Understanding The Different Types Of Compliance Audits

Compliance audits are silent sentinels, your guardians of integrity in a world where trust is currency. Far from being mere bureaucratic exercises, these audits serve as vital tools for risk management, operational efficiency, and maintaining stakeholder trust.

From the rigorous scrutiny of financial compliance audits to the meticulous examination of data protection in privacy audits, different types of compliance audits serve a distinct purpose. Let’s take a look at them in detail. 

TL;DR 

Compliance audits are essential for organizations across various sectors, including healthcare organizations and financial institutions, to ensure adherence to regulatory standards, corporate bylaws, and internal business processes,

Types of compliance audit include SOC 2, ISO 27001, GDPR, HIPAA, PCI DSS, among others. Each audit focuses on different controls and security measures.

Automation tools streamline compliance audits by centralizing documentation, facilitating checks for compliance, and providing real-time visibility into an organization’s compliance status across multiple regulatory frameworks.

What is a compliance audit?

A compliance audit is a rigorous, systematic examination of your organization’s adherence to regulatory requirements, industry standards, internal or external policies. This process involves a thorough evaluation of your company’s practices, procedures, systems, and internal controls to ensure they are aligned to the specific compliance framework or regulations that are relevant to your operations. 

Passing a compliance audit serves as a critical tool for you to demonstrate your commitment to security, as well as, serves as proof that you are operating within legal and ethical boundaries.  These audits can be conducted by your internal auditor or an internal audit team or by independent, qualified professionals who bring an objective perspective to the assessment.

To give you an idea of the scope, here’s an example you can consider. A healthcare provider might undergo a HIPAA compliance audit focusing on patient data protection, while a publicly traded company might face a SOX audit that examines the financial reporting controls of the company. Regardless of the specific focus, compliance audits share common elements when it comes to approach and execution. 

It is important to understand that audits are not a one time event but a part of an ongoing process of evaluation and improvement. You are expected and encouraged to address any issues that are identified during the audit and implement corrective measures that have the potential to enhance your compliance posture. 

Why is a compliance audit important for your business? 

Compliance audits are an indispensable component of modern organizational governance, serving as a nexus between regulatory adherence and operational excellence. This independent scrutiny, whether carried out by an internal team or a mandatory regulatory committee, ensures compliance and reveals any operational inefficiencies or vulnerabilities. 

Heightened by cybersecurity threats, the importance of compliance audits has been magnified in recent years. Apart from compliance, these audits are also needed for the following reasons:

1. Builds trust with external stakeholders.
2. Helps identify areas of noncompliance, allowing you to mitigate any risks and threats. 
3. Enhance your operations and security measures.
4. Gives you a competitive advantage. 
5. Mitigates your chances of being fined for non-compliance 
6. Audits provide strategic insights and can be leveraged to make strategic business decisions. 
7. Help you stay ahead of changes and maintain ongoing compliance (e.g., new privacy regulations, and updates to standards like PCI DSS). 

While compliance audits may originate from regulatory mandates, their value proposition extends far beyond mere compliance. 

It is worth noting that these evaluations come in various forms, each tailored to address a specific problem, regulatory requirement, industry standards, or organizational needs.

Types of compliance audits

When it comes to types of compliance audits, they generally fall into two main categories: internal audits and external audits. Internal audits are essentially an organization’s own health check, conducted by internal teams to ensure compliance with internal policies and standards.

External audits, on the other hand, are carried out by independent third parties to verify that your organization meets specific regulatory requirements, such as GDPR, HIPAA, or ISO 27001. 

An internal audit can also serve as a precursor to an external 

Let’s look at the difference in detail

Internal audit	External audit
These audits are typically conducted by an internal audit committee.	External audits are conducted by independent third party auditors.
Internal audits assess risk, internal controls that are in place to mitigate any risks, gauge compliance with internal guidelines.	External audits evaluate compliance with external regulations and standards.
The scope of an internal audit can vary, based on your company’s needs.	The scope of an external audit is generally dictated by a regulatory framework.
In an internal audit, the internal auditor aims to identify areas for improvement and strategize accordingly.	In an external audit, the auditors scope out your position with respect to the regulatory compliances that you have to follow.
The cost of an internal audit is generally lower, and can be a part of your operational expenses.	The cost of an external audit is generally higher as it requires external resources and specialized personnel

Here are the different types of compliance audits based on the controls and areas they audit.

Information security and data protection 

SOC 2 (Service Organization Control 2)

If your business offers cloud-based services or stores customer data, a SOC 2 audit is all about proving you’re handling that data properly. It focuses on five key areas called Trust Service Criteria (TSCs): Security, Availability, Processing Integrity, Confidentiality, and Privacy.

A SOC 2 audit digs into how well a company is doing in those five areas:

• Security: Are systems protected from unauthorized access?
• Availability: Are services up and running when customers need them?
• Processing Integrity: Is data processed correctly, completely, and accurately?
• Confidentiality: Is sensitive information like business secrets kept secure?
• Privacy: Is personal information handled with care?

ISO/IEC 27001 (International Organization for Standardization 27001)

If your company manages sensitive information—whether it’s customer data or internal records—ISO 27001 is the go-to certification for proving your commitment to security. An ISO 27001 audit checks how you manage risks to the information you handle, making sure you’re keeping everything secure.

ISO 27001 audit checks if you have:

• Strong security policies: Are there clear rules in place for protecting sensitive information?
• Good asset management: Is every bit of data and every system accounted for and protected?
• Access control: Are the right people able to access the right information, and is it restricted from those who shouldn’t have access?

Passing an ISO 27001 audit shows your customers and partners that they can trust you to keep their data safe.

GDPR (General Data Protection Regulation)

The GDPR is one of the most well-known data privacy regulations globally. It affects any company that deals with the personal data of people in the European Union, no matter where the company is based. A GDPR audit looks at how well a company is respecting individual privacy rights and protecting personal information.

A GDPR audit looks at:

• Whether your data use is lawful, meaning you have a valid reason for collecting and processing personal data.
• Individual rights, like ensuring people can access, correct, or delete their data when they request it.
• How well you’re managing consent, making sure people are informed about how their data will be used and that they’ve agreed to it.
• Your breach response plan, which ensures you’re ready to notify individuals and regulators in case of a data breach.

CCPA (California Consumer Privacy Act)

The CCPA is California’s version of GDPR, focused on protecting the personal data of California residents. A CCPA audit checks if companies are following the law when it comes to collecting, using, and sharing personal information.

A CCPA audit typically checks:

• Transparency: Are you clear about what data you’re collecting and why?
• Consumer rights: Are you allowing Californians to access, delete, or opt out of the sale of their data?
• Data protection: Are you taking reasonable steps to prevent data breaches?
• Protection for kids: If you handle data for minors under 16, are you following stricter rules around consent?

Companies that handle a lot of data or rely on selling data as part of their business model need to pass CCPA audits to avoid fines and build trust with their customers.

Healthcare and Privacy

HIPAA (Health Insurance Portability and Accountability Act)

If your business is in healthcare or handles personal health information (PHI), including, third-party vendors like billing services or cloud storage providers—called “business associates” under HIPAA, HIPAA compliance is non-negotiable. 

The goal of HIPAA is to ensure that patients’ medical records, treatments, and even billing information are kept private and secure.

A HIPAA audit typically examines two main areas:

• Privacy rule: This sets standards for how healthcare providers and their associates use and disclose patient information. It ensures that PHI is only shared for legitimate medical purposes—like between doctors or with insurance companies—and that patients have control over who can access their information.
• Security rule: This focuses on the technical and physical safeguards that protect electronic PHI (ePHI). It covers things like encrypting data, limiting access to only those who need it, and securing physical locations where data might be stored.

HIPAA audits also review how you handle patient rights, such as their ability to access or correct their medical records.

CMS (Centers for Medicare and Medicaid Services)

If you work with Medicare or Medicaid, CMS guidelines ensure that you’re delivering high-quality care while managing the funds properly. CMS audits are critical for healthcare providers, clinics, and hospitals working with these programs.

A CMS audit looks at:

• Billing practices: Are healthcare providers accurately billing Medicare or Medicaid for the services they provide? Overbilling or improper claims can lead to serious penalties.
• Patient care: CMS also focuses on ensuring that healthcare providers meet certain quality standards. This means everything from how quickly patients are treated to the overall outcomes of their care.
• Data protection: Since medical records are part of the process, CMS audits also touch on how well institutions are securing patient information in line with HIPAA and other regulations.

Payment and card security

PCI DSS (Payment Card Industry Data Security Standard)

If your business processes credit card payments, PCI DSS is the standard you need to follow to protect cardholder data and prevent fraud. This applies to businesses of all sizes that handle credit card information.

A PCI DSS audit checks:

• Data protection: Are credit card details being securely encrypted when stored or transmitted? This is essential for protecting against breaches.
• Access control: Who has access to payment data? PCI DSS requires that only authorized personnel can view or handle sensitive cardholder information.
• Monitoring and testing: Companies must regularly test their security systems to make sure they’re effective. If there’s a security gap, it’s critical to find and fix it quickly.

A breach of payment card data can be devastating for any business—leading to fines, loss of reputation, and a lack of trust from customers. That’s why PCI DSS compliance is so important for businesses of all sizes. It reassures customers that their payment information is being handled securely, whether they’re shopping online or in-store.

Governmental and federal regulations 

FISMA (Federal Information Security Modernization Act) 

If your business works with U.S. government agencies, FISMA is the law that ensures you’re protecting government data. FISMA applies to both federal agencies and contractors, ensuring they follow strict guidelines to secure information systems.

A FISMA audit typically examines:

• Risk management: Agencies and contractors must assess potential risks to their information systems and develop a plan to manage those risks. This includes regular security assessments and monitoring.
• Security controls: Are there proper safeguards in place to protect government data? This includes both physical controls (like secure buildings) and technical controls (like firewalls, encryption, and user authentication).
• Incident response: How prepared is the organization to handle a security breach? FISMA requires that agencies and contractors have a solid plan in place to detect, respond to, and recover from cyberattacks.

Financial and corporate governance

SOX (Sarbanes-Oxley Act)

If your company is publicly traded in the U.S., SOX compliance is non-negotiable. This law was put in place to make sure financial reporting is transparent and accurate, especially after high-profile scandals like Enron. SOX audits help ensure that your financial controls are up to scratch and that your company is operating with integrity.

A SOX audit covers two main areas:

• Section 302: This part is all about the accuracy of your financial statements. It requires your CEO and CFO to personally sign off on the financials, making sure everything is accurate.
• Section 404: Here, the focus is on your internal controls over financial reporting (ICFR). The audit digs into your systems and processes to confirm they’re designed to catch any errors or irregularities in your financial data.

SOX audits also look at how well your management is reviewing and acting on any issues that pop up. This audit gives investors peace of mind that your company is playing by the rules.

FINRA (Financial Industry Regulatory Authority) 

If you’re in the securities industry—whether you’re a broker-dealer or part of an investment firm—you’ll need to comply with FINRA. FINRA is the watchdog for the securities industry, making sure everything is running fairly and by the book.

A FINRA audit typically looks at:

• Compliance with FINRA rules, which checks whether you’re following operational practices like trade reporting and supervising customer accounts.
• Financial condition reviews, which ensure you’re maintaining the required capital, using accurate accounting practices, and submitting financial reports properly.
• AML compliance, where your anti-money laundering policies are reviewed to ensure you’re detecting and reporting any suspicious activities.

Staying compliant with FINRA helps build trust with investors and keeps the financial markets running smoothly.

SOC 1 (Service Organization Controls)

If your business handles key processes that impact your clients’ financial reporting, a SOC 1 audit is essential. This applies to services like payroll processing, data hosting, or anything else that might directly affect a client’s financial statements.

SOC 1 audits are divided into two types:

• Type I: Assesses the design of the controls at a specific point in time. This audit is generally performed to verify that the necessary controls are in place and have been properly designed to meet the organization’s goals.
• Type II: Examines the operating effectiveness of these controls over a set period (typically six months to a year). This is a deeper audit that tests whether the controls not only exist but also work as intended over time.

A successful SOC 1 audit shows your clients that they can rely on you to handle their financial data securely and without errors.

How to perform a compliance audit?

One of the biggest benefits of conducting a compliance audit is that you are better able to recognize risks and take action before they become expensive problems. By methodically comparing the practices, policies, and procedures of your company to pertinent standards and laws, you can identify possible weak points and places for development. 

Step 1: Understanding the scope and purpose of the audit 

You need to understand certain aspects of the audit process before you dive in head first. This step sets the foundation for the entire audit process and here are the aspects that you would need to consider:

1. Type of audit:
   1. Are you conducting an internal audit or an external audit? If it is an external audit, who is going to be carrying out the audit and if it is an internal audit, do you have the resources for it?
   2. If it is an external audit, which framework is it for?
2. Mandatory or voluntary:
   1. Is this a mandatory audit, mandated by an internal or external policy?
   2. If the audit is voluntary, what are the reasons for doing so? 
3. Scope definition:
   1. What areas of your organization will be audited? Can you afford all areas or do you have to prioritize high impact areas?
   2. Do you need consultants on this project? 

Step 2: Collecting necessary documentation and evidence 

You need tangible proof of your compliance efforts and all the other documentation, related to compliance and controls, especially for an external audit, as the external auditor is going to need it. 

You need to start by collecting all the relevant documentation, including policies, procedures, manuals, and internal controls. You need to gather previous audit reports too, as they will help you understand your gaps, if the measures implemented have worked, and the path you took remediate these vulnerabilities. 

Document your compliance measures, including training records and incident reports. Compile evidence of internal controls, operational records, and financial documents that pertain to compliance efforts.

Based on the type and kind of audit you are conducting, here are some examples of evidence and documentation you might need:

1. For a data privacy audit:
   1. Inventory and flow diagrams
   2. Privacy policies 
   3. Incident response plans
   4. Disaster recovery plans
   5. Data subject access logs
   6. Data breach notification procedure
   7. Records of data being processed, stored, and transmitted, safely
2. For a healthcare compliance audit:
   1. Patient health information access logs
   2. Privacy and security policies
   3. Employee training records
   4. Conducted risk assessments
   5. Encryption and user access control documentation 
3. For an information security audit:
   1. Information security policies and procedures
   2. Asset inventory
   3. Risk assessment reports
   4. Incident management logs
   5. System configuration standards
   6. Penetration testing results
   7. Access control lists and user provisioning procedures
4. For internal audits:
   1. SOPs
   2. Control performance monitoring 
   3. Risk Assessments
   4. Workplace procedures – onboarding, offboarding
   5. IT security policies
   6. Software licensing records
   7. Backup and recovery procedures
   8. Code of conduct
   9. Whistleblower policies
   10. Business continuity plans

Manually collecting and gathering documentation can sometimes be a long-drawn process, and it ends up taking up valuable man hours that are better spent otherwise. Not to mention, manual evidence collection is prone to human errors. 

Documenting and evidence collection become more accurate and efficient using Sprinto. It works with your current tech stack to automatically generate an inventory of your resources, including code, personnel, cloud resources, infrastructure, and a comprehensive overview of all relevant controls, gathering evidence automatically to build a clear audit trail.  

Sprinto employs rule-based, least privilege automation to gather accurate and time stamped evidence. It can also cross-map different frameworks, enabling you to gather proof just once to meet the needs of various compliance standards, such as ISO 27001 and SOC 2. 

And for non-automated controls, the platform offers rule-based workflows that can be assigned to specific team members.

Step 3: Conduct a thorough risk assessment 

This step involves a systematic review of your organization’s potential threats and vulnerabilities that could have an impact on its ability to function. To truly assess your organization’s threat landscape, follow these steps:

1. Identify potential risks and vulnerabilities, across all business functions, considering internal and external factors that could impact your compliance position. 
2. Next, assess the likelihood of each risk and gauge their impact on your business.  Use a standardized method to maintain consistency. 
3. Risk = Likelihood x Impact 

3. Prioritize your mitigation efforts based on risk score.
4. Examine the controls in place for each risk and note any weaknesses in your present approach to risk management. 
5. Provide targeted risk mitigation plans for high-priority threats. 
6. These can involve adding new controls, improving current processes, or giving employees more training.
7. Document the entire process as it serves as a solid foundation for any and all upcoming audits and assessment.  

Step 4: Review your controls, processes, and policies 

Thoroughly review your existing controls, processes, and procedures, to implement corrective actions to remedy any gaps identified. Here’s how you can go about it:

1. Examine each control in place and map them to the right framework. Assess their design and measure their operational effectiveness. 
2. Review your business processes and ensure that they align with your compliance regulations. 
3. Evaluate your documented procedures and look for any improvements that need to be made, in order to stay on top of the changing compliance regulations. 
4. Compare your controls against the regulatory requirements and best practices of the industry. 
5. Evaluate your incident response plans and involve the management team if they need to be updated.

Step 5: Communicate your findings   

The last step of this process is communicating the findings with key stakeholders. Your independent auditor or the internal auditor should give you an audit report that contains the following:

1. Executive summary of the report
2. objectives and scope of the audit
3. Methodology used to conduct the audit
4. Detailed findings of any gaps, threats, or vulnerabilities in the system.
5. Corrective actions recommended to remedy the identified gaps.
6. A compliance checklist to be followed 

How can Sprinto help with Compliance audits

The Sprinto platform is built to meet the needs of external compliance auditors as well as internal operational audits.

Sprinto provides an environment that is secure and collaborative for external compliance auditors. The platform gives auditors access to a unique dashboard where they can examine supporting documentation, get in touch with your team, and monitor the status of the audit in real time.

With only a few clicks, you can launch auditor-grade compliance programs, which makes it easier to implement complicated regulatory requirements.

With the platform’s built-in support for over 20 security standards, managing various compliance frameworks at once is a simple task for organizations. 

With Sprinto, audit evidence is automatically gathered and organized, minimizing manual labor and the chance of human error.

FAQs

1. What is the main objective of a compliance audit?

The main objective of a compliance audit is to: 

• Ensure that the company’s procedures comply with applicable laws.
• Determine areas of noncompliance
• Evaluate the efficiency of internal controls.
• Reduce the dangers connected to non-compliance

2. What is a compliance audit by CAG?

Comptroller and Auditor General, or CAG for short, is the abbreviation for a government auditing organization. 

A CAG compliance audit consists of: An analysis of public companies, government departments, or programs intended to guaran