Audit trails track and verify different types of transactions, including electronic signatures. An audit trail helps internal and external auditors track changes to confidential databases, investigate potential fraud, and understand the timeline leading up to a particular outcome. The law also requires audit trails in many industries. However, even if they aren’t legally required, audit trails can provide transparency and accountability to benefit all businesses.
The cautionary tale of Enron illustrates what can go wrong when businesses don’t have accurate audit trails in place. The energy giant was worth $63.4 billion before ultimately going bankrupt and causing $35 billion in economic damage due to fraud committed by the CEO and CFO, among others. Today’s audit trail regulations were mainly enacted in response to these scandals. Had the company maintained accurate and transparent financial statements, the government would have intervened before the fraud and corruption could escalate. The purpose of an audit is to prevent another disaster like Enron.
What Is an Audit Trail?
An audit trail is a detailed, chronological record of actions taken within a system. It provides a verified history of who accessed what information, where they accessed it, and what changes they made. Audit trails were initially used in financial transactions but are now common in healthcare, law, information technology, and other industries.
As a step-by-step account, auditors can review, analyze, and use these trails to perform compliance checks, forensic investigations, and internal audits.
Purpose of Audit Trails on Tracking Signed Documents
When someone signs a document electronically, an audit trail provides crucial information that verifies the signature’s authenticity and the contract’s validity. It meticulously records every touchpoint in the signing process, removing doubt about who did what and when.
Confirm the Identity of the Signer and the Authentication Methods Used
While the authentication methods used to verify identity will depend on the nature of the documents, an audit trail logs everything. Some standard methods of identity verification include:
- Email verification, where the person signing must verify their email to access the document
- Password protection, where a password is required to access the document
- Two-factor authentication that requires a temporary code sent through a text or authentication app
- Digital certificates that provide a unique certificate to verify identity
- Biometrics such as fingerprint or facial recognition
When a person signs a document, the audit trail captures who signed it and how they earned authentication. This links the individual and their actions through:
- Timestamps of when authentication occurred
- User-specific information, such as IP address and device
- A sequence of authentication steps if using multiple methods
Safeguard Against Tampering and Establish Non-Repudiation
Audit logs prove that a document wasn’t altered after signing. Once a person signs a document, they cannot later deny the legitimacy of the signature or the document’s contents. No one can change an audit trail log once an action is recorded. Encryption algorithms protect the stored data.
As an extra layer of protection, cryptographic hash functions make it obvious if someone changes the document after signing. Due to this extensive documentation, the audit trail is credible evidence in court if anyone disputes its legitimacy.
Serve As Legal Evidence and Meets Legal Compliance
A well-structured audit trail can be admissible in legal proceedings as evidence of who signed a document, how the system authenticated them, and what actions were taken before and after the signing. Laws such as the U.S. Electronic Signatures in Global and National Commerce Act (E-SIGN) and the European Union’s Electronic Identification, Authentication and Trust Services (eIDAS) explicitly recognize digital signatures’ validity and accompanying audit trails.
The sequence of actions, including timestamps, contributes to an audit trail’s legal integrity. It shows when someone accessed the document, which can establish facts during legal proceedings.
In addition to providing legal evidence, audit trails help organizations comply with regulatory requirements. For example, the healthcare industry must comply with the Health Insurance Portability and Accountability Act (HIPAA). At the same time, financial institutions and public companies may need to adhere to the Sarbanes-Oxley Act (SOX) or Payment Card Industry Data Security Standard (PCI DSS).
These regulations require audit trails as one of many internal controls to protect data. Some companies also have to undergo audits or inspections. A detailed and immutable audit trail simplifies this process, demonstrating due diligence and regulatory compliance.
Enhance Transparency and Accountability
Transparency and accountability can protect against data breaches, fraud, and disputes over document authenticity. Audit trails often capture information about who has permission to do what within a document, making it obvious if someone is trying to access data beyond their role-based privileges.
People are accountable for their interactions with the document because each action is attributed to a specific user. This accountability discourages unauthorized access, as everyone knows the system records their user activities.
Audit trails can also monitor activities in real time. It can quickly identify suspicious activity or unauthorized user access, making it easier to catch bad actors.
Transparency is vital to building a culture of trust. Internal and external stakeholders are more likely to trust an organization that can provide detailed evidence of its actions. This is particularly true in client relationships where the ability to refer back to trustworthy contracts can prevent or resolve disputes.
Provide an Archived Record of Signed Documents and the Associated Process
In addition to authenticity and legal validity, audit tracking serves as a historical record of all signed documents and the procedures surrounding them. This archive can be used for retrospective analyses, whether someone is auditing internal processes, verifying past transactions, or reviewing historical legal agreements. It is a resource for future reference so everyone can engage in continuous improvement practices.
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