Compliance Metrics and KPIs For Measuring Compliance Effectiveness

“Corporate compliance” means that your company and its employees follow the laws, regulations, standards, and ethical practices applicable to your operating environment.

In today’s data-driven landscape, however, compliance officers need quantitative measures to assess compliance performance. To do this, they must identify key performance indicators (KPIs) for their compliance program.

Tracking these KPIs provides deeper insights into the organization’s policy and regulatory compliance posture. KPIs also communicate the strengths and weaknesses of the compliance function to relevant stakeholders.

So what are the best metrics to measure a compliance program’s effectiveness? This article addresses the role of KPIs in compliance management. First, let’s explore the benefits of KPIs.

What Are the Benefits of Measuring Compliance Effectiveness?

A robust compliance program is essential to assure adherence to both internal policies and external regulations. Such a program provides a systematic set of guidelines to:

• Set the right expectations around compliance practices and employee behaviors;
• Keep employees focused on following the rules that help the organization achieve its goals and mission;
• Protect the organization’s reputation;
• Minimize the possibility of regulatory fines and expensive lawsuits;
• Prevent customer churn due to non-compliance.

But it’s not enough to simply implement a compliance program. It is also essential to measure it against key benchmarks to enhance effectiveness, identify gaps, and align with regulatory requirements.

Enhance Compliance Effectiveness

Measuring compliance effectiveness is the first step to managing, maintaining, and enhancing compliance effectiveness. By measuring compliance, you can better understand whether the organization’s policies, documents, manuals, and internal controls are actually reducing risk and improving compliance.

Identify and Address Gaps

By measuring compliance effectiveness, you can identify gaps and determine if you need more staff or better technology to fill them.

Keep Up with Regulatory Demands

In 2020 the U.S. Department of Justice (DOJ) released updated guidelines about what compliance programs should be able to do to be deemed “effective.” Periodic assessments of the program’s performance were one of those capabilities – and that requires KPIs and metrics.

What Are Compliance Metrics?

With relevant, comprehensive, and up-to-date compliance metrics and KPIs, you can measure your company’s ability to remain aligned with internal policies, external rules, and government regulations. You can better understand how well your organization’s compliance program is (or isn’t) operating.

Compliance KPIs provide an “early warning system” to detect compliance issues quickly, so you can fix the problems and improve your controls. By taking prompt action, you can prevent fines, regulatory damage, customer churn, financial losses, and bad publicity.

Some compliance metrics may also be known as key risk indicators, or KRIs. KRIs are crucial indicators of potential risk. They can help you with risk assessment and check whether existing controls are helping to reduce the effect of these risks.

How to Use Risk Management to Establish Compliance KPIs

Effective compliance begins with the risk management process, which itself starts by first determining your organization’s objectives.

Determine Organizational Objectives

You can’t measure compliance effectiveness without baseline goals. To identify those goals, you need to ask some critical questions like:

• What are the enterprise-wide objectives?
• What risk mitigation strategies enhance business performance and strengthen profitability?
• What kind of unexpected events may reduce operational efficiency?
• Which risks may affect current or future revenue streams?
• What is the likelihood of these new risk events?

The above list shows that to create appropriate compliance KPIs, you need to consider not only present risks, but future risks and potential challenges as well. It’s also crucial to consider that different industries have different objectives, which may require different compliance KPIs.

Assess Compliance Risks

To identify the correct compliance KPIs for your organization, you must assess the compliance risks you face – that is, the chance that you will not be able to meet your regulatory compliance obligations. To do this, ask questions like:

• What compliance obligations would pose the biggest enforcement threats if we fail to meet them?
• Which compliance obligations are we most likely not to meet, given our current operating processes? (Your most likely risks might not be the same as your biggest risks.)
• What processes that we have now support our efforts to meet compliance objectives?
• What are the most reliable, data-driven ways to assess whether those processes are working as intended?

What Are Some Key Metrics and KPIs My Compliance Officer Can Use?

As mentioned earlier, every organization is different and no “one size fits all” solution exists. That said, some standard compliance metrics can give you a starting point.

Employee Complaints About Misconduct

If an employee makes claims about misconduct within the organization, it can have serious repercussions for its reputation and financial standing. That’s why it’s critical to measure the number of employee complaints and the nature of those complaints. If there are none, does that mean there are no issues? Or does it mean employees are too fearful or disengaged to submit a concern?

Measure complaints by type of allegation: harassment, illegal activity, fraud, anti-trust, unethical behaviors, discrimination, and so forth. Find data to clarify questions such as:

• How many employees have filed complaints?
• What are they alleging?
• Did they complain through an anonymous hotline or go directly to a supervisor or functional head?
• Was the allegation substantiated or not?

Compliance Expense

This metric is critical for understanding which compliance issues or controls cost more to resolve than others, and why. Measuring the time and effort to execute compliance activities can then help you implement the most appropriate initiatives to strengthen your compliance program.

For instance, you can judge whether automation can be a feasible solution to reduce the expense of due diligence. Or perhaps a significant amount of time is spent following up on audit findings, and a workflow tool could help alleviate these tasks.

Mean Time to Issue Discovery (MTTD)

MTTD is a critical metric to measure compliance effectiveness since it shows:

• How quickly your compliance program can discover an issue;
• Whether you have a strong speak-up culture;
• If you have appropriate data monitoring capabilities to identify incidents.

To calculate MTTD, you must ascertain:

• When the issue first started (via interviews or forensic investigations);
• When the compliance team discovered it.

Mean Time to Issue Resolution (MTTR)

MTTR shows how quickly you can resolve discovered compliance issues. MTTR is important because it could indicate:

• Resource shortages;
• Lack of technology;
• Too many manual processes which could be replaced by automation.

To calculate MTTR, add up the total time for all issues to be resolved. Then divide this number by the total number of issues.

For best insights, avoid combining too many issues into one MTTR metric and track MTTR for each type of issue.

You can also track the time that passes between discovering a risk and implementing changes to mitigate that risk. This metric shows how agile the compliance program is at implementing necessary changes and adapting to evolving risk circumstances. To calculate this time, add the mitigation times for all risks and divide by the total number of mitigated risks.

Other Compliance Metrics to Measure

In addition to the above metrics, you can better understand the company’s risk level by measuring metrics like:

• Violations of laws and industry regulations. To prevent recurrence of violations, it’s crucial to understand the root cause of previous violations
• Compliance investigations or audits. It’s critical to keep track of internal audits performed and the findings and recommendations that resulted. You should also be able to track whether weaknesses were corrected and whether recommendations were implemented.
• Risk reductions. If certain risks have diminished (say, as a result of improving your internal controls and compliance policies), you should measure and document these changes.
• Employee retention and loyalty. Compliance can affect employee morale, so you can gauge how well the organization treats its workers by studying employee retention measures.

Also, a culture survey should be included in a compliance report, explaining how the company is perceived by employees and in the public eye. Recommendations should be offered on how to make improvements.

Let ZenComply Streamline Your Compliance Program

It’s a challenge to keep up with the evolving compliance landscape. Streamline compliance management with Reciprocity ZenComply. Instead of using spreadsheets, adopt ZenComply to cut compliance costs and centralize compliance management.

It is a single source of truth that assures your organization is always audit-ready. Policies and procedures are revision-controlled and easy to find in the document repository. Workflow management features offer easy tracking, automated reminders, and audit trails. Insightful reporting and dashboards provide visibility to gaps and high-risk areas.

ZenComply is intuitive and easy to use. Schedule a free demo today.