The Ten Key Terms You Need to Know for Compliance Management
Risk & Compliance
Compliance is a rather complicated albeit quite necessary facet of contracting. Of course, formal compliance procedures are not necessarily applicable in all contractual relationships, but it is highly relevant in the realm of government contracting and for the healthcare industry. Even if the nuances of compliance are not presently pertinent to your company’s contract portfolio, it is highly likely that they will be at some point. As a result, all contract management professionals must have a basic understanding of the process. Here are the key terms to know:
This word scares a lot of people, and in some cases, for good reason. When it comes to compliance, it is usually the audit process that occurs in order to verify that a company is in fact in compliance with the applicable rules and regulations. Much like an IRS audit or any other audit, this involves the sometimes uncomfortable scrutinization of a company’s documents and operations. However, for those interested in contracting with the government, periodic audits are something to which they will have to become accustomed.
It may seem silly to include the term compliance in the list of terms to understand about compliance, but the exact meaning of this is not always clear. After all, for a company to be in compliance may mean different things in different situations. Ultimately, the simplest way to define this is the adherence to, fulfillment of, or abiding by some prescribed set of laws, rules, or regulations.
There has been an increasing movement for companies to demonstrate corporate responsibility, ensuring that they act in a manner that is beneficial to the company, its stakeholders, the environment, and often even society at large. In compliance terms, this may be one of several requirements imposed to ensure that a company is acting responsibly and ethically.
This term is often jumbled in with corporate responsibility, but it relates more to whether a company has a code of conduct or a code of ethics that describe the way in which the company and its employees are expected to act and behave. There are many other terms that are also associated with ethics such as morality and legality, and it is important to note that what is ethical in one situation may not be so in another.
Most people are likely familiar with this term, as it is a rampant and regular part of life these days. In compliance terms, fraud often pertains to acting in a manner that is contrary to the rules or regulations that have been set forth. This may involve intentional deceit or simply inadvertent omissions. Fraud essentially involves an inappropriate action that is not in accordance with a company’s ethical standards or specific statutes with which it is expected to comply.
The way in which a company manages, or governs, its affairs obviously affects how the company operates and the revenue that it generates. As a result, effective governance is critical to performance and compliance.
In order to gauge whether and how a company is operating effectively and acting ethically and responsibly, it must employ some form of oversight. This may be accomplished by the board or a specially created committee. Basically, there must be a formal body and a process in place to monitor and advise, as needed.
Although regulations have the same force of law as a traditional piece of legislation, they are rules that an authoritative body, such as a federal agency, created. For example, the Environmental Protection Agency (EPA) is a federal agency that has issued regulations with which companies must comply or they will face penalties or other consequences for failing to do so. Thus, there are often various regulations that are applicable to companies engaged in a certain type of activity.
All companies must identify potential risks and create strategies to mitigate those risks, especially where failing to do so will be detrimental to the company’s strategic plan and objectives. The concepts of governance, risk management, and compliance are often discussed together, as they surround the way in which a company establishes and implements its goals.
One of several ways that a company can demonstrate its ethical and responsible behavior is by promoting transparency. This involves the open sharing of information with internal members and external partners. With respect to compliance, it is vital for a company to be transparent about its operations and financial status. It is rather difficult to assess a company’s standing if everything is shrouded in secrecy.
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