When addressing issues of compliance, CFOs often balk at upfront investments, which can remove valuable resources from revenue-generating activity. While it is true that, in some cases, significant costs may be incurred to meet new or changing regulations, it is imperative that long-term considerations are the driving force in determining the positive value of and investment in compliance.
Recent studies have revealed that senior executives in both finance and human resources now believe that effective compliance programmes deliver tangible benefits and measurable returns, contributing to the bottom line.
Management teams are beginning to vouch for the fact that compliance activities have had a positive impact on several aspects of business performance, including employee productivity, profitability and operational efficiency.
Erratic compliance management
Companies that update their compliance function erratically find themselves scrambling to keep up with the never-ending stream of new rules and regulations. Instead of taking a short-term view of the situation, finance chiefs ought to see compliance as a continuous process and a growth opportunity that can help boost business performance. Efficient and effective compliance protocols ensure that the process receives appropriate focus and attention.
The beneficial indices
Senior finance and HR executives have identified tangible benefits from good management of employment-related tax and payment compliance, in areas such as wage payments processing, employment verification and employment tax processing. The positive impact of well-managed compliance affects intangible performance measures, including employee satisfaction, employee engagement and corporate brand and reputation.
Compliance issues need to be addressed with consistency. By involving all parties in compliance issues, managers can create a more integrated, transparent and open working environment. This transformation can only begin by setting a strong, stringent message, right from top to the bottom of the company. Compliance should not be a linear task, but a ripple effect. Those who are waiting for a compliance crisis to push such an initiative to the top of their to-do lists are likely to end up with a compliance function that is inefficient and expensive to maintain.
Bottom line of compliance
Managing compliance properly comes with its own price tag. Organisations need to invest in the latest technology solutions to maintain employment compliance policies. After the initial investment in the appropriate management tools, companies need to funnel resources into finding, hiring and training employees who specialise in compliance operations management. These employees will play a major role in the elevation of compliance protocols locally and throughout the organisation.
Employees who are well-trained and knowledgeable in industry compliance protocols and procedures should be spread throughout an enterprise. While there are undoubtedly necessary investments into compliance, placing compliance as a priority will ultimately support the bottom line by improving employee engagement, mitigating risk and meeting regulatory protocols.
Compliance costs include those of labour, opportunity cost, as well as the regulator infrastructure. To manage this high cost, every company must have an understanding of the dynamics between total cost of ownership and compliance costs. Companies that select individual solutions for each regulatory challenge will spend much more on the IT portion of compliance projects than those who take a proactive and more integrated approach.
The best way is to combine compliance requirements and build synergistic solutions. The effort saves time and money as well as establishing a framework for responding to future requirements.
Compliance in the GCC
Compliance regulations in the region are largely focused on government policies. Businesses in the GCC are often branches of larger, multinational organisations that are beholden to foreign laws. Maintaining compliance within such a complex system may seem daunting, but will, in the long-term, prevent regulatory action against the organisation and, additionally, will provide a competitive edge within the market. Energy, infrastructure and construction industries in particular need to remain diligent in their application of compliance protocols for factors such as environment, risk and safety.
In addition to labour and immigration laws, commercial law and the Telecommunications Regulatory Authority in the UAE, companies may be obligated to comply with regulations from the UN, the US, and the EU. This may seem daunting for businesses, and keeping updated on new and adapting laws from each originator may seem like an enormous task. In spite of the cumbersome nature of the brief, it is essential that organisations maintain compliance to protect the integrity of their finances and the business as a whole.
Improving compliance
Companies should monitor the total cost of compliance relative to its effectiveness. Higher spending will not necessarily mean a higher level of compliance or reduction of risk. The risks of non-compliance must be communicated clearly to the entire C-level suite and a risk profile should be agreed upon. Compliance should be managed as a programme rather than a project, as regulatory compliance must be a continuous process spread across all departments at all levels. Effective compliance requires organisational support, process control methodology and content control. To control compliance costs, commonality in compliance requirements should be highlighted, using an investment approach for budgeting, and taking complexity out of the system whenever possible.
Privacy and data protection laws, as well as policies that protect confidential information should be top-of-the-line concerns for all organisations. Compliance requires organisations to adopt and implement a variety of costly activities related to process, people and technologies. These activities include ensuring that there are trained staff dedicated to compliance as well as enabling technologies to curtail risk.
In today’s corporate environment, where budget costs and personnel can be limiting factors, communication with the trade compliance department is imperative. This is not only to ensure that the company is protected from instances of regulatory non-compliance, but also to identify business opportunities and bottom-line impacts. Suggestions such as where to manufacture based on the company’s global footprint allow CFOs to leverage the multitude of global free and regional trade agreements, thereby lowering total landed costs on raw materials and finished goods, while providing the company and its customers the competitive advantage of qualifying goods.
Additionally, procurement, purchasing and import planners can benefit from the trade compliance team’s services in determining the appropriate harmonised tariff classification and country of origin for marking products, again demonstrating that the trade compliance department is not a business hindrance, but rather a business accelerator.
Regulatory demands have undoubtedly increased over the years, and as factors such as data and identification become more complex, so too will regulatory protocols. It is imperative for organisations to refocus on regulatory and compliance management now, so that new laws and regulations can be addressed more smoothly in the future. An investment that brings software and human capital in areas such as settlement, credit risk management and IT now may seem like a heavy spend, however, putting regulatory compliance as a priority in the short-term, is sure to have positive long-term results.
