What is corporate compliance? You know it’s an essential part of healthy business operations in every industry. You know compliance violations create penalties, loss of reputation, fines, and lawsuits.
But in order to avoid these violations, you must first understand what it means and how it affects your particular business. Fortunately, you’ve come to the right place. When you’re ready to discover the answers you need to avoid fines and lawsuits, read on.
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Definition: What is Corporate Compliance?
The definition of compliance is the act of fulfilling a command or meeting rules or standards. In the business world, this translates to following the laws set forth by your local, state, and national governments.
- Ethical practices
Experts often cite two separate kinds of compliance: internal and external. Internal compliance refers to the rules, regulations, and laws set forth by your government.
For instance, the Sarbanes-Oxley Act of 2002, otherwise known as SOX requires that your business submit a year-end financial disclosure report. Two senators created the Act in response to public companies, like Enron and Worldcom, misrepresenting their financial status to defraud investors. Now, if you don’t submit a year-end financial disclosure report, you’re in violation and may be fined.
Politicians put these laws into place to protect not only investors but also business owners like you. They ensure your rights. They close legal loopholes, so shady competitors can’t dominate your industry.
Common Compliance Risks
Ok, so now you know the purpose of compliance programs is all about reducing risk. It’s business owners’ risk and investors’ risk. It’s everyone’s risk.
If you aren’t in compliance, you run the risk of regulatory enforcement by a government official. You may also face financial loss. In the case of intentional violation, you may also face a personal fine and up to 25 years in jail.
The main compliance risks fall into 5 specific categories.
- Data Protection
- Health, Safety, Environment
It is your responsibility to know not only which requirements apply to you but also how well your company is prepared to meet them.
Why is Compliance Important?
Agreed-upon standards and goals are paramount in any business relationship. Corporate compliance is the backbone of these standards. Without this compliance function, you can’t build or maintain trust with business relationships.
Compliance also protects you. Sure, it keeps you from incurring lawsuits and penalties. It may also keep you and your employees from making gaffs in your reported financial status that may cause problems down the road.
How to Keep Compliant
To stay compliant requires diligence. Some rules and regulations require day-to-day maintenance while others happen only annually. Unfortunately, it’s often difficult to know what to focus on.
You can approach this in three ways. The first is to learn all the information yourself then teach your staff. The second is to hire a compliance firm to step in and guide you.
The final method is to use the software. Compliance software stores all corporate procedures, policies, and requirements in a central location. That way you can hit target deadlines and learn whatever else you need to know along the way.
So, what is corporate compliance? It’s a set of standards backed by law that compel businesses to follow certain procedures. Each is defined by your industry.
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