The Importance of Compliance in Risk Management

Do you lock the door when leaving your house? Fasten your seatbelt when getting into your car? Check the bill before paying at a restaurant? If you answered yes to any of these questions, you are using tools to manage risks. That’s what compliance is about. If we take certain actions in our personal lives to avoid risks, why not apply them at our workplace too?

In the competitive environment of today’s corporate world, risk management is becoming increasingly important. With Law No. 12.846/2013, also known as the Anti-Corruption Law, companies are more concerned about regulations, as it punishes organizations for acts of corruption against public administration, imposing fines that can potentially sum up to 20% of their revenue.

In light of this, the topic of compliance is being discussed in organizations as a way to reduce the risks they are exposed to.

But what does the term “compliance” mean?

Compliance comes from the English word “to comply,” which means to be in accordance with preestabilished laws, norms, etc. The term can be understood as ensuring that the execution of activities and processes is aligned with legal standards and procedures, both external and internal to the organization. In other words, the company must follow what the law requires and also establish internal policies and an organizational culture that will prevent fraud, fines, potential damage to the organization’s reputation, and other risks.

These risks can be of various natures, such as:

1. Legal Risk: Not complying with the legislation and codes of conduct that govern business operations.
2. Operational Risk: The company uses inefficient resources (human and operational) that can lead to losses.
3. Reputation Risk: Due to misconduct, the company can tarnish its reputation in the eyes of customers, suppliers, and society at large.

There are some external environmental factors that can affect organizations and increase business risks. Examples include political events (election years, impeachment, political instability), economic events (currency devaluation, competition, inflation), social events (expanding social classes, consumer behavior), and technological events (information security, development of new products and processes). Therefore, it is essential to constantly analyze the external environment, map the strengths and weaknesses of the organization, and detect and preferably prevent risks.

Thus, the goal of compliance, along with risk management, is to map and analyze threats to establish certain practices that will help the organization to achieve its objectives without being negatively affected by non-compliance situations.

To establish an internal compliance and risk management policy, it is essential to understand not only the business but also all the processes and areas that will be subject to these standards. It is not useful to impose generic rules without first understanding if they make sense to the business and if they will be effective. Depending on the company’s sector, it is essential to assess some data such as financial information, customer behavior, and performance indicators to define the guidelines to be followed, always considering external legislation.

Benefits of Compliance

To make it even clearer, here are some benefits your company can obtain by establishing an effective compliance program:

1. Increased credibility among customers, suppliers, investors, and partners.
2. Prevention of fraud and corruption.
3. Cost reduction.
4. Increased profitability.
5. Improved quality and productivity of products/services.
6. Helps disseminate the values and organizational culture of the company.

Do you want to implement a compliance program in your company and don’t know where to start? Here are some tips:

1. Start by identifying the main risks your company is exposed to: Research them thoroughly, try to understand their characteristics, and how they can negatively affect the organization.
2. Perform a qualitative and quantitative analysis: Measure the impact of the risk and the probability of it affecting productivity and financial results.
3. Plan actions to prevent each type of risk.
4. Train your team: Your employees will only be engaged in “risk management operations” if they understand the true importance of compliance and the role they play in it. It is also important to educate them about the laws and regulations governing the sector.
5. Provide the necessary tools: Data security is crucial against fraud and to ensure that negotiations comply with the rules. An example is Fusion Platform, Neomind’s management system that ensures the security of confidential documents, granting access only to authorized individuals, allowing closer control of internal processes, ensuring they are carried out in accordance with the law, and reducing the organization’s risks.
6. Establish penalties for those who do not comply with the rules: You can also provide a confidential reporting channel to ensure that everyone is following compliance.
7. Monitor the results of your compliance program: Evaluate if your actions have helped reduce the negative impacts of risks and take the opportunity to identify new correction models. Since laws are constantly being updated, your program should be as well.

Conclusion

The pillars of compliance are people, processes, and technology. It is essential to create collective awareness through effective compliance and risk management programs, making the importance of following regulations clear to all those who are involved. Awareness must come from the top, from senior management, and then spread as an organizational culture. The company must have not only guidelines, tools, and processes duly mapped but also trained individuals who will know how to use these methods for good risk management. All of this aims to make the company safer and healthier, ultimately leading to improved productivity and profitability.