Internal Audit and Compliance: How to Work Better Together

In most regulated Indian enterprises, internal audit and compliance functions report to different stakeholders, follow different calendars, and maintain separate repositories of evidence and findings. The result is predictable: duplicated testing, contradictory risk assessments, and a fractured view of organizational controls that serves neither function well. Effective internal audit compliance collaboration is not a matter of goodwill or informal coordination. It requires structural alignment, shared taxonomies, and common infrastructure.

This matters more in India’s regulatory environment than in many other jurisdictions. When an NBFC faces simultaneous scrutiny from RBI on outsourcing risk, CERT-In on incident reporting timelines, and its own board audit committee on control effectiveness, the cost of audit and compliance working at cross-purposes becomes tangible. Findings get reported differently. Evidence gets collected twice. And the board receives two versions of the same risk story.

The Natural Tension Between Internal Audit and Compliance

Internal audit and compliance exist for related but distinct purposes. Compliance ensures the organization meets its regulatory obligations on an ongoing basis. Internal audit provides independent assurance that controls, including compliance controls, are designed and operating effectively. This creates a structural tension that most organizations never explicitly resolve.

Compliance teams are embedded in business operations. They track regulatory changes, translate them into policies, assign obligations, and monitor adherence. Their orientation is forward-looking: what must we do to remain compliant? Internal audit operates retrospectively and independently. Their orientation is evaluative: were the controls effective during the period under review?

In Indian BFSI organizations, this tension is amplified by the sheer volume of regulatory expectations. Consider a mid-size private bank managing RBI’s Master Directions on KYC, SEBI’s cybersecurity framework for market infrastructure institutions, and IRDAI guidelines for any insurance subsidiaries. The compliance team tracks obligations across all three regulators. Internal audit plans its annual risk-based audit cycle, which inevitably overlaps with compliance monitoring on the same controls.

Neither function is wrong in its approach. The problem is that without deliberate coordination, their work products diverge even when examining the same control environment.

Where Internal Audit and Compliance Work Overlaps

Control Testing and Evidence Collection

Both functions test controls. Compliance tests them to confirm ongoing regulatory adherence. Internal audit tests them to provide assurance to the board and audit committee. In many regulated enterprises, the same control, say a quarterly access review mandated under RBI’s IT governance framework, gets tested separately by both teams. The compliance team verifies it was performed. The internal audit team evaluates whether it was performed effectively, whether exceptions were addressed, and whether the control design is adequate.

The evidence required for both assessments is often identical: the access review report, exception logs, remediation records, sign-off documentation. Yet in organizations where audit and compliance maintain separate evidence repositories, this evidence gets requested from control owners twice, stored in different formats, and referenced against different control identifiers.

Findings and Remediation Tracking

When compliance identifies a gap, say a failure to submit a regulatory return within the prescribed timeline, it generates a finding and tracks remediation. When internal audit identifies the same gap during a planned audit engagement, it generates a separate finding with its own severity rating, root cause analysis, and remediation timeline. Control owners receive two separate action items for what is essentially one problem.

This is not hypothetical. In organizations subject to RBI’s risk-based supervision framework, inspection teams regularly encounter situations where the same control weakness appears in both compliance monitoring reports and internal audit reports, rated differently and tracked on different timelines. This inconsistency undermines the credibility of both functions.

Risk Assessment and Prioritization

Compliance teams maintain regulatory risk assessments. Internal audit maintains its own risk assessment to drive the annual audit plan. These assessments often cover the same risk universe but use different methodologies, different scoring scales, and different update frequencies. The result is that the same operational risk, for instance the risk of non-compliance with CERT-In’s six-hour incident reporting directive, might be rated “high” by compliance and “medium” by internal audit based on their respective frameworks.

What Happens When They Operate Independently

The consequences of siloed internal audit and compliance functions compound over time and create three structural problems that most risk functions struggle to address.

Duplicated Effort and Control Owner Fatigue

When both functions operate independently, control owners across the organization face a constant stream of evidence requests, walkthroughs, and testing inquiries from two different teams asking about the same controls in different ways. In a large insurance company subject to IRDAI’s corporate governance guidelines, the IT team might be asked to demonstrate the same change management controls to the compliance team during quarterly monitoring and to internal audit during a planned IT general controls engagement three weeks later.

This duplication is expensive. It consumes time from business teams that should be focused on operations. It creates friction between the first line and both second-line and third-line functions. Over time, it breeds a compliance fatigue that erodes the quality of responses control owners provide to both teams.

Conflicting Findings and Confusing Board Reporting

Perhaps the most damaging consequence is what happens when audit and compliance findings reach the board or audit committee. If the compliance team reports that the organization is “substantially compliant” with RBI’s outsourcing framework, and internal audit simultaneously reports “significant weaknesses” in third-party risk management controls, the board is left to reconcile two conflicting narratives about the same risk domain.

This is not a matter of one team being right and the other wrong. It is typically a consequence of different scoping, different sampling methodologies, and different rating scales applied to overlapping control sets. The board should not need to perform this reconciliation. Their time should be spent on risk decisions informed by a unified view. For more on what effective board reporting on compliance looks like, see our analysis of compliance metrics that matter to the board.

Regulatory Inspection Vulnerabilities

During regulatory inspections, whether by RBI, SEBI, or IRDAI, inspection teams expect a coherent compliance and control assurance framework. When inspectors find that the compliance function and internal audit function maintain separate control inventories with different control descriptions, different testing results, and different remediation statuses, it raises questions about the organization’s overall governance maturity. In India’s supervisory environment, where regulators increasingly assess governance frameworks holistically rather than regulation by regulation, this fragmentation is a material risk.

Building a Shared View of Risks and Controls Through Internal Audit Compliance Collaboration

Effective collaboration between internal audit and compliance does not mean merging the two functions. Their independence, particularly the independence of internal audit from management, is a governance requirement that must be preserved. Collaboration means establishing shared infrastructure while respecting functional boundaries.

A Unified Control Inventory

The foundation of internal audit compliance collaboration is a single, authoritative inventory of controls that both functions reference. This control inventory maps each control to its regulatory source (which regulation, which clause), its risk association, its owner, and its testing history. When compliance tests a control for ongoing adherence, the result is recorded against the same control record that internal audit references during its assurance engagement.

This does not mean they cannot reach different conclusions about the same control. Internal audit might conclude that a control is operating but inadequately designed, while compliance confirms it satisfies the minimum regulatory requirement. Both conclusions can coexist, recorded against a single control record, without confusion about which control is being discussed.

Shared Evidence Repositories

Evidence should be collected once and referenced by both functions. When a control owner produces evidence of a quarterly board risk committee meeting (minutes, attendance, presentations), that evidence should be available to both the compliance team tracking SEBI’s governance requirements and the internal audit team evaluating board-level risk oversight. The alternative, asking the company secretary to produce the same documents for two separate teams, is wasteful and unnecessary.

A platform like eQomply enables this by maintaining a centralized evidence repository where artifacts are linked to controls, obligations, and audit engagements simultaneously. Evidence is collected once at source, tagged to the relevant control, and accessible to both compliance monitoring workflows and audit testing programs without duplication.

Coordinated Risk Assessments

While internal audit and compliance may legitimately use different risk methodologies, their underlying risk universe should be aligned. If both functions recognize “non-compliance with DPDP Act data localization requirements” as a risk, they should be discussing the same risk, even if they assess its likelihood and impact differently based on their respective lenses. Coordination at the risk identification stage prevents the situation where audit and compliance are unknowingly assessing the same risk under different names and reaching incompatible conclusions.

Practical Collaboration Models for Indian Regulated Enterprises

The Joint Planning Model

In this model, the Chief Compliance Officer and Head of Internal Audit conduct a joint planning exercise at the start of each year. They share their respective risk assessments, identify areas of overlap, and agree on a coordination protocol. For overlapping areas, they determine which function will test which controls during which period, how findings will be shared, and how they will present a unified view to the audit committee.

Consider a pharmaceutical company subject to both CDSCO regulations and DPDP Act requirements for clinical trial data. The compliance team monitors ongoing regulatory submissions and pharmacovigilance obligations. Internal audit plans a data governance engagement covering the same data assets. Under a joint planning model, they agree that compliance will test operational adherence to submission timelines, internal audit will evaluate the design and effectiveness of data governance controls, and findings from both will be consolidated into a single risk report for the audit committee.

The Shared Platform Model

Beyond planning coordination, this model establishes common technology infrastructure. Both functions work from the same platform, referencing the same control inventory, the same evidence repository, and the same risk register. Their workflows remain separate, preserving independence, but their underlying data is unified.

This is where purpose-built GRC infrastructure becomes essential. Organizations that attempt to coordinate audit and compliance using separate spreadsheets, shared drives, and email-based workflows inevitably revert to silos because the friction of coordination exceeds the perceived benefit. eQomply provides the shared infrastructure layer where compliance workflows, audit engagements, evidence management, and risk registers coexist without requiring either function to compromise its methodology or independence.

The Integrated Reporting Model

The most mature collaboration model extends to board and audit committee reporting. Rather than separate compliance reports and internal audit reports that the board must mentally reconcile, this model produces integrated assurance reporting. Each risk domain presents the compliance status (are we meeting regulatory requirements?) alongside the assurance opinion (are our controls effective?) in a single view.

For an IT services company managing compliance across CERT-In directives, client contractual SLAs, and ISO 27001 certification requirements, integrated reporting means the board sees one consolidated view of information security risk, not three separate reports from compliance, internal audit, and the CISO that may or may not align.

Comparing Collaboration Maturity Levels

Making the Shift Without Disrupting Either Function

The transition from siloed operations to effective internal audit compliance collaboration does not require reorganization or reporting line changes. It requires three things: agreement on a common control taxonomy, a shared technology platform, and a governance protocol that specifies how findings, evidence, and risk ratings are shared between functions while preserving audit independence.

The common control taxonomy is the hardest part. It requires compliance and audit teams to agree on how controls are described, numbered, and categorized. In practice, this means mapping compliance obligations (drawn from RBI circulars, SEBI frameworks, IRDAI guidelines) to specific controls, and then mapping internal audit’s control universe to the same structure. The initial effort is significant but pays dividends across every subsequent testing cycle, every board report, and every regulatory inspection.

The shared platform is the enabling layer. Without it, coordination relies on goodwill and manual processes, which degrade over time as teams face competing priorities. With it, collaboration becomes the default rather than an aspiration that requires constant effort to maintain.

Conclusion

Internal audit and compliance functions in regulated Indian enterprises examine the same controls, collect overlapping evidence, assess related risks, and report to many of the same stakeholders. When they do this independently, the organization pays a tangible cost in duplicated effort, confused boards, and regulatory inspection findings about governance fragmentation. When they collaborate on shared infrastructure while maintaining functional independence, the organization gains a coherent, defensible view of its control environment that serves every stakeholder, from business unit heads to board members to regulators.

If your organization is ready to move from siloed GRC operations to a unified control and evidence infrastructure that supports both compliance monitoring and audit assurance, explore how eQomply can serve as that shared foundation.