Compliance is a safety net for any organization. The practice of adhering to rules and regulations, and standards that have been set forth by governing bodies is called compliance. Staying compliant with standards and codes however is no easy task. It is an ongoing continuous process that has to be constantly revisited and reassessed periodically.

Compliance is of 3 basic types:

Regulatory Compliance:  Compliance with rules that have been set by a regulatory body that is overseen by a state or central government.

Statutory Compliance:  Compliance with rules or standards that a local state has passed or central government.

Legal Compliance: Compliance with laws concerned with business activities that are carried out within an organization.

Compliance is both time and effort consuming and organizations run the risk of compliance failure. In cases like these, organizations tend to outsource compliance related tasks and initiatives to external agencies. For instance, outsourcing payroll processes to payroll compliance services can ensure that the organization’s payroll processes adhere to relevant rules and laws and remain compliant.

Reasons for Compliance Failure

• A lack of fresh perspectives towards compliance with obsolete initiatives can lead to compliance failure.
• Compliance seen as a mechanical exercise can harm an organization more than ensuring that businesses run ethically
• A lack of accountability by top management reduces the effectiveness of compliance programs in organizations
• By running compliance programs that do the bare minimum, the effectiveness of these initiatives is lost.
• When initiatives are not ethics and value driven, it can also lead to compliance failure.

Impact of Compliance Failure

Compliance failure has serious ramifications if risks are not assessed effectively and taken care of in time. Here are some of the effects of compliance failure.

Penalties and Fines 

Penalties can range from imprisonment, hefty fines on the organization and numerous audits. Investigations from governing bodies will certainly have an impact on the company. The number of hours and effort taken by governing bodies to scrutinize all processes and the time taken for the organization to ensure that those processes are up to maximum standards again will impact the organization. This will impact the organization with respect to monetary aspects and the time taken to assess and perform damage control.

Damage to Reputation 

In any industry, reputation plays an important role. Compliance failure can directly affect an organization’s reputation. The impact of reputation can extend from the board of directors to the shareholders to even the people. Negative perceptions and opinions about and the organization’s lack of compliance can affect the way people do business with a certain organization. This could lead to a fall in share prices, public outrage, managerial reshuffling in order to control the damage and so on.

Lack of Opportunities 

Because of the negative public perception and damage to reputation, certain organizations will be at a disadvantage in an extremely competitive economy. There may be times where organizations may not be allowed to conduct business in certain sectors owing to bans or penalties leading to a loss of opportunity. In other cases, there may be new regulations in the market for certain products and sectors, which could potentially put the organization out of business.

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