Compliance Management Systems, Explained — and the Best Solutions For Building One

Written by: LogicGate

No matter what industry your organization operates in or where its business is conducted, it will almost certainly fall under some form of regulatory oversight, and it can only expect to face stricter and more complex enforcement in the future. That’s just a simple fact of running a business.

Staying informed regarding the current regulatory environment that applies to your business and any upcoming changes requires having effective and efficient processes in place to ensure compliance and manage the risks associated with non-compliance. This integrated system is known as compliance management system, or CMS.

Setting up a compliance management system is critical for every organization, but it’s easier said than done. In this article, we’ll take a look at the best way to stand up a proper compliance management system, and what to look for when searching for the right compliance management solution to get the job done.

What is a compliance management system?

A compliance management system consists of all of the processes, policies, internal controls, people, and technology that your organization uses to track compliance with all of the laws, regulations, and standards — both internal and external — that apply to it, conduct regular compliance audits, and address any gaps or problems that could lead to non-compliance. The best-designed compliance management systems are integrated into your other business processes, not held aside as a separate process.

Compliance management systems provide a uniform, standard way to obtain visibility into your organization’s compliance situation at all times. This can help you avoid penalties and fines, prevent risk events, and build trust with your consumers, investors, and other stakeholders.

Why every organization needs an effective compliance management system

Without an effective compliance management system, your organization is essentially flying blind when it comes to compliance and compliance risk management.

Absent these systems, your organization has limited visibility into whether its products and services are meeting the standards leadership has set for them internally or contractual commitments made with partners. Determining whether you’re in violation of legal or regulatory requirements is likely a manual and ad-hoc process that is difficult to manage.

Under any of these scenarios, your organization could face major penalties and fines, lost business, reputational damage, or worse.

Here are some of the benefits of having a compliance management system in place:

Mitigating compliance risk

Every regulatory, legal, or contractual requirement your organization must comply with presents a risk of non-compliance, which could lead to a range of negative outcomes and consequences. Having a system for tracking and managing compliance risk and requirements makes it much less likely that your organization will drop the ball somewhere and expose itself to compliance risk.

Saving time and resources

Taking a disorganized or ad hoc approach to compliance management doesn’t just vastly increase your risk exposure — it can also become a massive waste of time and resources. Every minute and every hour your staff has to spend manually tracking down compliance data or controls evidence consumes important business resources that could instead be reallocated to more strategic initiatives.

Building trust and enhancing brand reputation

Being able to unequivocally prove to customers, clients, investors, and other stakeholders that your organization cares about compliance and is doing everything in its power to ensure its meeting all the compliance requirements that apply to it can go a long way in building a positive view of your brand across the market.

Avoiding or mitigating compliance risks, as detailed above, can also help make sure those risks don’t cause big problems for your company, some of which could lead to negative headlines that may tarnish — or even destroy — your brand reputation.

How to build compliance management systems

To avoid negative outcomes, your organization needs to put a compliance management system in place.

Understanding your compliance needs

The first step in building a compliance management system is to obtain a complete understanding of all of the compliance requirements your organization must adhere to — and there are typically a lot of them. Creating an inventory of all of your business’s different compliance requirements will pave the way for integrating compliance management into each of your business processes and functions.

Identifying industry-specific regulations and external compliance requirements

Though there are some regulations that apply to most businesses, like Europe’s General Data Privacy Regulation (GDPR), national labor laws, environmental regulations, anti-discrimination laws, and laws governing intellectual property rights. Others are industry-specific. These include laws like the Health Insurance Portability and Accountability Act (HIPAA) for the U.S. healthcare industry, Payment Card Industry (PCI) DSS, the Dodd-Frank Wall Street Reform Act, Sarbanes-Oxley (SOX) Act, and Basel III for the financial sector, and regulations from the International Atomic Energy Agency or the U.S. Nuclear Regulatory Commission for the nuclear power industry.

Additionally, many organizations choose to comply with a variety of standards frameworks, like the NIST cybersecurity framework, SOC 2, ISO 27001, and FedRAMP.

Be sure to speak with stakeholders in each department across your organization to get the full picture on which of these regulations and standards apply to your company, whether required by legislation or customer commitments.

Determining internal compliance requirements

Governing bodies and accrediting organizations aren’t the only ones placing compliance requirements on your organization. Every organization sets internal standards, policies, and requirements around things like product quality, employee safety, financial oversight, and cybersecurity management.

Assess your compliance risk

Now that you’ve identified all of your organization’s compliance requirements, you can begin assessing the risks associated with them. Understanding the ways that compliance could lapse or go wrong will inform the rest of the process for building your compliance management system.

Using methods like qualitative risk assessment and risk quantification, gauge the true business impact that each compliance requirement could have on your organization if it were to fall into noncompliance and generate a risk event like negative audit findings, a lawsuit, or a fine. Then, rank your compliance risks according to severity.

Assign responsibility to compliance owners and teams

With your ranked list in hand, you can now group your compliance requirements and their associated risks by department, team, or function and assign responsibility for ensuring compliance is maintained to the appropriate individuals in each of those areas.

Develop and implement controls, policies, procedures, and reporting structures

Working with those key compliance and risk owners, you can now develop policies and procedures and implement internal controls for monitoring and maintaining compliance. The accountability and reporting structure, all the way up to the C-suite and the board, should also now be clear, so you can develop a regular cadence of auditing and reporting compliance.

Put the right technology in place

Modern governance, risk management, and compliance software can help you improve the efficiency and effectiveness of your compliance management system by automating key parts of the process, like audit management, controls testing, reporting, and risk assessment. Using this type of technology can help eliminate the human error and manual workflows characteristic of legacy methods like spreadsheets and email.

The platform you choose should be intuitive enough that everyone in your organization can quickly and easily learn to use it, and flexible enough to change as your compliance management system grows and evolves.

Continuously monitor and improve

Since compliance requirements and the regulatory environment are changing and growing more complex each day, you can’t simply stand up a compliance management system and leave it to its own devices. You need to ensure you implement a process for monitoring its performance on an ongoing basis and making improvements or modifications where necessary.

Using your GRC software to conduct regular controls testing, develop and track key risk indicators, or KRIs, tied to your various compliance risks, and establishing a regular auditing cycle can provide sufficient warning when things begin to go off the rails, so you can mount a timely response.

Key components of a compliance management system

No organization’s compliance management system will look exactly the same as another, but there are some components that are common across most compliance programs. These components form the basic principles and best practices that lead to compliance management system success, and should be implemented by every organization:

Board involvement and oversight

“Tone at the top” is an important concept in compliance management and corporate ethics, and it’s been enshrined in laws like Sarbanes-Oxley and Dodd-Frank as well as frameworks like COSO. It’s the idea that ensuring effective compliance and ethical behavior across the organization starts with its senior leadership — specifically, its board of directors.

In other words, these leaders need to “walk the talk” when it comes to compliance, which includes hiring competent talent, conducting regular oversight activities, engaging in business continuity planning, carrying out regular risk assessments, and setting the corporate vision for compliance, among other tasks. Boards of directors and senior leaders should:

Strive to set clear policies around compliance
Allocate the appropriate level of resources towards compliance activities
Put a chief compliance officer or other equivalent leader in place to oversee compliance across the organization. At larger organizations, this officer should be supported by a dedicated compliance team.
Require regular audits and compliance reporting and review of the results at meetings

An effective compliance program

Effective compliance management systems rely on well-designed compliance programs. These programs are built to help your organization plan, manage, and monitor all corporate and regulatory compliance activities across your entire organization in a systematic, efficient manner.

To that end, robust compliance programs strive for the following:

Centralizing all of your compliance data, policies, processes, and other information in one easily accessible place.
Ensuring that the right owners are in place to provide program oversight and direction and establish accountability across the organization.
Instituting effective and regular employee training to instill a healthy culture of compliance across the organization, where maintaining compliance is viewed as everyone’s responsibility.
Ensuring continuous monitoring and testing of compliance controls and regular updates to policies and processes.
Helping your organization respond quickly to compliance gaps and compliance-related risk events.

Ideally, the details of your compliance program and its goals should be formalized in a written document to ensure its continuity as staff and leadership changes over time.

Modern compliance management software can help you build and effectively manage your compliance program. This technology is designed to centralize, automate, and streamline compliance operations and avoid human error and other issues with traditional or manual methods of compliance management, like spreadsheets or email. Many of these solutions are also easily scaled up to grow alongside your organization and your compliance needs.

Regular compliance audits

Compliance audits are independent reviews, conducted either internally or through external auditors, designed to measure adherence to compliance requirements, standards, and internal policies and procedures. The reports generated by these audits can be used by leadership to identify controls or compliance gaps to be addressed, demonstrate your compliance status to regulatory and accrediting bodies, and improve transparency across your organization.

Conducting regular compliance audits to verify the compliance status of an organization is a hallmark component of any compliance management system.

Common challenges in compliance management

Adapting to changing regulatory landscapes

Regulators never seem to sit still. Just as we think we’ve caught up to the latest new laws and regulations, more are announced or put under consideration somewhere in the world. That means compliance teams need to stay vigilant at all times, and remain ready to change or adapt their compliance management systems and programs to meet new demands.

Designing flexibility into your compliance management program can go a long way here, and using a modern GRC platform with those capabilities to power it is a must.

Training employees for compliance

It only takes one careless mistake or one overworked team to miss a compliance deadline or fail to follow policies and procedures to the letter. These oversights can add up over time and put your organization in a precarious compliance position.

Make sure training for all employees is baked into your compliance management system and is conducted on a regular basis that makes sense for your organization. Compliance is a team sport.

What to look for in a compliance management solution

Modern GRC software is a critical tool for effectively implementing and leveraging a compliance management system. The platform you choose should, at a minimum, have the following features and capabilities:

A centralized data and document repository

One of the most important attributes a GRC and compliance management platform can have is the ability to centralize all of the information your compliance management system feeds into it and relies on in one central location. Having a single source of truth for all of your compliance data, controls testing information, evidence, policies, procedures, and assessments allows you to gain a holistic view of compliance status across your organization at any time.

This eagle-eye view of compliance makes it much easier to keep track of the many moving parts that compliance management systems are composed of and prevent missed deadlines, human error, and other compliance risks from affecting your organization’s operations or resulting in non-compliance.

Risk assessment and mitigation tools

Understanding the adverse impact that allowing compliance to lapse could have on your business requires conducting robust risk assessments on a regular basis. Avoiding those outcomes requires effective mitigation of those risks.

Leveraging the connected view provided by your GRC platform’s centralized repository will allow you to keep tabs on every compliance risk your organization faces and ensure the proper mitigants and controls are in place at all times or identify which need to be developed and implemented next.

Risk quantification capabilities

Similarly, risk quantification is a superior method for increasing the accuracy of your risk assessments and prioritization. This technique allows you to tie each of your compliance risks to its true financial business impact, allowing you to better allocate resources to addressing your biggest risks first.

Automated evidence collection and controls testing

The more time you spend chasing down the evidence you need to conduct compliance audits, the less time you’ll have to dedicate towards more strategic work like improving internal controls, business continuity planning, and staying up to speed on emerging regulatory changes. Automating evidence collection eliminates that manual work and improves the accuracy of your data. Your GRC software should support this functionality.

Reporting and analytics capabilities

As noted above, effective compliance management systems depend on the board of directors and senior leadership’s active involvement. Make sure the GRC solution you select has robust, comprehensive reporting and dashboarding capabilities to provide at-a-glance views of your compliance status at any time.

Integration with other business systems

Effective compliance management typically involves numerous internal systems and technologies, and the GRC platform you choose should be able to support integrations with most, if not all of these systems.

Ease-of-use

Software that’s hard to use is unlikely to get used. That’s a simple truth. Pick a GRC solution with an intuitive, seamless, and easy-to-use interface. Systems like LogicGate Risk Cloud offer no-code, drag-and-drop interfaces that are ideal for non-technical users or teams, and they can be customized to suit the specific needs of your organization’s end users.

Support and services

The software itself isn’t the only consideration when selecting the right compliance management software. You’ll want to choose one made by an organization that also offers expert support and technical services, advice, and guidance. These experts know their product and the industry, and they can help ensure your implementation is a success and keep you up to speed on emerging regulations, standards, and laws — and help you adapt software to ensure compliance.

Compliance Management Systems, Explained — and the Best Solutions For Building One

Written by: LogicGate

Updated: January 14, 2024

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