What is a Compliance Management System and Why You Need It

A lady sits at a computer undertaking work
Cheryl Lee
July 15, 2022
1 min read
A lady sits at a computer undertaking work

With so many rules and regulations, managing compliance can be challenging. So how does one ensure compliance for their organisation? They adopt a compliance management system.

Within an organisation, compliance exists on three levels. The fundamental tier looks at organisational compliance. This looks at the company’s ability to operate in accordance with the legislation and standards set by the government. Ensuring compliance not only allows your company to continue its regular operations, it also avoids instances of flouting the rules.

The second tier of compliance focuses on employees. Beyond performing their roles, employees also take on the character as your company’s representatives. Thus, when they are compliant, it will help to boost your organisation’s reputation. Besides, adherence to compliance regulations brings about stability which clients love.

The last tier of compliance involves external stakeholders such as third party service providers. When there is a collaboration, consumers tend to associate third party vendor with your organisation. Therefore, in the event where your external partner goes against compliance regulations, it may have an impact on your business.

What is a compliance management system?

A compliance management system provides your organisation with a structured approach on how to comply with the legal requirements. Within this integrated system, it includes features such as processes, written documents, functions and audits to ensure your company is on the right track.

By adopting a compliance management software, your company can now easily source and address any potential risks whilst being compliant with the regulatory requirements.

Elements of a compliance management system

There are three main components within a compliance management system – board directors and management oversight, compliance program, and compliance monitoring and audit. When supported by a few sub-components, such as policies and procedures, consumer complaint response, and employee and management training, a more comprehensive system is established. This would allow your organisation to better handle compliance obligations.

Board of directors and management oversight

According to the Australian Institute of Company Directors (AICD), the board is responsible for overseeing the organisation’s compliance with the ‘relevant laws, regulations and internal policies’. Furthermore, directors are ‘ultimately responsible for the performance and compliance of the organisation’. As such, it is appropriate that the board of directors and management are the ones planning, developing, and administering the compliance management system.

Here are some considerations the board of directors and management can take into account when planning and designing for the compliance management system:

  • What are some compliance expectations and policies the organisation should establish for the staff and external partners?
  • How much resources should your organisation allocate to compliance functions?
  • Will the organisation appoint a compliance officer?

Apart from planning and executing, involving the board of directors and management has a lot to say about the organisation’s commitment to follow the regulations. Likewise, their presence would set the tone for compliance efforts within the organisation.

With the insights and experiences of the board of directors and management, you can improve and refine compliance procedures. This would aid your organisation in achieving the long term compliance requirements.

Compliance program

If the compliance management system is likened to a machine, the board of directors and management would have been the ideators and makers. The compliance program would then function as the control panel, guide, and engine of the machine. This is also the part where compliance officers come in and take control of.

As a control panel, the compliance program serves as the key source for compliance management controls and countermeasures. This implies that if there are regulatory changes, the compliance program would have to adapt and evolve to the changing compliance obligations.

Furthermore, with the compliance program, your company can swiftly identify any compliance issues. For instance, the system can identify and reduce the possible risk of breaching the Competition and Consumer Act (CCA) in Australia.

As a guide, the compliance program serves as a reference for compliance relevant requirements to the different stakeholders within your organisation. When equipped with the necessary knowledge, it would help your company and employees in reducing the probability of going against any compliance standards.

As an engine, the compliance program forms the foundation of the compliance management system. This is where policies are designed and implemented. Nevertheless, when designing the compliance program, there are a few factors to consider such as:

  • The size and structure of your organisation
  • The legal, social, cultural, environmental and stakeholder context your organisation is operating in
  • Your organisation’s business strategy

The considerations stated are not exhaustive, however the main point is: you have to create a compliance program that is suitable for your organisation.

Like any engine, the compliance program consists of different sub-components. While there is a standard set of sub-components used, you should customise the compliance program to your organisation’s needs.

Sub-component 1: policies and procedures

To lay the foundation for the operations of your compliance program, you need to have a clear set of policies and procedures. This would also impact the whole compliance management system.

In order to maximise the effectiveness of the compliance program, your organisation should review policies and procedures to relay the latest information on compliance standards. Moreover, it should be concrete, practical and accessible. This way, employees and stakeholders can refer to the guidelines and make informed decisions.

Within this sub-component, you can incorporate aspects regarding communication. By setting up a clear communication flow, it is easier to relay the changes and updates made. The different stakeholders and employees would also know who to look out for when they require assistance.

It’s a good idea to include some elements of goals and objectives as well. By having compliant related goals, it provides a sense of direction for the company to work towards. This motivates employees and ensures long-term goals are achieved.

Sub-component 2: consumer complaint response

As your organisation and consumer base grows, you will receive more feedback from your consumers. They could come in the form of compliments or complaints, and it could be about anything! Hence, having a consumer complaint response in your compliance management system would come in handy.

Some features of a consumer complaint response include establishing procedures, analysing complaints and taking corrective actions.

A procedure is established to serve as a guide for your employees. This reference provides your staff with a clearer understanding and knowledge of what actions to employ when resolving complaints. The level of uniformity in terms of how your employees deal with complaints would also increase.

Monitoring and analysing complaints is not an issue when you incorporate a consumer complaint response in your compliance system. Through the trend observed in the complaints collected, your organisation would have greater insights of your consumers’ needs and wants. The application of such insights would allow decision makers to make informed decisions for your business.

Another crucial aspect of monitoring the complaints is identifying higher order complaints which goes against compliance requirements. For instance, complaints pertaining to unfair treatment or discrimination is ranked highly in terms of severity. Therefore, prioritising such complaints is important as the issue could potentially escalate and damage your organisation’s reputation.

After gathering and analysing the complaints, it is time to take action. Appropriate prospective and retro perspective corrective action should be considered when resolving complaints. This is especially important for higher order complaints which are of higher sensitivity.

It is important to educate employees about compliance knowledge

Sub-component 3: compliance training

Even with all the policies and procedures in place within the compliance management system, nothing beats having an employee who abides closely to compliance regulations. But, before you have a compliance-abiding employee, you will have to provide them with the necessary training.

Training content should educate employees and management on the different compliance procedures. This includes providing them with resources on:

  • Who to approach for assisstance
  • Where employees can obtain the latest information on compliance
  • What is the latest internal policies and procedures for compliance
  • Any possible emerging compliance issues

With that said, it’s important to have regular training. When equipped with the latest compliance knowledge, your employees will have greater awareness of their compliance responsibilities. This would reduce the probability of your company getting into trouble for going against compliance standards.

Alongside the training, your firm should communicate long-term and short-term compliance goals to both employees and management. This provides them with a direction to work towards in their journey of becoming a compliance-abiding employee.

Compliance training should not stop within your organisation. You should involve your third party service providers. By engaging them in compliance training, it allows you to set your expectations upfront, and simultaneously manage their expectations. Their involvement can help to strengthen your collaboration relationship with them, as it shows their commitment to abide by compliance standards.

Compliance monitoring and audit

The final element within a compliance management system looks at compliance monitoring and audit. Continuing from the example of compliance management system being likened to a machine, it can be said that compliance monitoring and audit functions as the maintenance portion for the machine

Although, monitoring and audit may sound similar, they vary slightly when you implement them.

With continuous monitoring of your organisation’s compliance management processes, you can easily identify areas of improvement, and stay on top of potential compliance violations. To tackle the discrepancies, you can conduct analysis and make appropriate changes. If you would like to go a step further, you may even document the process to serve as reference for the future.

The largest difference between monitoring and audit lies in its formality and frequency. Audit is more formal and occurs less frequently compared to monitoring.

Given its formality, individuals who audit the compliance management system would have to be independent from the organisation. After the review process, the auditors would craft and deliver a formal report to the board. Moreover, compliance audits are conducted on an annual basis, just like any other audits.

Despite the slight differences between compliance monitoring and audit, both of these functions should work together. This would result in maximum efficiency while ensuring your organisation stays on track in meeting both long and short term compliance objectives.

Benefits of having a compliance management system in your organisation

Now you are equipped with knowledge pertaining to the compliance management system, let us take a look at the benefits of adopting one!

Reduce legal risks

On the extreme end of violating compliance regulations, an organisation can potentially involve themselves in a lawsuit, and the consequences are clear. Not only an extended amount of time is required, lawsuit also drains the company by a hefty sum.

This is also how opportunity cost is incurred. You organisation could have use that amount of money on meaningful activities such as research and development, or new product launches.

By having a compliance management system, you can easily reduce instances of compliance violations. Through real time monitoring, you can receive updates, adapt and configure your compliance workflow to achieve greater efficiency. This will help your organisation to mitigate compliance related issues, and stay away from compliance related lawsuits.

Avoiding costs

Other than reducing legal risks, the most direct benefit of investing in a compliance management software is the reduction of operational costs.

Although the initial investment for a compliance management system may seem costly, rest assured it is a worthwhile investment. By integrating the system into your organisation’s workflow, you are able to meet the compliance standards easily and efficiently.

Furthermore, you can establish compliance automation with a compliance system. This reduces the chances of committing human error and oversight which can lead to penalties. By cutting down the reliance on humans to manage compliance, it eliminates the need to hire more staff personnel. Now, your organisation will have more resources and manpower to work with in other projects.

Having a compliance management system improves efficiency thereby creating happy employees

Improves brand image

In order for your consumers to have a good perception of your organisation, you need to show your commitment to build a sustainable brand image.

Some characteristics consumers look out for are responsibility and trustworthiness. By having a compliance management software, you can equip your organisation with those characteristics

The adoption of a compliance management system goes to show your organisation has placed significant importance in abiding compliance standards. Beyond demonstrating your commitment, it also enhances your company’s reputation for treating consumers, competitors, and employees fairly.

When the above impact is multiplied, it will boost your organisation’s standing. As such, retaining high-performing employees and attracting qualified workers is not an issue. In the long run, the performance and productivity of your company will also improve.

Improved efficiency

Despite having many elements within a compliance management system, maintaining compliance can be a breeze.

The compliance management software consolidates all components into a centralised area. This allows you to track and manage compliance easily. Furthermore, having a single source of truth ensures uniformity when relaying and retrieving information. Having this integrated system for compliance may contribute to interdepartmental harmony as the information is agreed upon and used throughout the organisation..

Improving efficiency within the organisation is insufficient. By including third party service providers as a stakeholder within the compliance system, you are displaying trust. This can help contribute to a better working relationship with them.

Third party service providers can retrieve compliance related information from the compliance management system. To do so without revealing confidential information, you may set up restricted access. That way, your third party vendors would not have to constantly reach out to you for compliance information, while ensuring everyone is on the same page.

In summary

Now you have understood what a compliance management system is, and its benefits, you may have come to realise the importance of having one in your organisation.

As you design and develop your compliance management processes, keep in mind the few pointers mentioned above. Afterall, having a suitable compliance management system is crucial in maximising its effectiveness.

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