Compliance programs should be designed according to the needs and challenges of the company in question. Furthermore, these programs should cover all the potential risks the organization has identified. Regulators take it easy on businesses that have put in place effective compliance programs when investigating misconduct.
The U.S. Department of Justice Criminal Division’s guidance document for prosecutors as of April 2019 states that prosecutors should determine whether a company’s compliance program is created to detect the most likely types of misconduct that may occur in the company’s line of business.
The ideal risk assessment should consider the location of your business and the regulations affecting your industry. For example, if you’re in the healthcare industry, you should have compliance programs that adhere to HIPAA security requirements. If you deal with data for customers in the EU, you should have policies that meet GDPR requirements. If your clients are suppliers or subcontractors, you should ensure their compliance programs consider privacy, fraud risks, and information security. As a rule of thumb, your compliance strategy should address the risks that are relevant to your business. Your risk assessment should consider the way your business operates.
What Is A Compliance Risk Assessment?
A compliance risk assessment analyzes all the ways your business can address its regulatory compliance responsibilities. This is a comprehensive analysis that considers all compliance obligations that laws, rules, and industry standards expect you to meet. It also involves determining whether your current compliance program meets these expectations.
What Is Compliance Risk?
Compliance risk is your business’s exposure to the consequences for non-compliance. It’s considering the sanctions that regulators are likely to impose on you if you don’t meet your compliance obligations. These sanctions include corrective actions that are expensive to implement, disgorgement of profits obtained from improper business practices, and monetary penalties. You may also pay for legal costs associated with investigations by regulators. Another potential risk is a civil lawsuit which would tarnish your reputation. Many regulators are gentle on companies violating compliance obligations if the company shows it was trying to address its obligations.
The Steps To Risk Assessment
Step 1: Understand The Current Status
The first step is to find out how the organization runs its affairs. Familiarize yourself with essential company systems, processes, and transactions. Engage key personnel who are involved in implementing and managing the organization’s processes and systems. Find out the major concerns of these people.
Step 2: Identify Important Risk Contact Points
After you’re familiar with your business’s operations and its compliance landscape, identify compliance risk factors. One way to identify these risk contact points is by assessing each of the company’s systems, processes, and transactions. You should determine what regulatory regimes that these activities should comply with.
Step 3: What Measures Are There To Prevent, Detect, And Correct Violations
Determine whether the procedures and controls at your company address the risk factors you have identified above. For each risk contact point, identify the policy, work instruction, or control that applies. You need to determine the sufficiency of controls based on your understanding of each risk contact point.
Take into account what would happen if a violation took place under a current control. Assess whether your company would detect such a violation and the effects of the violation. If the risk contact points are inadequately addressed, the current controls have compliance gaps that must be filled. At this point, you should think about measures that will help you fill these gaps.
Step 4 ? Determine And Prioritize The Compliance Measure You Implement
It’s possible not to have enough resources to address each compliance risk at once. The best way to deal with these risks is through ranking the risks depending on their severity and the resources needed to remediate them. As a rule of thumb, spend more resources on addressing high-risk conditions than low-risk conditions. After prioritizing the risks, identify the projects you’re going to address systematically. Identify the compliance adjustments that will be the most beneficial to your business and focus on these first.
Step 5 ? Update Your Risk Assessment Regularly
Risk assessment is an activity that must be conducted regularly. According to the DOJ’s guidance document, prosecutors assessing the corporate compliance program of a company should determine whether their risk assessment is recent and has been reviewed periodically.
Events like acquiring new companies, moving into a new location, reorganizing corporate structure, and engaging with new customers will create new compliance risks. Changes in regulations and the way regulatory agencies interpret risks also establishes new compliance risks. Therefore, your risk assessment should be updated periodically to consider all the new elements that may affect your risk compliance.
In Conclusion
Compliance risk assessment is an essential activity for any organization. It helps protect your business’s assets and also ensures you comply with industry standards. Conducting a compliance risk assessment regularly will help you stay ahead of potential risks and protect your assets, employees, and clients.
