Building an Effective Compliance Management System

LexisNexis reported that the projected cost of financial crime compliance across financial institutions internationally is about $274.1 billion. Compliance has evolved into a business function and discipline that every company needs to incorporate into their operations — with consequences for failing to do so. There are regulatory requirements that need to be followed; financial statements that need to be prepared and audited; certifications to obtain; and controls to adhere to. Many companies have more than one set of compliance requirements they need to meet while concurrently running organization-wide risk management and audit initiatives. Financial institutions and companies providing financial services in particular have complex and numerous compliance regulations and legal requirements they must fulfill. The role of compliance at an organization continues to expand, calling for more resources and spending for implementing internal controls and finding efficiencies. Compliance teams and professionals in the GRC space (Governance, Risk, and Compliance), along with professional associations and governments, have worked hard to find solutions for effective compliance, developing different systems for managing risks, meeting regulatory requirements, and establishing thorough management oversight.

One method organizations can use to better understand their compliance responsibilities, train employees, and carry out compliance activities is by implementing and maintaining a Compliance Management System (CMS, not to be confused with a Content Management System, which is also shortened to the acronym CMS). Compliance Management Systems are often utilized at financial institutions, such as banks, credit unions, and other financial services companies, though they can be used to great benefit in any industry. A Compliance Management System brings compliance, audits, senior management, and the Board of Directors together to mitigate the risk of non-compliance and achieve the company’s compliance goals.

What is a Compliance Management System?

A Compliance Management System is all in the name — it is a method businesses can use to oversee compliance efforts, address compliance risk, and coordinate corrective action when it’s needed. It’s a systemic way of handling compliance, involving defined workflows, roles, and internal policies. It’s a management function, so it takes those carrying out business processes and senior management, all the way up to the Board, and brings all of these interconnected parts of the business together to solve compliance issues. The FDIC further defines a CMS as how an organization:

• Understands its compliance responsibilities;
• Trains employees on those obligations and their roles;
• Incorporates compliance efforts into daily operations and business processes;
• Performs compliance monitoring to ensure that compliance policies are being followed and requirements are met;
• Carries out corrective action and remediation;
• And reviews and updates the compliance program and accompanying documentation.

A CMS can include policy and procedure documentation, monitoring, testing, and compliance audits. Today, an effective CMS might incorporate the automation of controls and include a compliance training program for employees. A CMS also helps manage the lifecycle of discrete projects, such as the timing for different compliance audits, the renewal cycle for risk assessments, and the scheduling and execution of various internal audit initiatives. In short, if it has something to do with compliance or compliance risk management, then the Compliance Management System will come into play somehow.

Compliance Program

Compliance management systems are essential to running an effective compliance program. First and foremost, a compliance program should be designed to ensure adherence to applicable laws, regulations, and industry standards. This includes establishing clear policies and procedures, conducting regular audits and assessments, and implementing appropriate controls to prevent regulatory violations. A compliance program should also be proactive in identifying and addressing potential compliance risks. This involves monitoring industry trends, staying informed about changes in regulations, and actively seeking feedback from customers and stakeholders. By being proactive, organizations can minimize the risk of non-compliance and respond promptly to consumer complaints or regulatory inquiries.

A key component of a compliance program is the designation of a compliance officer or team. These individuals are responsible for overseeing and managing compliance activities, including training employees, monitoring compliance metrics, and addressing any compliance issues that may arise. The compliance officer should have a deep understanding of regulatory requirements and should be empowered to enforce compliance within the organization.

In addition, a compliance program should promote a culture of compliance throughout the organization. This includes providing regular training and awareness programs for employees, establishing clear communication channels for reporting compliance concerns, and rewarding employees for demonstrating good compliance practices. By fostering a culture of compliance, organizations can ensure that compliance becomes an integral part of their day-to-day operations.

Overall, a compliance program should be comprehensive, proactive, and tailored to the specific needs of the organization. By implementing an effective compliance management program, organizations can minimize regulatory risks, protect their reputation, and maintain the trust of customers and stakeholders. A compliance management system should have the capabilities to support the foundations of their program.

Creating a Compliance Framework

Creating a compliance framework is a crucial step in building an effective compliance management program. This framework provides a structured approach to managing and ensuring compliance with relevant regulations and standards. When establishing a framework, organizations should consider industry best practices and leverage established frameworks such as NIST, or ISO as their base.

The first step in creating a compliance framework is to identify the specific regulations and standards that apply to your organization. Conduct a thorough assessment of your compliance needs and determine the requirements that must be met. This includes understanding the specific controls, policies, and procedures that need to be implemented to achieve compliance.

Next, organizations should align their framework with established industry standards and frameworks. These frameworks provide a comprehensive set of controls and best practices that can be tailored to meet specific compliance requirements. For example, the Payment Card Industry Data Security Standard (PCI DSS) provides a framework for organizations that handle credit card data, while NIST offers a set of cybersecurity controls and guidelines.

Once the relevant frameworks have been identified, organizations can begin mapping their existing security controls and processes to the requirements outlined in these frameworks. This mapping exercise helps identify any gaps or areas that need improvement. Organizations can then prioritize and implement additional controls to address these gaps.

It is important to remember that creating a compliance framework is an iterative process. As regulations and threats evolve, the framework should be reviewed and updated accordingly. Regular monitoring, testing, and auditing should be conducted to ensure the effectiveness of the framework and identify any areas that need adjustment.

By creating a robust compliance framework, organizations can establish a strong foundation for their compliance management program. This framework provides a structured approach to managing their program, ensuring compliance with regulations and industry standards, and mitigating risks. By leveraging established frameworks and continuously monitoring and updating the framework, organizations can stay ahead of emerging threats and maintain a strong security posture.

Compliance Audit

Compliance audits are formal evaluations or assessments of an organization’s adherence to frameworks or regulatory requirements. They are independent reviews that give management a different perspective on their organization’s compliance posture and help identify other risk conditions. There are many different types of compliance audits a company can undergo. Some of them are mandatory, like the independent audits required of public companies that must comply with SOX. 

Any audit reports or results should make it to the desks of the Board of Directors or an appropriate subcommittee. A compliance audit report that is delivered to the Board or their representatives should include a description of the audit scope, any findings, deficiencies, or observations that came up during the audit, a summary of testing and sampling methodology, and recommendations for remediation and corrective action. The outcomes of an audit should feed into the overall Compliance Management System, informing company leadership’s decision-making, and being used to improve the compliance program.

Measuring the Success of a Compliance Management System

When a well-designed and supported CMS is running on all cylinders, a company can expect some benefits and outcomes that will elevate its compliance program. To realize the effectiveness of the compliance management system, it is essential to measure its success. This step is crucial for an organization to understand how well its system is performing and identify areas for improvement. By measuring the success of the compliance management system, you can ensure that your efforts are effective and aligned with your goals. The functions that are indicative of an effective Compliance Management System are that it delineates compliance responsibilities in a digestible way, provides mechanisms for employee training and accountability, integrates compliance into business processes seamlessly, monitors compliance and controls, and facilitates updates and corrective action when it’s necessary.

One key metric to consider when measuring the success of the system is the level of regulatory compliance achieved. Another facet of an effective CMS is the successful integration of compliance into business processes. This can be determined by conducting regular compliance audits and assessments to evaluate the organization’s adherence to applicable regulations and standards. Assessing its compliance posture allows the organization to identify any areas of noncompliance and take corrective actions. It also provides insights into the effectiveness of compliance controls and processes.

Another important measure of success is the effectiveness of the controls in place safeguarding sensitive information. Regular security assessments and testing can help evaluate the strength of the control environment. By monitoring and addressing these vulnerabilities, you can strengthen your compliance posture and reduce the risk of operational vulnerabilities, including non-compliance

Furthermore, assessing the level of employee awareness and understanding of compliance requirements is crucial. Conducting surveys or feedback sessions can help gauge employee knowledge and identify areas where additional training or communication is needed. The more informed and engaged the employees are, the better equipped they will be to maintain compliance and respond to potential security incidents. Training is the bedrock of successful corporate education — with an excellent compliance training program that is refreshed annually, organizations can foster compliance knowledge and accountability in their employees.

It is also important to measure the efficiency of the compliance management processes. Evaluate the time and resources required to manage compliance activities, such as documentation, training, and audits. Consider implementing a compliance management software or governance, risk, and compliance (GRC) platform to streamline and automate these processes, reducing administrative burdens and increasing efficiency. This might mean automating a control so that a user doesn’t have to perform it, or this could mean developing a streamlined and well-orchestrated process that has compliance checks, like reviews and approvals, built in.

Customer and stakeholder feedback is another valuable measure of success. Conduct surveys or feedback sessions to gather input on their perception of your organization’s compliance efforts. This feedback can provide insights into how well the organization is meeting its expectations and maintaining its trust. Address any concerns or suggestions raised by customers and stakeholders to demonstrate the commitment to data security and compliance.

Finally, consider benchmarking the compliance management system against industry standards and best practices. Compare the organization’s performance and processes with those of similar companies in its industry. This benchmarking can help identify areas where you can further improve the system and ensure that it is at the forefront of compliance and security practices.

In conclusion, measuring the success of your compliance management system is essential for ensuring its effectiveness and identifying areas for improvement. By evaluating regulatory compliance, control effectiveness, employee awareness, process efficiency, customer feedback, and benchmarking against industry standards, you can ensure that the system is robust and aligned with the organization’s goals. Continuously monitor and measure the success of the system to adapt to emerging threats and regulatory changes and maintain a strong compliance posture. A good and effective CMS takes the lessons learned from monitoring and experience to implement corrective actions and remediation where necessary to handle risks and improve the compliance program.

Benefits of Using Compliance Management Software

As your organization looks to adopt and establish a Compliance Management System, compliance management software can be a big help. Technology has come to the world of risk and compliance at last (beyond spreadsheets, that is), and users and companies can all benefit from the efficiencies gained by using compliance management software.

Automation

Compliance management software incorporates automation and brings it into compliance workflows. With automatic reminders and corresponding guidance provided, teams will find it hard to miss control deadlines and better understand timeframes for completing activities like reviews or testing. 

Data Analytics

Great compliance management software offers robust data analytics capabilities that allow organizations to track their key risk indicators (KRIs) and other metrics of interest. This type of software also generates valuable reports that companies can use to guide decisions and evaluate the performance of compliance programs.

Intuitive Audit Management

Since audits are a key component of compliance and Compliance Management Systems, having the functionality to manage audits intuitively and in a streamlined fashion is invaluable. Through compliance management software, organizations can coordinate audits with stakeholders and collaborate on evidence collection in a centralized solution, rather than folders and shared drives. That makes version control and finding documents much easier, which saves teams time and allows them to complete more value-added efforts.

Visibility into Findings and Noncompliance

Along with strong data analytics capabilities, compliance management software gives companies, their senior management, and other internal stakeholders visibility into any findings from audits or assessments or any areas of noncompliance. These would be of interest and importance to leadership, as the costs and consequences of noncompliance or control deficiencies can be devastating for companies. With improved, transparent visibility into enterprise-wide findings, noncompliance, and observations, senior management and compliance teams can act more quickly and identify and remediate issues in real time.

Risk Assessments and Risk Management

As with audit capabilities, compliance management software equips organizations with the ability to perform risk assessments, risk management, risk treatment, and risk monitoring in an efficient and streamlined way. By providing a dashboard with which to view and analyze risks, people no longer have to dig through different versions of spreadsheets to understand the status of a remediation or how a risk is to be treated. 

Gain Cost Efficiencies

All of these capabilities — automation, data analytics, audit management, improved visibility, and risk management — all result in greater efficiencies in your compliance program, and therefore, cost efficiencies. By employing software to perform much of the administrative overhead and “grunt work” of uploading and downloading evidence, finding documents, and maintaining version control, teams can focus on high-value activities, like conducting interviews, doing research, or designing controls.

Conclusion

AuditBoard enables your organization to do all this and more. With the capability to automate compliance workflows and generate dashboards, your company and team can finally have a single-pane view of project and program status. Through the visualization capabilities of the software, your team can generate impactful reports that can assist the C-suite in making strategic decisions. AuditBoard has the Unified Compliance Framework® embedded, making framework mapping and requirements alignment a cinch. And, with collaborative capabilities that enable stakeholders and team members to work together in a centralized repository, organizations can break down silos and enable truly cross-functional, enterprise-wide Compliance Management System. Reach out to AuditBoard today!