4 Simple Steps to Close Compliance Gaps and Standardize Processes

Practical tips to improve and scale operations

Turning chaos into order.

If you worry about the impact of compliance and financial reporting process gaps, you are not alone.

This post is a quick outline of an approach that I have seen work well: 4 simple steps to proactively seek out process gaps and then standardize the processes, where it makes sense to do so.

My main “lesson learned” — after 10 years — is that it is critical to consistently gather institutional knowledge about broken processes and strategically tackle improvements.

Broken systems don’t fix themselves. Ideally, initiatives to re-align operations will turn into a system of continuous process improvement.

PROBLEM: Business Process Gaps Lead to Errors and Waste

Inconsistent business processes can be chaotic, ineffective, lead to unreliable financial reports and waste resources. Another problem is that fraud loves chaos. Disorganized operations are the perfect place to hide financial errors and misconduct. Auditors and regulators know this, so chaotic processes are magnets for costly and disruptive audit “drill-downs” and regulatory investigations.

SOLUTION: Continual Process Improvement

One strategy to avoid compliance missteps, waste and financial errors is to proactively identify opportunities to scale and improve process effectiveness.

4 Simple, Practical Steps to Streamline & Improve Process Effectiveness

Step 1. Understand current processes

Understand what systems need to happen to make the business function.

  • What needs to happen, operationally, to execute the business lifecycle from cradle to grave?
  • What needs to happen to ensure that the business follows applicable regulations and generates reliable financial reports (and has transparent records to prove it)?

For example, if you do business in countries that are high-risk for political corruption, what records do you have to show that no funds were used to bribe foreign officials?

If you don’t have one, it is helpful to maintain a functional organizational chart. This will help to identify duplicative processes and opportunities to share “lessons learned” horizontally.

For example, at one 500-ish employee entity I worked with, an experienced manager mentioned that there were no procedures or guidelines for managing third parties. She explained the myriad of ways that this impacted the reliability of financial reports and wasted money. We gathered a group of her experienced colleagues together from across different departments, mapped out and drafted a cradle-to-grave “Best Practices for Managing Third Parties.” It was rolled out across the organization and integrated into employee on-boarding for staff who manage third parties. It was not perfect, but it was a solid start to creating a robust procedure.

Quick Tip: Pick one compliance or business process to focus on in the next 3 steps.

Step 2. Inventory opportunities to strengthen process effectiveness

  • Find change-friendly employees who work with the process and start an initiative to inventory process gaps and opportunities for improvement.
  • Hold a series of short meetings to canvas stakeholders with different perspectives. Understand the process from start to finish and gather ideas to standardize the process and to align it with regulatory requirements — factor in the need to generate reliable financial reports, implement effective internal controls, comply with regulations and laws and maintain accurate records. Map what actually happens to what should be happening to find gaps.

Quick Tip: Look up recent regulatory and other penalties concerning the business process you are improving (understand common missteps) — make sure you are strengthening the internal control environment for the gaps the regulators are targeting.

Step 3. Prioritize improvements - assign improvement goals, actions and timeframes

  • Select achievable initiatives to turn into projects, define your strategy, project goals and actions plans, process improvement owners and set implementation timelines.
  • When you are picking your process improvement goals, you can use the federal compliance effectiveness criteria as a cheat sheet to remind you what the regulators expect to see if they knock on your door.

Quick tip: To help prioritize your inventory of possible improvements, consider the likelihood and impact of a compliance failure.

Step 4. Rollout process improvements

  • Monitor the action plans and make sure you stay on target.

Quick tip: Remember to follow up and train relevant employees on any process improvements.

Even if you only have the resources to tackle one process improvement a year, that is a start.

This is a business-sensitive strategy to streamline and continuously improve the effectiveness of compliance, financial reporting and other business processes.

I am a former SEC enforcement attorney but, for the last 10 years, I have been leading compliance process improvement initiatives with city and state government, global public financial services firms, an educational non-profit and recently, with a few tech startups.

Feel free to reach out to me if you ever want to discuss any compliance or operational initiatives.