Non-compliance occurs when an employee or a company does not follow the industry standards, laws and regulations that apply to the entity. The rules are in place to make the organisation operate safely and fairly. When individuals or entities do not comply, they risk putting themselves and the people around them in danger or in an unfair situation.
Non-conformances can have different levels. It could be a small mistake, something that was overseen by accident or something with a critically high impact that could pose a threat to the survival of the business. A minor non-compliance is acceptable in isolation or in the short term. However, frequent non-compliant behaviour could indicate a more significant issue.
Consequences of non-compliance
The consequences of non-compliance are different for every industry. Some laws and regulations apply to organisations in a specific industry and some apply to all businesses, as a whole. Fraud, corruption and conflict of interest are threats that are prevalent in almost all companies. The nature and severity of non-compliance directly affect the consequences that the business will experience. Some common consequences include:
-High staff turnover
When an entity or individual does not comply with legal requirements, there is a high probability that they will have to pay fines. The government regulatory bodies will give fines that depend on the severity of non-compliance. Fines are the most common penalty, for both individuals and companies. It can be as little as a few hundred dollars to as much as a few million dollars.
If businesses fail to comply with requirements by other organisations, such as the ISO, then they might lose their certification or licence. Therefore, the consequences are not limited to increased costs.
Consumers expect as a bare minimum, that businesses comply with laws and regulations. On top of that, they expect the companies to act ethically and show social responsibility. If non-compliance becomes public, then it is very likely that an organisation’s reputation will suffer. Consumers will start doubting a company’s actions and may look for alternative businesses to buy services and products. This can result in revenue loss and a decrease in customer loyalty.
If combined with other consequences, such as fines, this could mean that for a long period of time the company is not profitable and is not able to grow as sales decrease. It could also jeopardise the business’s ability to acquire partners and work with other entities.
Non-compliance could pause business operations or disrupt them. If an investigation takes place, then employees will need to spend time giving information and providing the investigators or auditors with the documents that they need. This means that they will spend less time on their duties.
Security breaches could cause increased monitoring to occur for the business to understand how it happened and prevent a similar incident from occurring again. It could make employees feel uncomfortable and cause them and consumers to lose trust in the company.
There could be operational disruptions as a result of lower productivity. Non-compliance could mean that employees within the policy do not follow the policies and code of conduct. Staff might create a toxic environment as rules are not enforced. The company may also not follow health and safety laws which could lead to an unsafe working environment where injuries are high.
Both of those scenarios can decrease productivity as employees feel mistreated and neglected. As a result, there are production delays and higher service times.
Imprisonment only applies for significant non-compliance with laws. Imprisonment is not as common as other consequences but is one of the most severe. It is a consequence mainly for individuals rather than organisations, as it is harder to decide who to blame in a company. Prison times vary by country, state and severity of non-compliance. In some instances, imprisonment sentences could be up to 20 years.
Critical non-conformances can lead to a criminal record even if an individual or company directors avoid imprisonment.
High staff turnover
Employees usually want to be part of a company that understands them and values them. Depending on the nature of non-compliance, it could indicate that the business does not value its staff and does not prioritise their wellbeing. Examples of this could include a company failing to comply with employment laws and as a result, they underpay their employees or do not give them the required breaks. Replacement of staff can be costly and time-consuming. High staff turnover could also disrupt business operations and cause delays.
This is a huge disadvantage for organisations as they lose loyal employees because of their inability to comply and enforce rules.
How to prevent non-compliance
Sometimes it is difficult to eliminate non-compliance completely. However, there are many ways to prevent and reduce the probability of a non-conformance:
-Encourage reporting and feedback
-Understand the laws and regulations
Strong policies and procedures
One of the most common reasons that non-compliance occurs is that policies are too ambiguous or employees do not know it exists. Policies and procedures should be written clearly and concisely so they leave little room for confusion. Sophisticated language should be kept to a minimum so it is easier for staff to understand what they need to follow.
The policies and procedures should be written in a manner that is easy to read, with short paragraphs, simple sentences and dot points when necessary. This is because the employee might find it too tiring to read the documents if they are very complicated. A table of contents can also be used so staff are able to find what they are looking for faster and a glossary can be helpful for hard terms.
To increase compliance, policies and procedures should be enforced. If an employee violates the rules then consequences need to follow. If the company does not respond to a violation, it shows that it does not take its codes and policies seriously. This can encourage non-compliant behaviour as individuals know that they will be able to get away with their actions.
Employees need to be trained when joining an organisation. Policies and procedures and code of conduct are examples of documents that should be mandatory to read when first starting. After the induction, they should be easily accessible by employees. When staff take on more responsibilities further training has to be provided to ensure that they are aware of the rules and laws they need to comply with. When a document is updated, the company needs to communicate that to employees and encourage them strongly to read the changes.
By providing training to employees and notifying them of changes, the chances that non-compliance will occur because of ignorance will be much lower. Staff will not be able to use excuses such as ‘I did know this’, because they were given all mandatory resources. It is important to note that mistakes will still happen, people may forget or misremember some information. As long as there is good communication, issues will be easier to resolve.
Encourage reporting and feedback
As part of training, employees should be educated on how to report on non-compliant behaviour and how to provide feedback on how the organisation can improve. Individuals have to be educated to have the ability to identify unacceptable behaviour. They should know who to contact if they notice suspicious activities or if they notice a mistake they made. If an employee is being bullied, they should know how to seek support and how to document the incident.
Staff can also provide meaningful feedback on how rules and policies can change to be more precise and cover a wider range of problems. If a business tries to add a new policy, employees can give feedback on how the change can be best implemented and how it may be altered to apply to the organisation.
Another way of providing feedback on compliance is to conduct audits. They can detect whether the business is following the standards, laws and policies that are implemented. Audits can also show the level of non-compliance and hint to other issues within the company that can assist in improving. They can be a helpful tool as they help determine whether the policies in place are misunderstood or not publicised enough. Based on the results of the audit, policies can be clarified or corrected.
Understand the laws and regulations
Laws and regulations differ by industry, state and country. If the business understands the laws and regulations that apply to its organisation, they will be able to help employees comply and inform them of the consequences if they fail to do so. If a new law is introduced, then it might be wise to seek legal help on how to address it.
The company may also choose to follow guidelines for certification, which means it will need to comply with new guidelines and requirements.
Intentional non-compliance is not the same as making mistakes. Mistakes are expected, they do happen and as long as employees acknowledge them, they can work with their managers to resolve the problem. In an organisation where managers lead by example, and follow all relevant laws, regulations and requirements, employees are more likely to comply. If the company has developed a culture where non-compliance thrives, then it is likely that individuals will think that wrongful actions are acceptable and will go unpunished.
It is important to stay up to date with law changes and review policies and procedures regularly to ensure that non-compliance is avoided.
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