The origin of the term compliance can be traced back to the Latin verb complere—having all parts; to make whole or perfect. Compliance became popular in the United States in the late 20th century and gained traction in the mid-2000s. Most organizations today find it challenging to address complex regulations that put more emphasis on compliance. Although adhering to regulations may seem undesirable, large organizations are aware of the repercussions of non-compliance. In fact, the cost of non-compliance is almost three times the cost of an effective compliance program.
What is a Compliance Program?
A compliance program is a set of policies and regulations put in place to comply with laws, rules, and regulations or to uphold the organization’s reputation. The organization’s compliance function examines the laws and regulations set forth by government bodies and ensures that a business adheres to external rules and internal controls. A robust compliance program helps organizations,
- Formulate and regulate procedures
- Prevent non-compliance with the law
- Assess and identify problems in the business processes
- Identify fraud through audits
- Align the company’s culture, rules, and internal procedures
- Determine the execution processes
There are significant advantages to a good compliance program. An effective compliance program,
- Encourages identification of previously unidentified risks
- Improves communication and reporting to upper management
- Promotes ethical behavior by encouraging a “culture of compliance”
- Allows businesses to improve their brand equity by demonstrating profitability in a legally satisfactory way
Key Elements for Creating a Compliance Program
While there are different compliance programs, every one of them should have a few key elements.
1. Set the Tone at the Top
The starting point of any effective compliance program is the senior management and the sense of responsibility they share to protect financial assets and business reputation. Commitments written in handbooks, communicated via emails, or posted on websites are simply paying lip service unless leaders put them into action. They need to support and empower individuals who have day-to-day responsibilities to mitigate risk and build organizational trust.
2. Collate and Review Policies
Conduct a policy audit to review existing documentation. This helps establish a baseline for a compliance program that has clearly defined policies and expectations. Once all information is collected, it’s time to review existing policies, procedures, and standards of conduct to ensure they are in line with current regulations, compliance goals, and leadership expectations. Allow the new compliance program to be readily available to employees. Regularly updating and reviewing the policies and ensuring everyone in the organization understands compliance policies are the foundation of a successful program.
3. Risk Assessments
Compliance programs are not only about adhering to processes but understanding the risks that organizations face. Organizations conduct assessments to identify different types of risks. For example, an internal audit assessment is likely to concise financial, operational, and compliance risks. The compliance function focuses on risks that are most significant within the organization and provides the basis for determining the actions necessary to avoid, mitigate, or remediate those risks.
4. Testing and Monitoring
Robust testing and monitoring of the compliance program are essential to analyze the performance of the compliance policies and make incremental changes accordingly. Testing and monitoring processes begin with implementing appropriate controls that detect gaps and ensure good corporate policies are carried out. Any changes in procedures are transparent and all relevant information is documented. The findings from the risk assessments can serve as a starting point for testing and monitoring programs.
5. Communication of the Compliance Program
The success of a compliance program depends largely on opening the line of communication. A compliance program should allow employees to report violations and anonymously address ethical issues. Establishing a path of communication between the compliance function and the employees is critical to ensuring incidents get reported and can be avoided in the future. Organizations should also conduct training programs to improve accountability for ethical behavior through regular training and performance assessments.
6. Corrective Action
Risks are everywhere. A significant compliance risk can be discovered through an audit, data breach, or internal review. And when that happens, the compliance function must be endowed with autonomy to ensure good operational progress. As mentioned earlier, organizations spend a fortune on compliance. Without proper assertion, compliance programs won’t have a real-world impact.
While there is no one-size-fits-all approach to a compliance program, organizations should identify their compliance needs and their impact on their activities, products, and services. If an organization does not have one or needs to update an existing program, make sure that it is a sum of all the policies and focuses on the most sensitive business areas with the highest risks.
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