Running For Your Business: When most people think of audits, they think of the IRS knocking at their doors and the potential financial consequences. While IRS audits are one type of audit, businesses routinely perform audits for several reasons. One is to increase efficiency and performance, and another is to improve accuracy. Other audits are done to ensure a company stays compliant with industry or regulatory standards.
Whether a business performs internal, external, or compliance audits, the process can help make a company more successful. Many external and compliance audits, for example, build trust and reassurance between businesses and clients. While not necessarily reported or advertised to the public, internal audits can uncover mistakes and process weaknesses. The discussion below outlines four audits to consider and how leaders can use them to make educated decisions.
1. Soc 2 Audits
SOC is short for systems and organization controls. Any company that stores client data in the cloud should strongly consider conducting a SOC 2 audit. Cloud-based service providers and software as a service developers should also put SOC 2 on their audit lists. A SOC 2 audit verifies that companies are protecting sensitive customer information and that appropriate control measures are in place.
The foundation of SOC 2 covers five key areas: security, availability, processing integrity, confidentiality, and privacy. However, the audit process usually begins with security criteria. A SOC 2 audit guide can help companies prepare for different types of SOC 2 audits. This includes those that start with internal security controls, such as how and when data is stored. Other measures include who has access to that data and to what degree.
For instance, what systems store and exchange customer data? Companies might limit access to those systems based on an employee’s job functions. Customer data within specific applications could also be limited.
Perhaps customer service and sales teams only need to see basic contact details and purchase histories. But the provisioning and IT teams use programs with more in-depth information about customer equipment and usage. A company might control access to different levels of customer data through software permission settings. A SOC2 audit looks at the integrity and extensiveness of access controls and identifies whether a business can strengthen them.
2. Audits Of Employee Retirement Plans
Most businesses offer some type of retirement benefit plan. Pensions may be less common, but they still exist. Depending on the size of the company and its financial performance, 401(k), stock option, and profit-sharing plans may be more widespread. In fact, 401(k) plans and company matches are so common that 62% of employees state matches are critical to their retirement goals.
But what if the 401(k) plan your business and employees contribute to is mismanaged or underperforms? Those company matches and contributions workers count on for retirement can rapidly vanish. Retirement or employee benefit plan audits help catch performance problems by examining a plan’s financial statements.
Even if a plan isn’t underperforming per se, these audits can determine whether it could be more efficient. Perhaps the mix of available funds and investments isn’t as optimal as it could be. It’s also possible changes need to be made to comply with regulations, including rules for company matches. These regulations can vary based on the type of 401(k) plan and automatic enrollment. Audits identify compliance issues companies may be unaware or unsure of.
3. Internal Operations Audits
Unlike external audits, a company’s employees can perform internal audits. Those that dig deeper into a business’s operations look for opportunities to increase efficiency and productivity. That said, firms can also hire external vendors to perform operational audits if leaders want to mitigate internal biases.
Sometimes a red flag or a concern will trigger operational audits. Say the number of customers is increasing at a higher rate than revenue per client. This could indicate an issue with the sales process and employee training. Perhaps upselling is not occurring as much as it could, or communication about mid- and high-tier products is insufficient. Operational audits can pinpoint the root cause of leaders’ concerns and help them initiate appropriate remedies.
Companies can also perform operational audits to verify processes are working as designed. Stakeholders may want reassurance that employees are implementing procedures and tools according to predetermined goals. For instance, leaders may have introduced a new system six months ago to consolidate the number of applications employees use. The goal is to save time and increase productivity. An operational audit can confirm that the objective is on or off track.
4. Payroll Audits
Payroll mistakes and errors, such as missing hours and employee misclassifications, can be costly. These costs might include government penalties or fines and even resignations. If payroll mistakes happen once, staff members may be willing to forgive and forget. But if these errors happen twice, employees are less likely to stick around. Research reveals that about half of workers will start a job search after two paycheck mistakes.
That means the training and development your business invested in new or seasoned hires also walks out the door. Additionally, the company has to spend more on recruiting and training replacements. Payroll audits help businesses avoid situations like these by identifying mistakes and process errors.
Audits that look at a company’s payroll can also reveal areas that may need tweaks or improvements. These audits may help companies implement fraud protection and compliance measures for things like federal and state payroll taxes. Overall, payroll audit reports reveal procedural holes and weaknesses that leaders can work to correct.
Investigating The Details
Although audits don’t exactly inspire joy or excitement, they are essential to a business’s performance. Audits identify ways companies can improve compliance, efficiency, and productivity. Conducting internal and external audits is a means of ensuring business goals are met. The public receives confirmation that they can trust how a company operates. Most of all, leaders can make better decisions about protecting and serving all stakeholders’ interests.
Also Read: Relation between cybercrime and cryptocurrency rates
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