What's Compliance Monitoring? A Quick Guide

Regulations are costly for businesses; the more a company grows, the more important compliance becomes. 

It makes sense, after all, knowing what possible risks could affect your operations can prevent problems later on. 

But how can you know that you’re on the right path? What sort of mechanism can you follow?  

It is a good thing that there’s something called compliance monitoring

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What’s Compliance Monitoring?

Let’s keep it simple: Compliance monitoring is the ongoing process of evaluating your company’s adherence to regulatory requirements and internal standards. 

Depending on your industry this could be something specific like data privacy laws or environmental standards or broader policies such as labor laws and financial reporting rules. Effective compliance monitoring goes beyond simply avoiding penalties as it helps you to build a responsible environment in your processes. 

Okay, this sounds a bit like risk management

Yes, but they are separate concepts

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The Relationship Between Compliance Monitoring and Risk Management

Consider compliance as the routine that allows you to double-check if your processes are respectful of policies and regulations. Risk management, on the other hand, lets you identify and mitigate risks that could harm your business. 

If you integrate these two functions, you can:

• Proactively address compliance risks before they escalate.
• Improve the decisions you make through data-driven insights.
• Enhance operational efficiency by aligning risk management with compliance objectives.

Now, that we’ve covered the basics, let’s move on to the details 

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How to Build a Compliance Monitoring Framework

Understand applicable regulations

Before diving into all the processes or regulations you need to follow, you must develop a sense of knowledge regarding all relevant requirements and standards that apply to your business. This includes federal, state, and industry-specific rules.

Develop clear policies

Okay, now that you are aware of what you must do, it’s time to draft comprehensive policies that reflect regulatory requirements. Once this is all done, don’t forget to communicate effectively with all employees. 

Designate responsibilities

Next stop? Get ready to assign specific roles for compliance monitoring so you can guarantee accountability. Larger businesses may need a dedicated compliance officer or even implement a department.

Implement monitoring tools

Use software like procurement software  and project management digital tools to streamline monitoring processes. This can help track compliance metrics in real time, so there are no doubts or surprises later on. 

Establish reporting mechanisms

There are few things more frustrating than knowing that something is wrong and not having a route to flag it. Create a system for documenting and reporting compliance findings, ensuring management has visibility into potential issues.

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Elements of a Compliance Monitoring Plan

• Risk Assessment: Identify and prioritize compliance risks based on their potential impact.
• Monitoring Activities: Define specific activities, such as audits, inspections, and testing, to track compliance.
• Reporting Protocols: Establish clear guidelines for documenting and reporting compliance findings.
• Remediation Plans: Outline steps for addressing compliance gaps and preventing future occurrences.
• Evaluation Metrics: Define measurable criteria to assess the effectiveness of your compliance monitoring efforts

How to Conduct a Compliance Risk Assessment

Okay, but what if you are first learning about the required regulations and don’t know where to start? 

A compliance risk assessment is a good starting point 

Gather information 

Begin by collecting data on existing policies, procedures, and regulatory requirements that could affect your operations. 

Identify risks

Don’t you love when you know where the problem exactly lies? To know where are your potential problems you can map out areas where compliance failures are most likely to occur.

Evaluate impact

Assess the potential consequences of non-compliance, such as fines, legal action, or reputational damage. Doing this will help you to create what-if scenarios so you can be fully prepared in case something goes wrong. 

Prioritize risks

Rank risks based on their likelihood and impact, focusing on high-priority areas.

Develop mitigation strategies

Implement controls and measures to minimize risks.

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Challenges Faced in Compliance Monitoring

Keeping up with regulations

It’s no secret that regulations are increasing now more than ever, what, perhaps worked until yesterday, now is frowned upon, this, of course, makes it challenging to stay informed. New rules and updates can require significant adjustments to existing compliance frameworks, which may be time-consuming and complex.

Lack of resources

This one goes for smaller businesses and companies that are only starting, as they might lack the budget or personnel for comprehensive compliance monitoring. This can lead to gaps in monitoring activities or even worse a complete dependence on manual processes that are prone to errors.

Data management

We have said this before, data is super useful for any business, but only if managed correctly, so if you find yourself saying ‘’Well, there’s no way to do this’’ you might want to check your current data handling processes. Managing and analyzing large volumes of compliance data requires robust systems and expertise so it’s kind of normal to see many businesses struggling with fragmented data sources or outdated tools that hinder their ability to identify trends or potential risks effectively.

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Integration issues 

To really understand how compliance works and make it effective in your day-to-day operations, there’s a high chance you’ll need to combine more than one system, something that can quickly become a headache if the program isn’t designed to work alongside other software. 

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How to Measure the Effectiveness of Compliance Monitoring 

Focus on these factors

• Audit Results: Track the number and severity of compliance violations identified during audits.
• Incident Reports: Monitor the frequency and resolution of compliance-related incidents.
• Employee Training Completion Rates: Measure how many employees have completed required compliance training.
• Regulatory Feedback: Review feedback from regulators or external auditors to identify improvement areas.

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Future Trends of Compliance Monitoring

• Automation:  No surprise here, right? After all, it’s common sense at this point to use automated tools to streamline compliance tasks and in consequence reduce the burden on human resources.
• Artificial Intelligence: And speaking about automation, we can’t talk about the future without mentioning the power of artificial intelligence. AI solutions are helping businesses identify compliance risks and predict future challenges, using forecasting and building what-if analysis. 
• Real-Time Monitoring: Advanced systems now enable continuous compliance monitoring, providing real-time insights.
• Integration: Compliance tools are increasingly being integrated with other business systems for seamless operation.

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