A Comprehensive Guide to Compliance Monitoring

Does your business have a compliance monitoring system in place? Compliance monitoring is crucial for organizations of every industry to determine if their programs are responsive, practicable, and align with company characteristics. Compliance policies are designed to help companies and corporations of all sizes reach optimal performance in all work processes. These written standards of conduct help employees and partners understand their roles in the organization, and adhere to its rules and standards. 

Organizations can only evaluate the effectiveness of their compliance policies and employee performance through a compliance monitoring strategy. Monitoring regulatory compliance is also helpful for making sure that all policies are up to date and aligned with the latest regulatory requirements. When companies are proactive in creating a compliance strategy, they find it saves time, improves efficiency, protects them financially, and reduces overall risk.

Read on to understand the importance of monitoring compliance policies and learn about the best systems for compliance monitoring.

What is a Compliance Policy?

A compliance policy or program describes procedures and guidelines outlining industry laws, standards, regulations, and rules guiding operations for an organization. These rules and compliance regulations are often put in place by authorities and government bodies. The goal of an internal compliance team is to create a comprehensive compliance program to implement at their company and enforce adherence.

What makes a successful compliance policy? One that outlines clear company policies, communication pathways, and the consequences of defying or ignoring these guidelines. Compliance programs provide value because they protect organizations from unexpected scandals and lawsuits. 

Compliance policies are created and monitored by different governing bodies based on the industry and country. For example, in the U.S, the Federal Reserve Board, the Financial Industry Regulatory Authority, and Securities and Exchange Commission oversee financial compliance. Meanwhile, the Health & Human Services Office of Inspector General oversees compliance for health institutions. 

Regardless of the industry, a successful regulatory compliance program must include the following elements:

• Development and distribution of written policies and standards of conduct that promote the organizations’ commitment to compliance.
• A designated Chief Compliance Officer and corporate compliance committee that are responsible for overseeing and monitoring the compliance policy. They will report their findings directly to the CEO and governing body.
• Regular training programs to educate employees.
• A transparent process for receiving complaints that assure the complainants’ anonymity  and protects whistleblowers from retaliation.
• A system for responding to allegations and taking disciplinary action when employees violate compliance policies and federal requirements.
• Procedures for proper investigation and remediation of systemic problems in the organization.

The Guiding Principles of Corporate Compliance

All compliance policies should outline general principles and explain why these rules or compliance regulations are important to follow. Procedures must also lay out the methods of performing various job functions to achieve successful outcomes. Since compliance is a federal requirement, organizations that fail to create compliance programs or provide employee training  put themselves at high risk for severe consequences.

“Organizations lose an average of $4 million in revenue due to a single non-compliance event.” 

– (GlobalScape’s The True Cost of Compliance with Data Protection Regulations) 

If a health institution doesn’t have compliance programs for federal regulations, such as HIPAA and policies for patient care, they could face serious lawsuits, federal fines, sanctions from Medicaid and Medicare, and could lose their accreditation. The cost of not adhering to compliance can be high. Clearly, it’s vital that organizations invest in creating compliance policies with detailed procedures to protect the company’s best interests and reputation.

Critical principles of corporate compliance include:

1. Ethics and Integrity: Having an ethical compliance process is crucial for business continuity and shouldn’t be treated as an add-on. Instead, it should be viewed as a key business strategy for long-term success. A company culture of ethics and integrity starts from the top down. An organization is only as strong as its leadership!
2. Risk Assessment: Risks to compliance need to be identified, owned, mitigated, and managed. All corporations should conduct regular risk assessments to identify areas for improvement. It’s also important to make sure employees understand  risk management and how to create a plan for mitigating any risk.
3. Open Communication: Organizations must also put the protection of their employees first. Leadership needs to value their team’s concerns or reports of wrongdoing – even the most detailed compliance plan won’t work if employees don’t feel safe to speak freely to report criminal conduct or abuse of regulatory compliance policies. 
4. Accountability: Businesses must take ownership and respond accordingly if policies are abused. While we are all human and a few compliance lapses may occur, your businesses should still be ready to accept accountability in those moments . 

Clearly, there are many benefits of maintaining a structured compliance strategy like this. Wouldn’t you love to help your employees do their jobs well, achieve organizational goals, protect your business from risk, and promote positive relationships with clients and stakeholders? It’s a win-win for everyone involved! Now let’s move on to monitoring compliance…

Compliance Monitoring vs. Compliance Auditing

Compliance monitoring describes the ways an organization reviews and assesses how well they are following industry regulations and standards. This is done internally through a compliance monitoring system, which may include software solutions, technology, or other programs. The main goal of compliance monitoring is to identify compliance risks within an organization and then take action to mitigate those risks moving forward.

Compliance monitoring slightly differs from compliance auditing. Unlike monitoring, compliance auditing is a formal evaluation process done annually by third-party institutions. This type of  monitoring occurs within an organization and falls under the responsibilities of the compliance committee and Chief Compliance Officer.

The Importance of Compliance Monitoring

Compliance monitoring is for making sure an organization is operating as it should. Ongoing monitoring compliance helps corporations identify areas of intentional or accidental non-compliance.

Documenting the findings of compliance monitoring helps organizations prove that correct procedures and regulations are the norm. This helps mitigate  severe consequences if your organization has failed to comply with an internal policy or external regulation. Monitoring compliance is the first step toward improving performance and efficiency in various work functions and roles. By understanding the starting point, organizations can spot areas of improvement and work toward preventing it from recurring in the future. These actions will eliminate the possibility of costly fines, lawsuits, and sanctions.

“An organization that has made a robust effort to prevent and detect violations of the law by its employees and others acting for it will be treated less harshly than one that was indifferent to complying with the law.” – Rutgers School of Law

The benefits of compliance monitoring are different for every industry. For example, a comprehensive compliance monitoring program for IT companies helps them ensure that data privacy and cloud security policies are adhered to. But in the health sector, compliance monitoring improves patient care and ensures that best practices are followed.

Internal Process Auditing

Let’s talk about the difference between compliance monitoring and compliance auditing.  Compliance monitoring takes place internally with help from your Chief Compliance Officers and their team. Compliance auditing is conducted externally through a third party agency.

Most corporate organizations prefer hiring third party agencies like the Federal Trade Commision or FINRA to ensure they are meeting regulations. 

These third party agencies show up on-site (often unannounced), ready to search for proof of compliance. This means they will assess your staff training programs, procedure manual, and employee knowledge.

Even though compliance auditing occurs once annually or within three years, organizations should always be ready by ensuring that all compliance requirements are met. Many companies search for regulatory change management softwares or tools to stay updated on all compliance regulations.

Demonstrating Regulatory Compliance

Depending on the industry your organization is in, there are several ways to prove compliance. For example, doctors and nurses provide detailed documentation for patient interactions in order to avoid fraud claims.

Organizations should also prove compliance with HIPAA requirements. Medical service providers can work with accredited self-assessment providers, such as Jotform or MedTrainer. Corporate compliance platforms, such as MetricStream and CyberOne, can also help corporations prove compliance.

Companies can also prove compliance by reviewing their internal controls and policies annually. In doing so, you will get a chance to check in on your company’s current policies and make improvements where it’s necessary. This demonstrates compliance as members of the corporate compliance commission will compare your new policy with the previous regulations on their books.

Another way to establish compliance is by documenting continuous employee training. Demonstrating that your employees have participated in regular training is an indication that you have met the compliance requirements. 

A Monitoring Framework

Effective compliance monitoring systems should include the following;

1. Objectives

The primary objective of compliance monitoring is to verify that organizational activities meet desired outcomes. Once your organizational policies have been set, regulaotry compliance monitoring will keep your company on track with your goals at every stage. 

2. Timing

Compliance monitoring typically takes place per-activity or after-activity. Each method has its strengths and weaknesses. We will discuss these methods in more detail when we go over methods of monitoring compliance.

3. Comprehensiveness

Comprehensive monitoring focuses on sensitive activities that require meticulous scrutiny.  Some corporations spot-check randomly selected procedures. Management may decide to review specific processes to determine if they pose serious risks. Managers can also develop sophisticated ways of evaluating high-risk activities, like those involving specific demography, done by a specific staff member, or within selected parameters.

4. Monitors

Even though management should take responsibility for all activities within the organization, compliance monitors may vary depending on the sensitivity of the activity. For example, managers can delegate compliance monitoring to employees who aren’t directly involved with the activity. This is common for routine activities with fewer risks. 

5. Metrics

Metrics are a crucial component of business processes and monitoring. Set attainable and measurable goals, then use compliance monitoring tools to assess your ability to reach those benchmarks. 

6. Outcomes

If the result of your compliance monitoring is that your organization missed the mark, take action. Strategize on ways to improve Is the desired outcome attainable? Have we met this benchmark in the past? What can we change to make sure this doesn’t happen again? These are all questions your organization should be asking when it fails to meet the standards it has set for itself.

7. Factors
   There are a handful of factors that will influence your compliance monitoring design: 

• The number of transactions – fewer transactions mean easy and fast monitoring.
• Cost of monitoring – this compounds the staffing, financial, and other resources required.
• Ease of monitoring – managers can employ the right software and tools that expedite or automate monitoring to improve the process.
• Motives for non-compliance – managers should institute stringent monitoring for activities that employees can benefit from non-compliance.

“The three areas of compliance that organizations plan to focus on in the future are enhancing regulatory compliance and internal compliance assessments, elevating third-party compliance, and improving employee awareness with more compliance training.”

• MetricStream State of Compliance Survey Report 2021

Methods of Compliance Monitoring 

Compliance monitoring can be modified to include:

• Self-monitoring: As the name suggests, an individual or a dedicated compliance team is assigned to evaluate their performance. This takes advantage of individual accountability and responsibility, eliminating the need for hiring a designated monitor. An internal audit department can then be used to ensure that self-monitoring actions are effective and not compromised.
• Constant monitoring: Monitoring is done continuously instead of as a discrete periodic activity. Constant monitoring is done by managers and forms a crucial part of the company’s internal control structure. 
• Per-activity monitoring: Per-activity monitoring takes place in real time. An example of this would be an employee needing manager approval to complete a high risk transaction. 
• After-activity monitoring: After-activity monitoring is reserved for lower risk  transactions or recurrent activities. Your business wouldn’t want to use per-activity compliance monitoring for a task employees complete 100 times a day. Your work would be backlogged significantly. After-activity monitoring can take place in the form of weekly check-in or quarterly review.

How Should a Compliance Monitoring Strategy be Structured?

The best compliance monitoring policies evaluate an organization’s adherence to laws and industry standards. The most comprehensive results come from a strategic combination of internal monitoring and external monitoring from a third-party. How will my company know which monitoring methods are best? Your organization can consult a third-party agency for recommendations based on your industry. 

A continuous compliance monitoring system consists of several dynamic components: policy reviews, internal monitoring, external audits, and regulatory change management softwares. Below are the most common systems used for monitoring compliance.

• Cycles of Operational Review

Operational review typically evaluates the operations and performance of an organization. While a policy manual outlines the accepted and expected behavior, an operational review evaluates if these standards are being followed. A full operational review examines communication, operational procedures, financial standings, HR issues, and other components affecting the company’s functionality.

• Cycles of Policy and Procedure Review

If your company’s policies haven’t been updated in some time, chances are they don’t comply with new regulations. As technology evolves, so must your regulations and policies. For example, if you established your IT procedures in 2009, it probably doesn’t account for cloud servers and biometrics.  It’s important to create a game plan for keeping your policies up to date to protect your organization from penalties. Break up your policy reviews into sections. Spread them out during the year so that you don’t overwhelm your team with a mountain of work to sort through. 

• Software for Policy and Compliance Management

Compliance policy reviews are more effective with the help of compliance policy management tools. Find a compliance management software tailor made for your industry to help streamline the compliance policy review process. You will need reliable software that creates advanced workflows, sends automated reminders to the compliance committee, and maps policies to accreditation standards.

Conclusion

Compliance monitoring ensures that an organization adheres to the relevant laws, rules, policies, and regulations. Failure to abide will expose a company to possible malfeasance, financial penalties, or malpractice. Organizations of all sectors, ranging from health, financial to education, must observe these policies and ensure compliance for ongoing business continuity and success.

Tags: auditing, CCO, compliance monitoring, corporate compliance, RegTech