Building a compliance management system

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We all know how important compliance is for modern organizations. And if you’re not convinced, you only need to look at the damage that non-compliance does to public trust, organizational reputation and the balance sheet – not to mention the personal harm that events like harassment and data breaches cause.

Clearly, compliance is non-negotiable. But it’s also complex to manage. 

That’s where a compliance management system (CMS) comes into play. 

Table of Contents

What is a compliance management system?

A compliance management system (CMS, occasionally called a compliance program) is a structured approach to maintaining and proving compliance with relevant laws, regulations and internal policies. 

A CMS helps your organization:

• Map its compliance obligations
• Ensure employees understand what’s required
• Embed compliance into your workplace culture and business practices
• Prove compliance to regulators and stakeholders
• Continuously improve compliance efforts

It’s more than just a software solution. An effective compliance management system involves a combination of processes, policies, people and technology. 

“Compliance management” vs “CMS”

While “compliance management” and “compliance management system” are often used interchangeably, there are subtle differences.

Compliance management refers to the overall process of ensuring adherence to legal and ethical standards. 

A CMS is a specific system or framework that is designed to facilitate, implement, measure and prove compliance management.

Think of it this way: Compliance management is a strategic goal, while a compliance management system is the toolkit you use to achieve that goal. 

Is a compliance management system mission-critical or nice to have?

Between state and federal employment laws, industry-specific regulations, data privacy rules and internal guidelines, it’s hard to keep track of your compliance requirements. And it’s easy to miss non-compliant behavior.

By using a CMS, you gain control over compliance obligations. You’re essentially creating a playbook to ensure organizational strategy, management decisions and employee actions are aligned with regulatory standards and policies.

This confidence in compliance programs is not the only benefit of a CMS:

• Identify and address potential compliance risks
• Reduce the likelihood of fines, penalties and legal action
• Uphold your organization’s reputation and build trust 
• Streamline compliance processes, optimizing resource management
• Cost savings by avoiding fines, legal fees and lost business
• Competitive advantage, especially in industries with stringent regulations

Crucially, a well-designed compliance management system gives your organization room to move. It’s not a rigid system. The opposite: it’s designed to adapt to regulatory changes, tech evolutions and new best-practice standards.

We’ll talk more about that shortly when we explore the idea of autonomy in compliance management systems.

By the numbers: The costs of compliance issues

• Non-compliance costs 2.71x more than compliance
• 93% of executives agree that stakeholder trust affects financial outcomes
• Non-compliance costs have increased by 45% in the last decade
• A single non-compliance event costs $4m on average
• GDPR regulators have issued almost $5.5b (€5.01b) in fines since 2018
• The US Equal Employment Opportunity Commission (EEOC) collected over $665 million for workplace discrimination victims in 2023, and won 91% of its 143 discrimination lawsuits 

Read more: The shocking cost of non-compliance every business should know.

Different types of compliance management systems

Compliance management systems come in many shapes and sizes. Each type is designed to address specific requirements, be they internal, legal or industry-specific.

This is where we go back to “compliance management” compared to “compliance management systems.” 

You might need several compliance management systems to achieve compliance management. It depends on your industry, size, and sphere of operation.

For example:

• Regulatory compliance management systems help you comply with legal requirements and industry-specific regulations. They ensure you follow the rules set by government bodies and industry authorities. 
• Internal policy compliance systems focus on ensuring that employees and departments adhere to rules, codes of conduct and operational guidelines. These policies are typically established to maintain operational integrity, workplace safety, and ethical standards.
• Data and privacy compliance management systems focus on data security and privacy protection. They help you comply with GDPR, CCPA, HIPAA, SOC 2 and other privacy standards – particularly important if your business handles sensitive personal information.
• Industry-specific compliance management systems are tailored to address the compliance requirements that are often set down by governmental bodies or industry organizations. Industries like banking and finance, healthcare and cybersecurity have nuanced compliance requirements over and above the ‘general’ standards.

Six core elements that every compliance management system shares

In practice, this diversity means there is no cheat sheet for compliance management systems. Your organization’s specific requirements will differ from competitors, and an organization in another industry will follow a CMS that’s almost unrecognizable.

That said, there are some essential components that every CMS typically includes:

• Risk assessments that name potential compliance risks and their associated impacts.
• Policies and procedures that outline compliance obligations.
• Training and education to ensure employees understand their compliance obligations.
• Compliance audits, assessments and regular testing used to measure the CMS’s effectiveness and address compliance gaps.
• Reporting and investigation mechanisms for documenting and investigating non-compliance incidents.
• Corrective actions to address and prevent future non-compliance.

So, the million-dollar question: how do you develop a compliance management system that works? 

Let’s get into the nuts and bolts of building a compliance management system.

Three steps to creating a compliance management system

While many CMS models exist, none are universally accepted. 

We’ve chosen to follow the US Department of Justice’s (DOJ) Evaluation of Corporate Compliance Programs guidebook, which was updated in September 2024. 

It’s dense, written in legalese, and designed to help prosecutors understand whether an organization’s compliance management system was effective when a non-compliant incident occurred. 

As a result, it’s one of the most thorough and applicable references available. 

Even then, the DOJ “does not use any rigid formula to assess the effectiveness of corporate compliance programs.” 

There are, however, three fundamental tests detailed in the guidebook: 

1. Design: Is the compliance management system well-designed?
2. Resourcing: Is it applied earnestly and in good faith; in other words, is it properly resourced and empowered to function effectively?
3. Effectiveness: Does the CMS actually work in practice?

We’ve flipped the script on these tests to create a framework for effective compliant management systems. 

Step 1: Designing a compliance management system

Compliance management systems should be tailored to your company’s unique risk profile and operational environment. It should be supported by senior management, understood by employees, and championed by advocates across the organization.

Most of all, it should be designed to adapt. 

Risk assessment

• Conduct a thorough analysis of your organization’s specific risks, including regulatory requirements, industry standards and internal processes.
• Prioritize risks based on which pose the greatest threat to your organization, and focus your resources accordingly.
• Design your CMS to address the most significant risks, ensuring that your efforts are aligned with your organization’s priorities.

Policies and procedures

• Develop clear and comprehensive policies that outline your organization’s expectations for compliance.
• Communicate effectively to ensure all employees understand the policies and procedures, where to find them, and how to follow them.
• Publish the policies in an accessible, employee-friendly format, and make them available in the languages spoken within your business.
• Regularly review and update your policies to reflect regulatory changes, new and evolving industry standards, and your organization’s expanding operations.

Training and communications

• Design comprehensive compliance training programs to educate employees on requirements, policies and procedures.
• Set benchmarks for compliance metrics by using compliance management software, audit tools, or Time Doctor.
• Communicate the importance of compliance early in the piece to avoid pushback when new policies or reporting requirements come into force.

Reporting and investigating non-compliance

• Establish a confidential and anonymous reporting mechanism to give employees a way to report potential violations.
• Investigate all reported incidents promptly and impartially; consider whether an external investigator (compliance auditor) is required.
• Implement appropriate corrective measures to address any identified non-compliance issues.
• Communicate this investigation-correction cycle to employees and other affected stakeholders to build trust in the system.

Managing third-party relationships

• Conduct due diligence on the compliance practices of third-party vendors and suppliers.
• Enforce ‘compliance commitments’ so that third parties align with your organization’s standards.
• Monitor and review relationships regularly to evaluate the performance of third-party vendors and suppliers.

Step 2: What resources are required for a compliance management system?

Compliance management requires resources. It’s not a one-off project. No matter how slick the CMS looks on paper, you’ll need people, time, technology and leadership to make it effective in practice.

Senior management commitment

• Compliance starts at the top; strong support from leadership is crucial for creating a culture of compliance.
• You might need to appoint a Chief Compliance Officer (CCO) with direct access to the board.
• Involve stakeholders at all levels in compliance initiatives to foster a shared commitment.

Funding and personnel

• Embed compliance officers across the organization, reporting to the CCO on day-to-day compliance activities.
• Allocate sufficient budget to support compliance efforts, including training, technology, new hires and independent auditors.

According to one study, the average cost of compliance for multinational organizations is $5.47 million. That sounds high, until you realize the cost of non-compliance is $14.82 million – almost 3x higher!

Regular compliance training

• Tailor training to meet the specific needs of different roles and departments within your organization.
• Foster a culture of compliance where employees feel empowered to report misconduct and seek guidance.
• Monitor compliance metrics before and after training, using Time Doctor’s workforce analytics tools to identify potentially non-compliant behavior.
• Test employees on their knowledge and coach managers on communicating the importance of compliance.

Autonomy with accountability

• Empower compliance personnel with the authority and independence needed to carry out their duties.
• Establish a regular cadence for reporting, meetings and updates.
• Keep the compliance team independent from daily operations, with direct reporting lines to the board and/or audit committee.
• Implement accountability mechanisms (including the authority to discipline non-compliant behavior) to ensure misconduct is taken seriously.
• Apply disciplinary actions consistently, and track the impact to gauge whether the message is getting through.

Tech enablement

• Provision compliance officers and the CCO with the data they need to assess compliance, manage risks and measure improvements.
• Consider using compliance management software tools to automate tasks and improve efficiency.
• Audit the compliance of third-party platforms (those used for compliance and complementary tools) to identify vulnerabilities and manage risks.
• Going forward, only work with tech vendors that can demonstrate compliance to an acceptable standard.

Time Doctor is fully compliant with GDPR, HIPAA, CCPA, SOC 2 and ISO/IEC 27001. We take compliance extremely seriously. Learn how we keep your data safe.

Step 3: Does your compliance management system actually work?

The final test is whether your CMS contributes to compliance management. This typically involves a combination of point-in-time assessments, periodic audits, and ongoing compliance monitoring. 

It’s essential to keep hold of compliance. Not only for day-to-day operations but also to satisfy both internal stakeholders and external regulators. 

Internal and external audits

• Conduct internal compliance audits to assess the effectiveness of your CMS and identify areas for improvement.
• Consider engaging external auditors for an independent evaluation.
• Publish compliance audit results as required, including detail on corrective actions.

Stress testing

• Create hypothetical scenarios to test your CMS’s ability to respond to crises or unexpected challenges.
• Use stress testing to uncover vulnerabilities that require strengthening.

Monitoring compliance metrics

• Establish KPIs like the number of non-compliance incidents, resolution speed, audit findings, and employee training outcomes.
• Use compliance management software to identify trends and patterns that may indicate compliance risks.
• Compare data from workday analytics and other complementary sources to get a complete picture of team performance and compliance.

Diagnosing non-compliance

Continuous improvement

• Continuously evaluate your CMS to ensure it remains effective and aligned with your organization’s evolving needs.
• Adapt and adjust your CMS based on compliance audit findings, performance metrics and lessons learned from non-compliance incidents.
• Keep up-to-date with changes in regulations, industry standards and compliance best practices.

There are no shortcuts in compliance management

But there are ways to streamline your systems and lighten your workload

Building an effective compliance management system is an ongoing process. While it requires continuous effort, there are strategies and tools to make life easier. 

Compliance management software can automate compliance admin, improve transparency and help you stay ahead of changing regulations.

Workforce analytics slots seamlessly into these workflows, giving you access to the data-driven insights needed to monitor performance, identify risks and ensure adherence to regulations.

Together, compliance management software and workforce analytics go a long way to embedding compliance into your daily operations. 

If you’re curious about Time Doctor’s role in compliance management, you can view a demo to explore the features, integrations and reports using your own workforce data. 

Liam Martin is a serial entrepreneur, co-founder of Time Doctor, Staff.com, and the Running Remote Conference, and author of the Wall Street Journal bestseller, “Running Remote.” He advocates for remote work and helps businesses optimize their remote teams.