The Real Difference Between Reactive and Proactive Compliance

Are you struggling to decide whether to be a reactive or proactive compliance organization? Most organizations fall into one of two categories regarding compliance. Some look like they are barely keeping up with their compliance requirements and scramble to find what an auditor needs when audit season rolls around. Others appear to have compliance in the bag and sail through audits unscathed. The truth is, luck is not why these organizations operate differently. The difference lies in the way they approach compliance management.

What Reactive Compliance Looks Like in Practice

Reactive compliance is just that, responding to a given stimulus. It could be an audit coming up, a newly announced regulatory requirement, or even a compliance violation that has already occurred. In any case, the teams get into a frenzy and begin scrambling to put together the responses and evidence to show that compliance requirements had been met.

The downside of this kind of approach is that it creates undue stress on employees. Companies are constantly putting out “fires” and only dealing with an issue when it becomes an urgent situation. It is also costly to the organization. When you are constantly in a reactive mode, you have increased staffing, overtime challenges, and even missed requirements. Compliance documents are incomplete because teams are not continuously capturing the necessary information throughout the year.

How Proactive Compliance Looks in Practice

Proactive compliance is the opposite of reactive compliance. Instead of waiting for issues to arise, organizations incorporate compliance into their everyday workings. They review their policies on time, staff training occurs as needed, and documentation is captured while working instead of being retroactively compiled when needed.

It is not that these companies prefer compliance or enjoy it immensely compared to their core functions. Still, they understand that it is far less of a burden to stay ahead of compliance requirements than it is to chase them down.

The Role of Technology in Proactive Organizations

The chances are that proactive organizations still use Compliance Software to maintain their status as proactive companies. However, they use it in multiple and diverse ways. They are not just using software to capture their policies; they use it to automate reminders for employees, track training completion rates, build approval workflows, and capture automated audit trails. They also likely use the software to manage other highly manual processes like risk assessments.

Once the organization grows beyond a certain size, it becomes impossible to stay proactive without proper systems in place. There are too many employees and too many moving pieces. Your only option at this point is manual tracking through spreadsheets, which will undoubtedly fail at some point. Proactive organizations have captured this necessity and ensure that they take the burden of capturing documentation away from team members and instead let technology do what it does best.

The Cultural Shift Required for Proactive Compliance

There is also an inherent cultural shift that separates reactive and proactive organizations. There is no doubt that when you look at the team dynamics in a reactive compliance company, you will notice negativity towards the process and requirement for those very teams. That negativity comes from the hierarchy of the company. Leaders believe it is a burden, and it gets passed down through the ranks.

However, proactive organizations view compliance differently. They understand it is protecting them as an organization from undue risk. It keeps them doing business by minimizing liability toward their clients. When teams view compliance as something that protects their organization, they are more likely to take ownership of their responsibilities.

Much has been said about how processes might be in place, but if your team views compliance as an annoying task instead of recognizing its value, gaps will form in the processes.

The Cost of Being Reactive

When considering whether to practice reactive or proactive compliance, many organizations believe that being reactive costs less. You do not need advanced systems or resources dedicated to compliance oversight.

However, what many leaders might overlook is that reactive compliance has other costs outside managing compliance audits and checks. For example, you waste time trying to find information you should have been organized beforehand. Then there are the penalties or fines you might incur when your organization misses something critical to its operations or the business environment. Those fines may even lead to hiring consultants who need emergency assistance right before an audit.

Likewise, audits can also cost money if teams have missed multiple violations and you cannot bring your organization back into legal standing with enough time before required checks. These all impact your organizational resources and productivity when staff must stop what they are doing to attend to these incidents.

Proactive compliance does require cost upfront, but those costs do not continue manifesting because team members miss requirements or are unable to get work done because they were looking for something misplaced. For example, audits are much less of a burden when your firms stay compliant with policies like information security laws. Proactive compliance helps firms avoid violations in real-time.

Transitioning from Reactive Compliance to Proactive Compliance

Transitioning from a reactive environment might seem daunting, but it does not need to be a taxing process for your entire organization. The good news is that you can start small without revamping everything overnight.

It would help if you were honest about how behind your organization might be regarding some requirements. But even though it will take work, many organizations start with their most critical or highest-risk areas of compliance before expanding their reach.

Last but certainly not least, now is your chance to begin. Often, organizations ignore the need to change their ways until it becomes untenable. They wait until an audit looms on the horizon that you might not pass because of poor habits and maintenance throughout the year.

The Conclusion About Reactive vs Proactive Compliance

Reactive and proactive compliance represent two operating philosophies within a firm or organization. One has distinct downsides worth considering before deciding this is the approach you want to take. Constantly being behind the eight ball puts you on a hamster wheel of attempting to keep up with requirements well overdue and neglected.

The chances of failure when working in an organization that encourages a reactive approach are higher than they would be with a progressive one. Companies who proactively approach staying compliant do not have simple regulatory requirements they must follow. Instead, they have figured out a better way of approaching this necessity for your organization, maintaining efficiency in the pursuit of staying on track.

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