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What is a compliance plan? Risks of not complying with it

written by Thomas Johnson, On February 16, 2023


Consumers are more concerned than ever about initiatives related to companies' compliance plans, as they provide for high corporate, environmental, and social governance standards.

By following a compliance plan, the trust of customers, suppliers, investors, and other business partners is solidified, which promotes long-term sustainability, minimizes risks, and makes negotiations more transparent and advantageous. However, not having a compliance plan in place and carrying out non-compliances, you run business risks which I will discuss in this article.

Read on and find out what a compliance plan is and the risks associated with non-compliance!

What is a compliance plan?

The compliance plan summarizes a series of actions to improve governance and demonstrates the commitment of senior management to the issue.

The plan aims to strengthen the mechanisms for developing management capable of dealing with uncertainties, responding to events that represent a risk to the organization's objectives, and resolving issues of potential ethical, legal, or internal rule violations.

It also aims to promote an ethical culture and the adoption of institutional measures and actions aimed at preventing, detecting, and sanctioning irregularities and deviations in conduct.

Pro tip: Every compliance plan aims to create more secure processes that allow decision-making with more objectivity, confidence, and quality. Therefore, it is a process that never ends. The world is constantly changing, and companies need to adapt and, along with it, their compliance system.

What is non-compliance?

According to ISO 9000, non-compliance is non-conformity when a requirement is not met. Likewise, a condition is a need or expectation, generally implicit or mandatory. On the other hand, it is essential to remember that there are different requirements. 
Standardizing the company's management system allows the processes to align with the standard's requirements. It prevents products and services from being offered outside the quality standard, below the customer's expectations.

What causes non-compliance?

When an organization is in non-compliance, one or more processes are carried out incorrectly or differently from what a standard establishes. This error generates unsatisfactory results, i.e., non-conforming products and services.

Non-compliance can occur due to the following:

  • Customer requirements.
  • Product requirements.
  • Legal requirement.
  • Regulatory requirement.
  • Quality management requirement.
  • Regulatory requirement.

For example, when implementing a management system, whether ISO 9001 or ISO 14001, an organization is expected to demonstrate its operations, product, and services meet all the requirements outlined in the respective standards.

What are the risks of non-compliance for the company?

There are countless losses that the company can incur by not dealing with nonconformities, depending on the segment in which it operates.

The fines concerning non-conformities are generally very high, but this is the least of the losses. The worst is when the company suffers reputational damage, losing customers, suppliers, and even executives. 

Likewise, when the company is involved in fraud and corruption, it still puts the image of the Public Administration at risk, which can expand the problem to proportions impossible to reverse.

Pro tip: There are cases in which clients request compensation for damages. For example, the mere fact that a company selling fragile products needs to put this information on the shipping box can cause damage during logistics. The customer can hold the company responsible for this.

How to avoid non-compliance?

Although it is impossible to guarantee that a company, whether large or small, will never have errors in the system, it is advisable to create measures to reduce the number of non-conformities in the processes.
For this, some guidelines can be helpful for any organization that wants to align with the standards, as described below:

Empowering employees

Instruct each of the team members with relevant information about non-compliance. The intention is to correctly understand the concepts of non-compliance, corrective action, correction, and preventive action to be prepared for any such activity in the company.

Promote measurements

Create measurable indicators to monitor nonconformances. For example, they relate nonconformities to the costs they generate within the processes. Furthermore, align these indicators with the organization's strategic objectives.

Involve employees in the process of correcting non-compliance.

All employees must know that they play a relevant role in the company's compliance and in correcting non-conformities. Therefore, define actions to correct non-conformities as the entire organization's responsibility and not only of the compliance area.

Reinforce the importance of the management system.

Creating the culture that the management system is essential for all areas. Therefore, everyone is responsible for complying with the standard in question.

Bonus - How to manage non-compliance?

If your company is immersed in nonconformities, I explain some guidelines to make timely corrective actions:

Establish goals

After establishing a strategic plan, it is possible to analyze, observe and understand the company's performance. Organizing goals makes it possible to keep the processes in more detail and, therefore, where nonconformities can occur or already occurring. Also, stipulate elements in the strategic planning that include the analysis of non-conformities.

Use software tools

Technological tools should act on root causes, eliminating, reviewing, verifying, recording nonconformities, and performing continuous analysis.

Take corrective actions

Analyzing the origin and cause of non-conformities makes it possible to prepare to avoid systemic problems. In other words, the company continues on its ordinary course without spending time or resources on corrections.

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If you want your company to comply, it is essential to conduct sound business planning, adapt the organizational culture, prepare the entire operation, innovate internal processes, and invest in technology.

With the right tools, managers can closely monitor all operational reporting, including financial, tax, accounting, and administrative movements.

Technology facilitates data management and the implementation of internal policies that standardize all workflows, simplifying the assessment of legal compliance and employee compliance with these policies.

Pirani has an ideal compliance tool to prevent the risks associated with business non-compliance. Visit our website and find out more about the Pirani compliance suite.

Remember that the best time to prevent business risk is today!

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