Explains which controls, standards, or policies are to be met.
- Condition: Outlines the potential risks due to non-compliance, as well as the issues to be identified and how they relate to the organization’s expectations.
- Cause: Highlights the root cause of the issues/risks (e.g., broken policies, procedural issues, etc.).
- Consequence: Predicts the outcome of the identified issues unless they’re remediated.
- Corrective action: Suggests the best path forward and specifies any concrete actions that should be taken to fix the issue, and by when.
{{cta_withimage8="/cta-modules"}}
How to conduct an internal compliance audit in 4 steps
The internal compliance audit process can be split into four broad steps:
- Preparation
- Execution
- Data analysis
- Reporting
Each stage involves specific actions you should take, which we’ll cover in more detail below.
Step 1: Preparation
Before you schedule an internal compliance audit, you need to define its objectives and scope and prepare a checklist accordingly. When outlining the scope, consider all the processes that need to be audited and their corresponding departments. Because of the technicalities involved, you should seek the expertise of compliance officers for this step.
Next, you should assemble the internal audit team and create a checklist addressing all the relevant matters and specifying actions to be completed. For example, if you’re auditing for GDPR compliance, a sample checklist can include the following items:
- Review the data security and processing activities.
- Check the integrity of stored data.
- Evaluate the consent mechanisms to access data.
- Review the actions taken after a data breach (if any).
- Examine the availability and quality of employee training.
- Determine if a data protection impact assessment (DPIA) is required.
For extensive compliance audits demanding granular clarity, your checklist will likely be split into several categories with focused action items.
After creating the checklist, put together a compliance audit calendar and share it with relevant parties. You’ll also define the frequency at which the audit will be performed, as well as the standard operating procedures (SOPs) to be followed.
Preparing for an internal compliance audit requires a collaborative effort, so prioritizing clear communication is crucial. Notify everyone involved in the audit of their roles and responsibilities, most notably:
- Top-level management
- Department heads
- Participating employees
Step 2: Execution
Internal compliance audits are mainly initiated through data collection techniques.
Your audit team should ideally start with indirect documentation and evidence-gathering to limit operational disruptions. This entails reviewing control policies, flowcharts, and existing documentation to collect the data that will later be turned into actionable insights.
Disparate systems and manual data processing can make this step quite challenging. Your team often has to dig through scattered data points, take screenshots, and request references to gather relevant evidence. Internal auditors also need to navigate time-consuming and inefficient tasks like working in spreadsheets and conducting asynchronous verifications via email.
To overcome these issues, it’s best to implement a robust automation-enabled compliance management system that centralizes data and gives everyone faster access to information. With automation, you can ensure repetitive data gathering tasks run on autopilot, which helps your internal audit team complete audits faster.
After gathering the necessary documentation, internal auditors can move on to the more direct assessments, such as:
- Fieldwork compliance procedure checks
- Employee interviews
- Physical process assessments
You need to plan such activities carefully to ensure your operations don’t suffer from significant delays and interferences. Make sure to notify employees of interviews so they can plan ahead, and have to-the-point questionnaires ready beforehand.
Step 3: Data analysis
Once you’ve performed assessments and collected the necessary data, it’s time to turn it into insights and document your observations. Your audit team may categorize observations according to their impact on your compliance posture. While they can define compliance risk categories at their own discretion, it’s good to have at least three levels:
- Critical
- Notable
- Minor
The auditors will then compare their observations to predefined control directives to get a precise overview of the compliance status. Based on the number and severity of observations, the status can be:
- Full compliance
- Partial compliance
- Non-compliance
Once the insights are in, the auditors form their final opinion (favorable, modified, qualified, etc.). They may suggest corrective action to bring the organization closer to full compliance.
Step 4: Reporting
The last stage of your internal compliance audit involves the preparation of the final report covering the five Cs discussed earlier. While the structure can differ depending on the audit’s scope and objectives, a typical report should contain the following elements:
- Scope: Lists all the systems and processes audited, as well as the departments or specific team members interviewed.
- Methodology/process review: Outlines everything you’ve done during the execution stage, including fieldwork checks, data collection, and procedure reviews.
- Key observations and findings: Offers an objective summary of all observations, as well as different categories of risks impacting your compliance posture.
- Next steps: Suggests a formalized plan of action based on the audit outcomes.
You need to share the finalized report with stakeholders so that they can analyze it and use it to make compliance-specific decisions.
In some cases, you may not want to create the final report immediately due to concerns about the analyzed data. The best practice here is to first submit an interim report to the relevant authority within your organization and then prepare the final report based on their recommendation.
{{cta_webinar1="/cta-modules"}}
Importance of ongoing monitoring to support auditing processes
Internal audits should be a recurring part of your compliance program. Once an audit is completed, you’ll need to monitor any new controls that have been implemented, as well as build upon your work to achieve and maintain compliance. Typically, the next audit can be scheduled in 3–12 months, depending on your reported compliance status.
The downside of ongoing monitoring and regular internal compliance audits is that you need to repeat the same time-consuming processes over and over again, which can exhaust your team and demand lots of resources, especially if you’re handling everything through manual systems.
A much better alternative is to ensure ongoing monitoring through an automated GRC management system. You can find many reliable tools on the market to automate different aspects of your audit and compliance workflows, such as:
- Documentation and evidence-gathering
- Employee interviews
- Data analysis
With the right platform, you may not even need to commission expensive teams to review your compliance posture. Many tools come with built-in checklists to help you monitor your compliance status in real time and implement controls and corrections effortlessly.
Conduct effective internal compliance audits with Vanta
Vanta is an all-in-one GRC management solution that automates the key aspects of internal compliance audits, as well as related security processes. It comes with pre-built content and workflows for 20+ major standards and a dedicated Audit Page for compliance audits.
If you’re pursuing any certifications or preparing for audits, the platform will expedite the process by helping you test your systems and ensure necessary controls are in place. You can also use the platform’s Trust Center to showcase your compliance posture and demonstrate trust to all relevant stakeholders.
Here are some Vanta features you can use to further simplify your audit and compliance tasks:
- Centralized documentation: Vanta offers a pre-built checklist of documents/evidence for frameworks like ISO 27001 and SOC 2 and also lets you create your own. You can import audit data from various sources using 300+ integrations and even auto-generate compliance documents directly on the platform.
- Live inventory management: You can list hardware, software, and custom assets effortlessly and let Vanta pre-populate your lists by automatically pulling data from connected services, enabling shorter and more efficient audit cycles.
- Automated tests: Vanta lets you run automated tests to give you real-time visibility of your controls. Your audit team can access automated questionnaires for interviews and instantly extract findings with Vanta AI.
Vanta helps build tailored GRC programs for organizations based on their growth stage. Go ahead and schedule a custom demo to explore your favorite features in action.
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| Role: | GRC responsibilities: |
|---|---|
| Board of directors | Central to the overarching GRC strategy, this group sets the direction for the compliance strategy. They determine which standards and regulations are necessary for compliance and align the GRC strategy with business objectives. |
| Chief financial officer | Primary responsibility for the success of the GRC program and for reporting results to the board. |
| Operations managers from relevant departments | This group owns processes. They are responsible for the success and direction of risk management and compliance within their departments. |
| Representatives from relevant departments | These are the activity owners. These team members are responsible for carrying out specific compliance and risk management tasks within their departments and for integrating these tasks into their workflows. |
| Contract managers from relevant department | These team members are responsible for managing interactions with vendors and other third parties in their department to ensure all risk management and compliance measures are being taken. |
| Chief information security officer (CISO) | Defines the organization’s information security policy, designs risk and vulnerability assessments, and develops information security policies. |
| Data protection officer (DPO) or legal counsel | Develops goals for data privacy based on legal regulations and other compliance needs, designs and implements privacy policies and practices, and assesses these practices for effectiveness. |
| GRC lead | Responsible for overseeing the execution of the GRC program in collaboration with the executive team as well as maintaining the organization’s library of security controls. |
| Cybersecurity analyst(s) | Implements and monitors cybersecurity measures that are in line with the GRC program and business objectives. |
| Compliance analyst(s) | Monitors the organization’s compliance with all regulations and standards necessary, identifies any compliance gaps, and works to mitigate them. |
| Risk analyst(s) | Carries out the risk management program for the organization and serves as a resource for risk management across various departments, including identifying, mitigating, and monitoring risks. |
| IT security specialist(s) | Implements security controls within the IT system in coordination with the cybersecurity analyst(s). |
Explore more GRC articles
Introduction to GRC
Implementing a GRC program
Optimizing a GRC program
Governance
Risk
Compliance
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