3 Signs of Impending Regulatory Compliance Failure You Can’t Afford to Ignore

March 9, 2020 Anton Merk

When is the right time to invest in upgrades to your regulatory compliance program? Ideally, before you are sanctioned for a regulatory failure.

Noncompliance can cost nearly three times as much as meeting compliance requirements effectively, so it pays to stay compliant. Yet a surprising number of reputable enterprises came to market for compliance software because they were sanctioned for a regulatory failure and found themselves facing a tight deadline to implement dramatic changes in their compliance framework.  Sanctions also negatively impact the excellent reputations of these companies, which can be difficult to quantify but also very expensive.

Non-financial risks, such as reputational risk, are becoming a focus of concern for regulators.

Costly compliance “gaps and overlaps” lurk in the white spaces of a company’s organizational chart where work is flowing between business units, lines of defense and personnel. New regulations trigger new layers in control, and often companies add additional staff rather than invest in tech-enabled solutions to manage new requirements.

As compliance teams grow and splinter into specific areas of expertise, and overall requirements become more complex, existing regulatory compliance management solutions and processes may not scale to the task.

If you wait for regulators to find gaps in compliance, you will be making changes on their terms. A proactive investment mindset gives your company control over the timeline for designing and implementing a more mature, change-ready compliance framework.

How do you know you’ve reached the tipping point where your company has outgrown its regulatory compliance program?

The signs of impending system failure are easy to spot – if you know where to look. 

1. Compliance reporting is a manual process

Your company has outgrown its compliance operating system if reporting is a cut-and-paste manual process. In this age of automated data visualization, manual processes for aggregating data and creating compliance reports are a waste of compliance manpower – and a lost opportunity to provide compliance executives and the board with meaningful insights into compliance effectiveness.

Automation of reporting from a centralized data source is the hallmark of a mature compliance model, and regulatory change management depends upon it. An automated compliance reporting dashboard, fed by data from a robust compliance technology, can provide a holistic view of the overall state and effectiveness of compliance across the entire enterprise.

Compliance reporting dashboards raise the visibility of the value of compliance in the C-suite and boardroom. Company leadership and board members can get real-time status on compliance activities throughout the organization, including monitoring and testing, vendor due diligence, regulatory exam status, and regulatory change management. 

2. Legacy compliance technologies have not been updated for years

Many, if not most, enterprises have matured beyond managing compliance through Excel spreadsheets and SharePoint. They have developed in-house compliance systems or built a user interface over a third-party database application like Access.

When your company’s home-grown compliance system is so outdated it’s driving staff to develop inefficient workarounds, it’s time to look at a purpose-built compliance solution.  

Companies that develop their own compliance IT framework in-house are locked into an ongoing expense of maintaining the solution themselves. Often, the system is built in such a manner that future changes and system enhancements require the original developer to remain involved.

Clients have come to us with legacy solutions that haven’t been updated for years because the programmer who originally developed the solution left the organization and nobody understood the back-end code well enough to maintain it. Bringing on a new programmer to rework and update an aging home-grown system can be cost-prohibitive, so companies tend to apply a band-aid approach until a regulatory misstep forces them to evaluate a better solution.

We have observed another serious problem with home-grown compliance applications: They can enable a compliance culture that avoids the adoption of best practices and rules changes. This enablement occurs in two ways.

  • First, staff can go directly to the in-house developer and request workarounds to any changes in compliance processes or policies they are uncomfortable conforming with.
  • Second, homegrown solutions are often built with requirements that reflect the compliance perspective the company is already following. The platforms are designed without benchmarking compliance practices of their industry peers or the compliance discipline as a whole.

A home-grown system is rendered obsolete before day one of implementation when developer requirements don’t take into account best practices or try to anticipate where compliance practices are heading.  

The adoption of an out-of-the-box solution is an opportunity for a company to upgrade the compliance program as a whole without being undermined by change resistance among employee ranks.

  • A purpose-built compliance solution has best practices already built into the design, along with limits on who can control updates or exceptions to rules.
  • Updates to compliance best practices and relevant regulations are automated, so while end users can customize certain aspects of their interface with the system, best practice standards and rule changes are rigid and must be adhered to.

3. You manage compliance controls by volume, not by exception

Every compliance officer faces the same problem – the burden of monitoring a huge volume of internal controls. When a compliance team reaches the point that they are so overwhelmed administrating procedural adherence to controls that they never get adequate time to remediate material exceptions, the company is highly vulnerable to fines and regulatory pressure.

A number of clients come to us because they’ve been managing compliance by volume and have been slapped with a multi-million dollar fine and an MRA to resolve on a deadline.

Remediation of issues by volume means staff may disproportionately spend time on issues of low or medium materiality, rather than focusing on high-risk material issues. Cumbersome issue tracking methodologies and fragmented efforts across compliance silos make it difficult to coordinate compliance activities between lines of defense, causing duplication of effort and increasing the risk of remediation efforts lagging past their due dates – or falling through the cracks altogether.

Don’t wait until your company is sanctioned for a regulatory failure and hit with expensive fines to recognize it’s time to tech-enable your regulatory compliance program.

 

To learn additional signs of impending system failure, download our white paper, “7 Indicators Your Regulatory Compliance Framework Needs an Upgrade.”

Request your copy:

   

 


Regulatory compliance solutions offer a significant opportunity for organizations to fortify their compliance programs while at the same time utilizing fewer resources. SAI Global can help assess whether your company’s regulatory compliance requirements have outgrown your existing compliance framework and systems. If you're ready, contact us to get started.

About the Author

Anton Merk

Anton Merk is VP PreSales EMEA at SAI Global. He is responsible for identifying the needs of the customer, driving innovation strategy and the growth of SAI Global’s solutions to ensure technological excellence. An established risk management solution specialist and thought leader, Anton has held a number of senior product consultancy roles with leading Governance, Risk & Compliance (GRC) technology organizations. He has more than 14 years of experience in the GRC space delivering complex enterprise risk management, operational risk management, audit and Integrated Risk Management implementations to global customers.

Follow on Linkedin More Content by Anton Merk
Previous Flipbook
Legal Mandate Increases Compliance Risk for Nursing Facilities
Legal Mandate Increases Compliance Risk for Nursing Facilities

Our executive brief provides insights for long-term care and nursing facilities about the core elements req...

Next Article
3 Innovative Ways to Add Value through Operational Risk Management
3 Innovative Ways to Add Value through Operational Risk Management

Operational risk and its supporting software play a critical role in an organization; but how can its activ...