Cost of compliance refers to compliance costs in a broad sense. These include all the costs the company incurs to comply with industry regulations, management of compliance, risks and damages. The regulations may concern, for example, tax reporting, environmental issues, transport and the economy.
Compliance costs may include the costs of the systems necessary for the compliance reporting of data collection, personnel costs and costs for the preparation and publication of the reports. One significant cost is occurrence and non-compliance situations, which often take a significant amount of time to result, and often cause unforeseen additional costs.
If a company considers risks only in the short term, it will use the money for compliance only as a corrective measure in the event of an infringement. Another common problem for small and medium-sized enterprises is that they do not know about compliance requirements. Even if companies are aware of the requirements, compliance tasks may be delegated to one or two persons as a secondary responsibility. There has been an increase in enforcement actions and regulations related to international trade and sanctions. Can compliance be cost-effective? Yes, it can.
You can approach this by doing a thorough risk analysis of the business. Management must also understand compliance better and those working on it need to explain what compliance requires and how its objectives can be achieved.
For compliance to be cost-effective, it has four essential components.
For compliance to be cost-effective, it has four essential components. The first element is cost avoidance, which means reducing the amount of costs tied to compliance. Secondly, ensure that the staff responsible for compliance are effective in their duties. Thirdly, metrics and reporting are appropriately used. Fourth, ensure that those working on compliance leverage their relationships with regulators to minimize regulatory barriers to business.
Compliance professionals need to embrace business awareness. They need to be able to demonstrate quantitatively how compliance is paying off in the company. If compliance is forgotten, there will be violations that can result in high costs. This means that compliance professionals have a direct impact on company profits. It is important for management to see a direct link between compliance and company performance. Compliance must be integrated as part of the business process so that it can influence directly when making business decisions.
With compliance, problems are prevented before occuring.
Compliance professionals can anticipate and prevent problems before they happen. Management sees the value of compliance when solving problems that save time and money. Those responsible for compliance should be able to advise on contractual clauses that ensure compliance and streamline operations. Compliance professionals need to be able to advise on potential risks and develop effective solutions that meet business needs.Typically, compliance does not generate revenue. Therefore, it must be ensured that it adds value to the process by reducing costs and risks for the company by operating more efficiently.
Good relations with authorities can be useful when trying to mitigate sanctions or address potential violations.
Relationships with the authorities can be useful when trying to mitigate sanctions or address potential violations. The key issue is how well those working on compliance leverage their relationships with regulatory agencies. When new regulations are issued affecting a company, compliance professionals should be able to quickly identify and present risk positions to management, including the costs of non-compliance with any regulations. Relations with government agencies also ensure that the company is involved in drafting new regulations. By participating in the process, the company is protected from regulatory obstacles.
Compliance costs can be a barrier to entry.
Compliance costs can be so high in regulated industries that they create barriers to entry. Companies already competing in the sector may favor regulation so that new entrants do not enter the market and thus competition does not increase. The result is a rise in consumer prices.
An organization operating in several different jurisdictions has to deal with broader regulation, so it may incur higher costs than smaller competitors operating in smaller markets. This is a challenge, especially for organizations operating internationally. Larger organizations may selectively withdraw from small markets when compliance costs become too large.
Compliance costs are particularly high for public companies. These organizations must maintain adequate control systems while compiling a number of required reports. The costs are so high that it is no longer cost-effective for smaller organizations to go to the exchange.
NordCheck provides powerful tools to manage compliance issues comprehensively.
NordCheck provides powerful tools to manage compliance issues comprehensively. We eliminate data silos and reduce manual and inefficient, frustrating doing and searching for information. Our solutions are easy to deploy. They apply best practices as well as practices, roles and quality standards familiar to users. Solutions can be flexibly adapted to the company’s policies and processes. We take into account timely future regulation and digitization in different areas of compliance.