Process Framework for Managing Compliance Risk

Organization exposure to compliance risk is rising at the same time the cost of compliance soars. An ad hoc or reactive approach to compliance brings complexity, forcing business to be less agile. Organizations in the past have addressed compliance as singular issues or obligations, which often resulted in multiple initiatives working in isolation. Isolated compliance initiatives tend to rely on manual processes burdened with costly assessments managed through spreadsheets, documents, and email, which is costly and unreliable. This makes it difficult to adapt to new regulatory requirements while increasing pressure and anxiety for management, employees and business relationships.

Without a business process view to manage compliance risk, organizations will continue to be burdened with the data overload and complexity of compliance data. Organizations need complete visibility into a portfolio of compliance processes spread across a distributed and complex business.  Organizations need information and not just data.

Success in compliance risk management begins with a strategy — how to effectively manage compliance across the organization. Ultimately, the organization needs to identify and prioritize major risks resulting from regulatory mandates, and maintain oversight and control over business processes to mitigate these risks. In compliance business process architecture, accountability and compliance is effectively managed and the business has a system of record to understand and manage the diverse complexity of compliance issues. Compliance needs to be an active and living part of the organization and culture to prevent and detect issues across the business. It is a continuous and ongoing process to be monitored, maintained and nurtured. This challenge is taking on a new paradigm that focuses on establishing compliance processes that move from a reactive fire-fighting mode to one that actively manages, monitors, mitigates, prevents, and detects compliance-related risks.

Using the OCEG GRC Capability Model as a basis and integrating compliance risk management requirements from experience as well as guidance from USSC Organizational Sentencing Guidelines, U.K. Bribery Act, and Australia’s 3806:2006, there are common core processes that compliance can establish to manage compliance risk. A business process framework to manage compliance risk in the 21st century enables an organization to manage and monitor compliance risk through:

  • Compliance program management: This is the core process that everything else revolves around. It integrates all the other functions to provide a single cohesive program for managing and scheduling compliance reporting, assessments, controls, investigations, policies, regulatory change, and specific projects and tasks. An effective program delivers a 360-degree view of compliance risk management activities.
  • Compliance risk identification and assessment: Risk assessments are foundational to compliance initiatives. In addition to a periodic risk assessment, the organization must have regular compliance risk assessment and monitoring activities to ensure policies and controls that maintain integrity are in place and working. The compliance risk identification and assessment process drives every aspect of a successful program as it identifies and models compliance risk that all the other processes build upon.
  • Regulatory and risk intelligence: To keep current on compliance risk requires that the organization have a process to continuously monitor changes to the regulatory and risk environments impacting the business, and to monitor the business for change. This involves identifying subject matter experts for each compliance risk area that are accountable for monitoring internal changes and external change from regulators, courts, legislatures, and other sources to identify new and developing compliance risks that will impact the business.
  • Policy definition, communication, and maintenance: Organizations must have documented and up-to-date policies and procedures that both address the compliance and ethical risks and are in accordance with the culture, values, and obligations of the organization. Compliance requirements and processes must be clearly documented within policies and procedures. The policy definition, communication, and maintenance process provides proof that the program is sound and controls are adequate.
  • Compliance risk reporting and accountability: Compliance is a distributed and federated function in most enterprises. While the board has ultimate accountability, responsibility for compliance risk management falls to the CECO, and is delegated across a variety of business processes and functions. To effectively provide assurance to the board and executives, an effective GRC approach requires that a process of compliance risk governance, accountability, and reporting be in place. This requires collaboration with other roles such as internal audit, and establishes lines of communication throughout the business.
  • Due diligence efforts: An established process to document due diligence efforts shows that employees and business partners are properly screened, and assures the business that it is not engaging with individuals or organizations that have a bent toward unethical behavior. It also assures the organization that individuals have the right background, resources, and experience to do the job they are engaged for.
  • Training and communication: Written policies are not enough — individuals need to know what is expected of them day-to-day and their business operations. Organizations are increasingly using online training in addition to discussion-led training to raise compliance and ethics awareness. There is also a trend toward using interactive technologies and learning simulations. The training and communication process is key to communicating the corporate culture, obligations, and expectations across the organization and to business partners.
  • Ongoing compliance assessment: The organization needs ongoing assessment of compliance policies and controls. This involves surveys, self-assessments, and automated assessments for regular compliance risk and control monitoring. Successful organizations conduct assessments not just on a periodic basis but whenever significant business change might impact compliance.
  • Enforcement of the control environment: While policies and procedures may define how the organization behaves, enforcement ultimately depends on controls. The organization should implement preventive and detective controls that support compliance obligations and policies. The organization needs to ensure these controls are in place and operating as designed. When there are issues, the organization must address these with corrective controls.
  • Record and report issues: Clearly defined processes must be in place for individuals to report concerns, weaknesses and wrongdoing. Reporting is often done anonymously via call centers or Weblines. Clearly defined processes must be communicated and maintained for management to document reports made directly to them as well so that one database can be maintained and audited.
  • Conduct investigations: Even in the best organization things go wrong. Investigative processes (e.g., hotline analysis, surveys, management reports, exit interviews) must be in place to quickly identify potential incidents of wrongdoing and quickly and effectively investigate and resolve issues. This includes reporting and working with outside law enforcement and authorities.
  • Implement communication and reporting processes: The organization must have channels of communication where employees can ask questions
    on policies and procedures to avoid misunderstanding as well as issues of noncompliance. Possible systems include help lines, interactive intranets with FAQs and ‘ask a question’, and forms processing where approvals are requested.
  • Third-party relationships: Central to an integrity and compliance program is the ability to identify and manage the risk of third-parties. Technology enables the ongoing due diligence effort to monitor and score vendor and third-party risk, communicate a supplier code of conduct and other policies to vendors and track attestations, and deliver surveys and assessments.

Throughout all of these processes, compliance risk management needs to have a clearly defined lessons-learned process to make sure the organization is not a repeat offender. Organizations with a history of noncompliant conduct will find that they are not treated favorably by courts and regulators.

What are your experience and thoughts on the breadth of processes needed to build a strong compliance risk management program?

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