We’ve seen companies get in a lot of trouble by failing to understand how their business software can keep them in compliance with federal and industry mandates and we’ve seen firsthand how business applications can expose companies legally to expensive litigation.
Some compliance mandates relate only to larger companies, such as Sarbanes-Oxley financial reporting requirements but there are compliance requirements for small companies as well. We often don’t think about all of them but here’s a short list: FDA nutritional labeling, allergens, and recall management; FAA aircraft maintenance and repair records and safety plans; OSHA, FMLA, FLSA, and other labor regulations; drug-free workplace initiatives; ISO quality control procedures and documentation; HIPAA employee human resource confidentiality; 21 CFR Part 11 compliance for medical device manufacturers; CAN-SPAM Act for email marketing; Affordable Care Act (aka Obamacare), IRS sales tax and revenue reporting compliance, and a whole lot more.
Did you know that there are more than 60 federal agencies that issue about 4,000 new federal regulations every year? And this is in addition to regulations that are already on the books and those that are modified or adapted every year. In fact, the rules in the Code of Federal Regulations (CFR) have grown to more than 130,000 pages? Do you have time to read all of that and to understand what impact these rules and regulations have on your business? Do you realize that non-compliance can result in a warning or slap on the wrist or could result in thousands of dollars in fines or imprisonment?
Compliance mandates will also come from your customers and vendors. For example, you may be required to conduct business with vendors via electronic data interchange (EDI) with standards or you may be required to provide certificates of analysis (COA) for products provided to certain customers. You may also be required to maintain ISO or other accreditations just to do business with certain industries or customers.
It is probably impossible for you to understand the legal ramifications that could result from being on the wrong business application but you probably won’t know until it happens to you. Just imagine the worst-case scenarios: a food manufacturer can’t trace an issue to a specific lot – they must recall everything costing thousands or face an onslaught of legal cases from consumers who are sick or die from consuming the product. Or an aircraft maintenance and report station is sued for using a torque wrench that is out of calibration on an aircraft engine which crashes, killing everyone aboard. Or a medical firm is hacked and confidential patient information is lost resulting in thousands of lawsuits. Compliance and legal requirements on businesses is greater than it ever has been and it’s only going to get harder to remain in compliance.
Your business software can make your life easier or worse. Many larger software publishers hire employees to specifically monitor changes to federal regulations so that their users remain in compliance. Take for example a developer of sales tax software which provides updates for federal, state, and local sales tax laws.
It’s easy to justify switching to a new business system if you’re spending a lot of money to remain in compliance, you’re constantly hit with fees and fines for non-compliance, or you spend a lot of money defending yourself in court.
It may be time to replace your business software if you find that you are not able to get reports or data out of the software required for compliance reporting or if you are not confident in data security or accuracy related to compliance mandates. It may also be time to consider changing if you’ve been hit with (or threatened with) a lawsuit related to a compliance issue or if you are continually fined by government regulators, customers, or vendors for failing to remain in compliance. And it should become apparent that your current business system is failing you if are continually having to work outside of it to remain in compliance.
It’s probably impossible to quantify the cost savings for compliance and legal since much of this lies in unknown risk but there may be cases where you can put some real numbers to this area by estimating a percentage reduction in your overall compliance and/or legal costs annually.