Question

what are the consequences of not having a good audit Trail

Answer 1

Every industry needs an audit trail, from healthcare to logistics, high-tech, energy, and financial services. They all need secure and immutable records of whether and when a transaction was performed accurately and truthfully. Organizations mostly need these audit trails to comply with industry requirements or government regulations. However, a well-kept audit trail can also help organizations understand the state of their business both past and present and the consequence of not having a good audit trail is that understanding the business becomes exasperating.

An audit trail or an audit log are the manual or electronic records that chronologically catalog events or procedures to provide support documentation and history that is used to authenticate security and operational actions or mitigate challenges. It includes every document be it paper or electronic audit trails that were involved in the transaction. An audit trail allows you to trace every step of the transaction, the consequence of not having a good audit trail is that tracing the steps become burdensome. Industries use an audit trail to provide a historical record of progression based on a sequence of events. These records provide proof of compliance and operational integrity. Audit trails can also identify areas of non-compliance by providing information for audit investigations. Audit trails are an example of proper internal controls.

The concept of audit trails can draw parallels from that of buying insurance. You don’t think about it or need it unless something goes wrong. It’s the same with an audit trail. You don’t need it until you need it, but if you don’t have it, the consequences can be quite inconvenient or even catastrophic

Audit trail not only tracks your company's income and expenses, but it also provides a record of the way you conduct your business. The degree of usefulness of an audit trail depends on how comprehensive the transaction’s record-keeping is, the audit trail provides a guideline for analysis or an audit when initiating an investigation. The purpose or importance of an audit trail takes many forms depending on the organization: A company may use the audit trail for reconciliation, historical reports, future budget planning, tax or other audit compliance, crime investigation, or risk management and lack of a proper audit trail makes all these functions complicated.

The audit trail provides a critical component in fraud detection. Strict adherence to the creation of an audit trail provides information proving the legitimacy of transactions. All business payments must have a supporting document such as purchase orders and approved invoices. A bank reconciliation, performed by someone other than the check writers and signers, comprises part of an audit trail. The presence of an audit trail requirement not only helps detect fraud but serves to prevent it. Audit trails also help prevent tax fraud. A trail that includes a receipt for every deduction you take on your taxes helps a tax auditor verify that your tax returns are accurate. Employees who know that management monitor and tracks their work see less opportunity for fraudulent activity. Lack of proper audit trail creates an environment with a high risk of frauds and errors.

Internal controls in your business establish the processes that create an audit trail. For example, a cash business needs a process for logging cash in and accounting for it until it is deposited. A checklist for paying vendors helps ensure that every payment is supported by an invoice that's been reviewed and approved by someone with the authority to pay it. A written procedure for requesting reimbursement for paying business expenses helps employees remember to get receipts when they pay an expense etc.

An accounting audit trail also documents how you handle errors in your company's books. No system is error-proof, and data entry mistakes will happen from time to time. When you find an error and correct it, you create a journal entry documenting the fact that you found the mistake and fixed it. The journal entry is an audit trail that helps ensure that you will not correct the same error twice, and it helps someone reviewing your books such as an auditor figure out what happened. Hence lack of a good accounting audit trail will leave room for errors and omissions to creep in accounting books.

An audit trail that is both comprehensive and readily accessible can be examined very easily, saving precious time. This cannot be underestimated, imagine spending hundreds of hours searching for all the documents associated with a transaction. And since an audit trail tracks everything, including the slightest correction or change made concerning a transaction, there is no danger of multiple people fixing the same mistake multiple times, lack of audit trail may cause duplication of work.

A clear audit trail consists of source documents. These original documents include checks, invoices and time cards any written record triggered by an accounting transaction. Maintaining an organized, easy-to-use filing system keeps these documents within easy reach at all times, this can be manual or electronic. An audit trail sets the stage for your business to thrive and meets the record-keeping requirements of government agencies, lenders and investors.

The best business practice is to store a record of all your transactions (up to a commercially reasonable time frame), in case your vendor or customer wants to know about such things eg. the status of their invoice or order. Otherwise, you need an audit trail in case there is a dispute. Audit trails are essentially records of business events that at some point might need to be reviewed for a quick status lookup or in case there is a dispute, or if you need to prove your compliance with industry standards or government regulations.

The benefits of having a good audit trail system go beyond just troubleshooting. A good audit trail system lets you see the big picture of the state of your business. The best audit trail systems also have visualizations that allow you to review the state of your business at a glance. You can get the complete lifecycle visibility of a typical business process in your company. The life cycle of a typical business process can be pretty involved. For example, a supply chain business process can hop from an in-house customer order management system to a third-party logistics provider’s warehouse management system, before ending at a transportation carrier’s shipping system. A good audit trail system will enable you to create these business events in the system where it will capture the details of these events and chain them together as a whole so you have an entire overview of your business and how it is operating.

Lack of good audit trails does not ensure that individuals who use the system are held accountable for their actions. With proper audit trails in place, they create a record of changes made by users and the files they accessed by creating a ‘before’ and ‘after’ record to ensure established guidelines were followed and that no suspicious changes made. This level of monitoring enforces individuals to follow proper procedures reducing security lapses that can occur when people attempt to circumvent a process in the interest of saving time.

So, the consequence of not having a good audit trail platform

To be compliant with the law or standards will be difficult.

It will not give you a big picture of your business

Difficulty in troubleshooting issues

It will be hard to cut down the development costs and time-to-market of your operations.

Lack of individual accountability due to no proper audit trail