International regulations such as Sarbanes-Oxley, Basel II and International Financial Reporting Standards (IFRS) are just three measures that require internal auditing of processes and budgets in order to report them to government.
Meanwhile, Britain is gearing up for its own, country-specific, measures with the UK Companies Act, which is being amended to strengthen auditor regulation, accounting enforcement and investigations into budgetary discrepancies.
With strict penalties for non-compliance, it is no wonder many companies have responded by creating 'head of compliance' posts to lead company initiatives that will ensure compliance.
However, heads of compliance are immediately confronted by a combination of red tape, legislation and government compliancy codes. Figures from the British Chambers of Commerce (BCC) show that the burden to business of complying with government regulations has reached £10bn a year.
The UK government has promised to make 2006 its year of delivery on deregulation, but even if no new regulations are passed over the next five years, the total red tape burden since 1997 will hit £100bn by 2011. This translates into a wealth of extra work for public and private entities.
However, taking the initial approach to create an internal monitoring process can make regulatory compliance a simpler task than it may seem. Many organisations are deeply concerned about their ability to comply and feel overwhelmed by the barrage of rules with which they must comply.
If organisations are already managing risk, ensuring transparency into operational procedures or providing accurate financial reports, they're already on their way to compliance. If not, there are four initial steps to implementing an internal compliance plan that will prepare your organisation for any new requirements imposed by government.
Step one: Seeing is believing
A good place to begin is by evaluating what levels of the organisation have insight into status and budgetary issues as they arise. While those that execute on the company's projects have day-to-day access to project status through their existing project and portfolio management software system, executives often rely on printed reports for updates.
At the same time, executive staff have a higher level view of project and programme consequences on overall business strategy and can better determine which projects should be continued and which are of no strategic value.
The fastest way to get critical information up the chain of command is to provide a link to the project data that already exists – a portal through which executives can quickly surmise status and make go or no-go decisions.
Many companies have found that by providing more timely and comprehensive status to senior level business staff, the better prepared they are to have the depth of information that new legislation requires.
Once executive visibility is established, the next challenge facing the 'head of compliance' is to communicate both the long-term objectives of the compliance program, and the changes that will be required to gather all of the necessary data. Use the existing project management system to track the status of this new compliance preparation project.
Step two: Leading the charge
In several sectors there will be an obvious cultural impact on the general workforce. For example, in a financial institution most employees will be forced to modify certain internal procedures in order to comply with IFRS.
But for other companies where employees are not directly involved with financial reporting, the new measures appear – on the surface at least – to be less relevant outside the boardroom.
So how are employees to understand the importance of their work on this new endeavour? Who is to serve as the liaison between the executive staff who know the consequences of non-compliance, and the project staff who are required to produce the necessary reports? Who will help the organisation to understand the need for accountability?
The head of compliance can serve as the project leader of the cause by removing roadblocks for the project staff and reporting progress to executives. In this role, the head of compliance can create a culture of collaboration while still remaining focused on the end goal.
Step three: Efficiency by education
Anyone within the organisation that has access to sensitive information will need to abide by the rules of compliance. Though the disparate structure of some industries makes it a difficult proposition to ensure that employees have a personal awareness of how compliance affects them, it is clear that a drive to educate the workforce is necessary.
It is crucial that buy-in to compliance practices is secured and that employees have early insight into all activities for which they can be held responsible.
It is worth companies investing the time and resources in bringing the workforce up to speed with compliance, since better education will also give employees the ability and confidence to adhere correctly to new reporting procedures, which can in turn improve internal efficiencies.
The introduction of any compliance regulation involves the unification of process, technology and most importantly, people.
Fortunately, many companies have retained lessons learned from Sarbanes-Oxley, which was implemented into most organisations operating in the US in 2005, and are taking a more strategic approach to managing the implementation of the new compliance regulations.
Step four: Automation and consolidation
These are imperative in achieving a compliance architecture that is simple to implement and easy to utilise. Therefore, companies not already using a centralised system such as portfolio management software should evaluate the benefits of installing one.
Allowing complete transparency throughout an organisation, the software also ensures that managers are able to view work in progress, whilst detailing sensitive information that increasingly is crucial to remaining compliant as well as minimising any risk of inaccuracy.
It also makes life easier for workers, allowing them to stay in the loop with projects and receive advance warning of deadlines and overruns, resulting in better time management.
With a management solution that can offer a centralised pool of knowledge, and an educated employee base, activity status details will be properly recorded. Everyone working on a project will have access to the same information, and this will improve the speed at which people work.
Equally, it will enable senior staff to spot potential errors and failures in compliance, and take action there and then, before issues spiral out of control.
The centralised nature of a project and portfolio management system will provide management and accountants alike with the ability to drill down information to the required level. For compliance managers, shouldered with the burden of ensuring that financial reports and the like are accurate, this degree of insight can prove invaluable.
New regulations might not be such a bad thing. Whilst the measures may have been drawn up to clamp down on firms that fail to meet their obligations, they also provide the impetus for forward-thinking firms to gain a real competitive advantage by implementing superior governance procedures.
Given the continuous need to reduce expenses and that so many industries are bound to some degree by regulatory pricing restrictions, efficiency is a crucial factor in giving companies a real competitive edge.
Whether viewed with contempt or as a useful business tool, compliance is more than likely here to stay, despite the recent legal arguments in the US over Sarbanes-Oxley.
The need, therefore, for companies to ensure absolute visibility throughout the whole structure of the organisation is crucial if it is to fully comply with new legislation.
The implementation of new strategies to address these compliance issues must include the consultation and support of the entire workforce, an internal champion to lead the charge as well as intelligent project management software, which helps companies navigate the compliance minefield