Keeping Pace With Regulation
Businesses often operate globally. This comes with the need to comply with rules across multiple jurisdictions, each with its own standards and requirements. Companies that can't navigate this regulatory landscape risk missing opportunities or falling into pitfalls that can reduce their competitive edge. This often negatively affects their bottom line.
To meet these challenges and reduce compliance risk, organizations need to use practical solutions married with modern best practices. Tools like the Compliance Risk Management Capability Maturity Model (CCM) and Compliance Overview Questionnaire can help organizations build a clear process for managing their local and worldwide compliance obligations.
Following best practices while using best-in-class tools can empower organizations to build a stronger compliance process. This allows companies to maintain and grow their business momentum.
Best Practices
Compliance is often synonymous with legal and regulatory issues and touches on all levels of business. Organizations can find it difficult to navigate a compliance landscape that is always in flux due to constant legal and regulatory changes. To increase navigability, organizations are prudent in sticking to industry best practices. This decreases risk while maintaining high standards of legal and regulatory compliance.
Being selective in building a robust set of internal best practices and compliance tools can put companies on firm ground. Organizations that invest the resources to build their compliance frameworks can then smoothly manage regulatory changes. Establishing clear processes, maintaining documentation and regularly reviewing their compliance practices gives companies an effective compliance framework. A framework that is built this way is one that can adapt to changes while protecting core business interests.
Best practices can lead to a successful compliance process. This process rests on identifying and tracking essential risk areas affecting the organization. The following are some of the best practices in the compliance arena, from conducting thorough policy scans to monitoring risk indicators and using targeted questions.
Compliance Risk Indicators
Organizations need to be proactive in understanding their risks and implementing measures to safeguard their interests. They must do this while maintaining compliance with local laws and regulations. When compliance is neglected, it leads to compliance risk. This risk arises from failing to satisfy the requirements of laws and regulations at international, national, state and local levels.
An industry best practice is identifying and tracking compliance risk indicators of all jurisdictions in which the organization operates. Some of the most common risk indicators include:
- Intellectual property protection (e.g., copyright, trademark, domain names and database)
- Insurance coverage
- Advertising
- Consumer protection
- Export restrictions
- Language requirements
- Channel conflict
- Sweepstakes, lotteries and coupons
- Taxes
- Currency issues
- Privacy
- Security
- Defamation
- Terms of service or acceptable use policies
- Disclaimer of warranties
- Service agreements
Tracking these indicators helps with both compliance risk management and corporate decision-making. Using compliance indicators for proactive risk management helps companies enhance their strategic advantage in the market.
Internal Policy and Procedure Scan
A fundamental compliance best practice is conducting a thorough scan of companies' internal policies and procedures. This systematic review helps companies understand where they stand with regulatory and legal compliance requirements and where they need to adjust.
During this scan, companies document all active policies and procedures, noting their purpose, scope and last review date. This process often reveals gaps that need attention. From outdated procedures to missing policy elements required by new regulations, the results of this scan can be enlightening. Some scans might uncover redundant or conflicting policies that need consolidation or revision.
Once gaps are identified, companies can create a prioritized action plan based on risk level and regulatory deadlines. High-risk areas and time-sensitive compliance requirements should top the list.
This methodical approach to compliance processes helps organizations stay ahead of regulatory changes while maintaining operations. Scans like this should also become institutionalized. They should become part of regular and ongoing compliance procedures to ensure continuous corporate alignment with compliance requirements.
Compliance Risk Questionnaires
Another compliance best practice is asking powerful questions. Asking and answering questions can be a helpful way to learn what areas need to be touched on in corporate governance policies and procedures. In the world of compliance, questions generally focus on the nature and structure of an organization.
Well-made and industry-standard compliance questionnaires focus on activities boards, and management should prioritize as they work to improve corporate governance. At a high level, sample questions might include the following:
- Do you fully understand the governance requirements, including their implications on management?
- Are you communicating regularly on multiple fronts, internally and externally, to reinforce the company’s emphasis on quality reporting and responsible and ethical behavior?
- Are you confident that your culture supports responsible and ethical behavior? How do you know?
- Do you have an internal audit department?
These questions are just a few that organizations can use to help reveal blind spots in their compliance process.
Toolbox
Compliance tools, like compliance templates, are numerous. Despite the number of tools available, organizations wanting to remain competitive must keep their compliance toolbox stocked with proven tools that fit with today’s regulatory environment.
Compliance Questionnaire
The Corporate Governance Compliance Questionnaire serves as a powerful compliance tool for companies looking to assess and strengthen their governance structures. Including this tool in their corporate toolbox helps organizations meet standards required by key legislation like the Sarbanes-Oxley Act while balancing day-to-day business operations.
The questionnaire focuses on two main areas: board oversight and management responsibilities. For board members, it examines their grasp of governance requirements, board independence under current requirements and the effectiveness of committees. Answering these questions encourages boards to be proactive in their governance roles rather than simply reacting to issues as they arise.
On the management side, the questionnaire looks at how well management understands their governance duties. It also examines whether enough support for both board oversight and companywide compliance efforts is present. Key aspects of the management area examined include confidence in financial reporting controls, ethical practices and communication strategies around compliance issues.
The tool digs into specific risk areas like environmental concerns, health and safety practices, and corruption risks tied to different business models. It helps companies think through structural decisions, such as whether to create separate compliance committees or fold these duties into existing operations.
Working through these questions gives organizations more than just an assessment of their current compliance practices. They get a road map for building stronger governance structures that align with compliance requirements and business goals. This makes the tool a powerful template for organizations that are serious about effective governance.
Compliance Risk KPIs
The Compliance Risk Key Performance Indicators tool can play a role as another core tool in corporate governance risk management.
The tool offers a simple way to cut through the complexity of compliance risk management, helping organizations identify and measure their risk exposure through targeted questions and metrics. Regular tracking of the KPIs the tool identifies helps companies spot issues before they become problems. The tool also allows companies to make data-driven decisions about their compliance processes.
The tool prompts organizations to ask questions that help clear the fog around compliance risks. Here are just a few of its risk discovery questions:
- Do all final products and services sold conform to company standards?
- Have you appropriately considered applicable state and foreign advertising restrictions?
- To the extent that you rely on external agreements, have you taken appropriate steps to later be able to enforce those agreements?
Internal Audit Memo
The Compliance and Regulation Management Review Memo is a sample memo that can be used as a compliance template by internal audit teams with an organization’s risk management professionals.
The tool is methodically laid out in a way that encourages thorough analysis and logical thinking. It is informative for both the collaborating authors and the target audience. The organization’s risk management professionals — the collaborating authors — gain a deep insight into their organization’s risk profile. The memo’s audience — senior management — gets a close-up of the compliance environment the organization is navigating.
The memo’s structure provides for rich company data, with completed memos acting as a useful historical snapshot for reference to the corporate risk profile. The structure’s main sections are:
- Background
- Objectives
- Scope
- Approach and Reporting
- Specialist Coordination
- Identification of Fraud Risk
- Supervision and Review of Work Papers
- Timing and Logistics
- Budget
- Contacts
- Internal Audit Team
Wrapping Up
Failure to properly manage compliance risk leads to lower quality, higher costs, lost revenue and unnecessary delays. The risk of noncompliance also gives rise to product or service failure risk. When compliance risk goes undetected and uncorrected as soon as practicable, companies can be forced to face catastrophic organizational failures.
By following proven compliance best practices and using proven tools, organizations can face today's complex regulatory environment with confidence. This not only helps maximize profits but also reduces organizational risks such as reputational damage, financial loss and legal action.
Whether through questionnaires, targeted KPIs, internal audits or policy scans, companies can take active steps in developing and maintaining a strong framework of compliance tools, compliance templates and compliance procedures. This framework can help companies stay ahead of risks while building stronger and more efficient operations.
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