Compliance automation: What it is and how to do it

Compliance automation is a field that’s growing in popularity – especially with more and more regulations springing up. It can save you countless hours and time when used properly but it can also be detrimental if used incorrectly.

Because of a lack of information and other reasons, many organizations have been hesitant about adopting it. In this guide, you’ll learn what compliance automation is, the benefits it brings, the steps to making it work for you, and so much more.

Overview of Compliance Automation

Compliance automation refers to the use of technology and automated processes to streamline and manage compliance-related tasks and activities within a business or organization. It involves leveraging software tools and systems to automate repetitive and time-consuming compliance tasks. These tasks may include data collection, analysis, reporting, and monitoring, to ensure adherence to laws, regulations, policies, and industry standards.

Compliance is something to take seriously because to consequences of noncompliance are only growing. In 2020, banks were fined over $14 billion for non-compliance.

Types of compliance automation:

There are various types of compliance automation that can be implemented in a business or organization, depending on the specific compliance requirements and needs. Some common types of compliance automation include:

1. Data collection and analysis: Automation of data collection and analysis processes can help in gathering and analyzing compliance-related data from various sources, such as internal systems, external databases, and third-party vendors, to identify compliance risks and trends.
2. Reporting and documentation: Automation of reporting and documentation processes can generate accurate and timely compliance reports, documentation, and audit trails that can be used for internal and external reporting requirements, including regulatory filings and audits.
3. Compliance monitoring and alerts: Automation of compliance monitoring and alerts can provide real-time monitoring of compliance activities and trigger alerts or notifications for potential compliance violations or exceptions.
4. Workflow and task management: Automation of workflow and task management processes can help in managing compliance tasks and activities across different departments and teams, ensuring that tasks are assigned, tracked, and completed in a timely and consistent manner.
5. Policy management: Automation of policy management processes can facilitate the creation, distribution, and tracking of policies, procedures, and guidelines, ensuring that employees are aware of and comply with relevant compliance policies.

How compliance automation differs from traditional compliance management

While similar, there are a few key differences between compliance automation and standard compliance management. These differences include:

1. Efficiency: Compliance automation leverages technology to automate repetitive and manual compliance tasks, reducing the time and effort required for compliance management, and improving efficiency.
2. Accuracy: Compliance automation reduces the risk of human error in compliance tasks, such as data collection, analysis, and reporting, leading to more accurate and reliable compliance outcomes.
3. Scalability: Compliance automation can handle large volumes of data and tasks, making it more scalable and adaptable to changing compliance requirements and business needs.
4. Timelines: Compliance automation provides real-time monitoring and alerts, enabling businesses to identify and address compliance issues in a timely manner, reducing the risk of compliance violations and penalties.
5. Consistency: Compliance automation ensures the consistent application of compliance policies and procedures across the organization, reducing the risk of inconsistency and bias in compliance management.

Overall, compliance automation can enhance the effectiveness and efficiency of compliance management, reduce risks, and enable businesses to meet their compliance obligations more effectively in today’s complex regulatory environment.

It’s important to note that compliance automation should be used in conjunction with human judgment and oversight to ensure integrity and effectiveness. You can’t just set it up once and let it fly. Regular audits and spot checks should be carried out to make sure everything is running smoothly.

Benefits of Compliance Automation

The benefits of compliance automation are wide and varied. It may have minor impacts on some businesses and major impacts on others. Generally speaking, the more regulations in your industry, the more benefits compliance automation brings.

With that being said, there are general benefits that anyone can enjoy.

Time and Cost Savings:

Compliance automation can significantly save time and reduce costs by streamlining repetitive and manual compliance tasks. Here are some examples:

1. Automated Data Collection: Compliance automation tools can automatically collect and analyze data from various sources, eliminating the need for manual data entry. For instance, a tax compliance automation software can automatically fetch financial data from multiple systems, such as accounting software and payroll systems, and generate accurate tax reports without the need for manual data input. This saves time and reduces the risk of errors associated with manual data entry.
2. Streamlined Workflow: Compliance automation can streamline workflow processes by automating tasks such as approvals, notifications, and reminders. For example, an automated compliance management system can send automated reminders to employees to complete required compliance training or certifications, reducing the need for manual follow-ups and administrative overhead. This helps businesses save time and resources by automating routine tasks and ensuring compliance deadlines are met.

Increased Accuracy and Efficiency

Improve accuracy and efficiency by reducing human intervention and eliminating manual errors. Here are some examples:

1. Automated Compliance Checks: Compliance automation tools can perform automated checks and validations against regulatory requirements, company policies, and industry standards. For instance, an automated risk assessment tool can assess vendors against compliance criteria and generate risk scores, reducing the prevalence of human error in manual assessments. This ensures compliance is consistently applied across the organization and minimizes the risk of non-compliance due to human error.
2. Real-time Monitoring: You can access real-time monitoring of compliance activities, allowing for prompt identification and resolution of compliance issues. For example, an automated monitoring system can continuously monitor transactions for potential compliance violations, such as fraudulent activities or insider trading, and raise alerts for immediate action. This helps in early detection of compliance breaches and ensures timely remediation, minimizing the impact and cost of non-compliance.

Reduced Risk of Human Error:

Compliance automation can reduce the risk of human error, which is a common cause of compliance failures. Here are some examples:

1. Elimination of Manual Errors: Compliance automation tools can eliminate errors associated with manual data entry, calculations, and interpretations. For example, an automated contract management system can automatically populate contract fields, calculate dates and deadlines, and ensure consistent contract language, reducing the risk of errors due to manual input.
2. Consistency in Compliance Execution: Compliance automation ensures the consistent application of compliance policies and procedures across the organization, reducing the risk of human errors resulting from inconsistent interpretations or executions. For instance, an automated policy enforcement tool can automatically enforce policies related to data privacy, access controls, or segregation of duties, ensuring consistent compliance with policies across different departments or locations.

Better Compliance Monitoring and Reporting:

Compliance automation can improve the monitoring and reporting of compliance activities, providing better visibility and insights into compliance status. Here are some examples:

1. Automated Reporting: You can generate automated reports on compliance activities, providing real-time insights into compliance status, trends, and areas of concern. For example, an automated compliance reporting tool can generate compliance dashboards and reports, summarizing compliance status, outstanding tasks, and areas of non-compliance, allowing management to take timely action.
2. Auditable Trail: Compliance automation tools can maintain an auditable trail of compliance activities, providing evidence of compliance efforts for regulatory audits or internal reviews. For instance, an automated policy management system can track policy changes, approvals, and acknowledgments, providing a comprehensive audit trail of policy compliance. This helps businesses demonstrate compliance efforts and respond to audit inquiries more efficiently.

Steps to Implement Compliance Automation

Identify Compliance Requirements

The first step in implementing compliance automation is to identify the specific compliance requirements that need to be addressed. This involves understanding the relevant laws, regulations, industry standards, and internal policies that apply to your organization. Examples of identifying compliance requirements include:

1. Conducting Compliance Gap Analysis: Conduct a thorough review of your organization’s current compliance practices and identify any gaps or areas of non-compliance. For example, if your organization is subject to data privacy regulations such as GDPR, you may identify gaps in data protection practices, consent management, or data breach notification procedures.
2. Engaging Compliance Experts: Seek input from compliance experts within your organization or external consultants to identify the specific compliance requirements that are applicable to your industry, location, or operations. For example, consulting with legal advisors can help identify relevant regulations or laws that need to be addressed, such as anti-bribery laws or export control regulations.

Choose the Right Compliance Automation Tools

Once the compliance requirements are identified, the next step is to choose the right compliance automation tools that align with your organization’s needs. Keep in mind that you may need to work with multiple compliance automation tools to get the level of compliance automation you’re looking for. For example, contract redlining and signing may require one tool while analysis and monitoring may require another.

1. Researching Compliance Automation Solutions: Conduct research to identify compliance automation solutions that are available in the market and evaluate them based on factors such as features, scalability, ease of use, and cost. For example, if you need to automate data privacy compliance, you may research and evaluate data privacy management software that offers features such as consent management, data subject request management, and data breach notification.
2. Vendor Evaluation: Assess potential compliance automation vendors based on their reputation, experience, customer reviews, and track record in the compliance automation space. For example, you may request demos and references from vendors to understand their capabilities and customer satisfaction levels.

Develop a Compliance Automation Plan

Once the right compliance automation tools are selected, the next step is to develop a comprehensive compliance automation plan that outlines the implementation approach, timelines, and responsibilities. Examples of developing a compliance automation plan include:

1. Defining Project Scope: Clearly define the scope of the compliance automation project, including the specific compliance requirements that will be addressed, the processes that will be automated, and the desired outcomes.
2. Creating Implementation Roadmap: Develop a detailed roadmap that outlines the steps, timelines, and resources required for implementing the compliance automation system. This may include tasks such as data mapping, system configuration, testing, and training.

Implement and Test the Compliance Automation System

Once the compliance automation plan is developed, the next step is to set up and then test what you’ve implemented. The goal here is to make sure it’s working as expected so roll it out in small batches and fix any issues before rolling out to your entire organization. Things to consider include:

1. System Configuration: Configure the selected compliance automation tools based on the identified compliance requirements and organizational policies. For example, if you are implementing a compliance management system, you may configure it to align with your organization’s specific compliance processes, roles, and workflows.
2. Data Mapping and Integration: Map relevant data sources and integrate them with the compliance automation system to enable automated data collection and analysis. For example, if you are implementing a risk assessment tool, you may map data sources such as financial systems, HR systems, or vendor databases to collect relevant data for risk scoring.
3. Testing and Validation: Conduct comprehensive testing and validation of the compliance automation system to ensure that it is functioning correctly and addressing the identified compliance requirements. This may include functional testing, user acceptance testing, and validation against compliance criteria.

Monitor and Update the Compliance Automation System

After the compliance automation system is implemented, it is important to continuously monitor and update it to ensure ongoing compliance.

1. Continuous Monitoring: Set up automated monitoring and alerts to identify any potential compliance breaches or issues in real-time. For example, if you have implemented a compliance monitoring system, you may set up automated notifications to alert relevant stakeholders when a compliance violation is detected, such as a data breach or a policy violation.

2. Regular Audits: Conduct regular audits of the compliance automation system to ensure that it is performing as expected and meeting the identified compliance requirements. This may involve reviewing system logs, conducting data integrity checks, and validating compliance reports generated by the system.
3. System Updates and Enhancements: Stay updated with the latest regulatory changes, industry standards, and best practices, and update the compliance automation system accordingly. This may involve implementing software updates, adding new features or functionalities, or enhancing system configurations to address changing compliance requirements.
4. Employee Training and Awareness: Provide ongoing training and awareness programs to employees who interact with the compliance automation system to ensure that they are familiar with the system’s functionalities, understand the compliance requirements, and use the system effectively.
5. Periodic Reviews and Optimization: Conduct periodic reviews of the compliance automation system to identify areas for optimization and improvement. This may involve analyzing system performance metrics, reviewing user feedback, and conducting benchmarking exercises to identify areas for enhancement.

Implementing compliance automation involves a systematic approach that includes identifying compliance requirements, choosing the right automation tools, developing a comprehensive plan, implementing and testing the system, and continuously monitoring and updating it. By following these steps, you can effectively streamline your compliance processes, reduce manual errors, and ensure ongoing compliance with regulatory requirements. Top of Form

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Challenges of Compliance Automation

While compliance automation offers many benefits, it also presents several challenges that you may face. Here are three major challenges of compliance automation:

Ensuring Accuracy and Reliability:

Compliance requirements are complex and constantly changing, and automated systems must be able to accurately interpret and apply these requirements. Errors in data collection, analysis, or reporting can result in incorrect compliance outcomes, leading to potential legal and financial risks. Invest in robust data validation and quality control mechanisms to ensure the automated processes and systems are accurate, reliable, and aligned with compliance requirements.

For example, if an organization automates its data collection and reporting processes for financial regulations, such as the Sarbanes-Oxley Act (SOX), there is a risk of incorrect data being captured or misinterpreted, resulting in inaccurate financial reporting and potential compliance violations.

Managing Complexity and Adaptability

Compliance automation systems need to be adaptable and able to accommodate the complexity inherent in compliance. Configuring and managing complex rules, workflows, and processes within the automation system can be challenging, and you need to ensure that the automation tool can handle the unique compliance needs of your industry or region. Additionally, compliance requirements can change over time, and you’ll need to ensure the automation system can be updated and adjusted accordingly to remain compliant.

For example, if a healthcare organization implements a compliance automation system to manage compliance with the Health Insurance Portability and Accountability Act (HIPAA), the system needs to be able to adapt to changes in HIPAA regulations, such as updates to data privacy requirements or changes in breach notification requirements.

Balancing Automation with Human Judgment

Compliance automation systems rely on algorithms and predefined rules to interpret and apply compliance requirements. However, there may be situations where human judgment and decision-making are necessary. Balancing automation with human judgment can be challenging, as you need to determine when and how to involve human input in the compliance process. Over-reliance on automation without proper human oversight can lead to potential risks and liabilities, while excessive human intervention can defeat the purpose of automation.

For example, in a compliance automation system that monitors employee conduct and detects potential insider trading violations, there may be situations where human judgment is required to assess the context and intent of the behavior before taking compliance actions.

Conclusion

Compliance automation provides many benefits but it’s not a silver bullet and comes with its own challenges.

This guide has looked at the type of compliance automation, the benefits, and the steps to implement it in your organization. It has also shared some of the challenges that you should be aware of and face head-on.

One thing you may have noticed is that compliance automation comes in different forms and different tools are quired for them. If you’re interested in contract compliance automation, DoxFlowy is a great option. If you’re looking at different types of compliance automation, start by determining the features you need and shortlist options based on those criteria.

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