What is the Purpose of a Corporate Compliance Program?

Corporate compliance programs are put in place to mitigate the risk of unethical activities that may happen in the organization. They are the statutory requirement for companies by the government. The programs help enforce best practices in an organization while building trust with current and potential customers. It is a prevention method to ensure that the company policies are implemented and followed as required. Disregard of the corporate compliance program by employees, supervisors or the board of director may attract legal charges to a company for fraud.

Importance of corporate compliance

  1. Prevents or reduces legal charges that the company may incur in case of fraud or any unethical behaviors. When an employee breaks the rules in places, they are liable for the consequences. When a company lacks a compliance program, the company is deemed liable for fraud from within the company.
  2. It increases customer trustworthiness in current and potential customers. Customers feel same when they know that there are mechanisms in place to prevent employees from taking advantage of them. They also understand that in case they are wronged, the company will take the necessary steps to ensure it does not happen again.
  3. A corporate compliance program integrates best business practices in the industry to meet federal regulations. A majority of companies choose also to comply with various international standards to ensure a high level of risk mitigation. Most of the international requirements overlap. However, some organizations lean towards financial security while others seek to protect personal information or human rights.

Factors that affect corporate compliance programs

  1. Leadership

The leaders of a company are the people who should spearhead the implementation of compliance programs. When the management and leaders in a business show their commitment to following up on compliance, the whole organization will follow suit. When leaders in an organization disregard compliance programs then no one enforces the programs.

2.Risk assessment

Before deciding the compliance practices that the organization needs to use, a thorough internal and external risk assessment should be done. Risk assessment should be done with the company’s vision and mission in mind. A risk is anything that has the potential to have a negative effect or bring a loss to the company. For example, if an employee is recorded treating a customer poorly it may impact revenue. Hence, it’s important to offer good customer service.

3.Creating risk policies and controls

This step comes after risk assessment. The policies and controls created should aim to mitigate the risks discovered during an assessment. The suggested control strategies should seek to prevent the impending risk from being realized. For example, a financial institution may have controls in place for changing customer information, cash handling, and cash transfer and maker- approver systems for all activities.

4.Training

Once the appropriate strategies for risk prevention and mitigation, it is time to train everyone in the organization. The aim of the training is to teach the employees the importance of the policies and strategies. Employees should understand the negative impacts of not observing the policies. Emphasis should be placed on the importance of the policies to the employees, company, customers and other business partners.

5.Monitoring and Review

The business environment is constantly changing. These changes may pose new risks, increase or decrease existing risks. The only way to know the impact of internal and external business changes is by close monitoring. When the potential risk is neutralized, the controls should be reviewed. A review is done in light of changes in potential risks. The review should be done in accordance with the monitoring and evaluation report presented to the boards of directors.

In addition to monitoring and review, corporate compliance programs should be tested from time to time. The results of the tests should be recorded and analyzed in order to assess the effectiveness of the programs. Reports from the results of testing compliance programs can be presented to the director for review. Reports generated show a clear view of the organization’s compliance position.

Many organizations implement compliance programs to meet federal requirements. What they don’t know is that these programs when properly implemented greatly reduce the probability of potential risks from being realized. The vice versa is true and the losses incurred may be grave. In the long run, it is better to be prepared than to pay huge losses. If companies didn’t find ways to mitigate risks, they would not be able to make substantial profits.

KenLynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity's success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT. Visit Reciprocity for more information.