African companies are budgeting higher amounts to meet their compliance obligations, but not enough are spending sufficient time analysing the results or leveraging the benefits of good compliance to their company bottom line.
According to Deloitte’s Compliance Trends 2015 survey, 37% of the African companies that participated raised their compliance budgets by between 1-9% in the past 12 months; and 16% increased it by 10-19%. By contrast, 25% of global companies raised budgets by 1-9% and 12% by 10-19%.
Heavy fines in the construction, food and financial services sectors in South Africa have been the catalysts in driving more companies to improve their levels of compliance. But not enough companies falling outside of these headline-grabbing sectors are doing enough to improve their positions.
“The focus on compliance has definitely improved. Collusive fines, for example, in the food sector have started changing thinking around competition law. The construction and financial services sector are two of the most highly regulated sectors and so we have also seen movement there,” says Pramesh Bhana Leader for Governance, Risk and Compliance services at Deloitte. “Unfortunately, the focus is on remediation to prevent fines from recurring while not enough thought is given to making the compliance investment directly contribute to the bottom line as part of a business initiative.”
But many other companies will spend as little as they can and approach the issue as simply passing an audit.
“This is wrong as this fails to take into account the broader benefits of good compliance. Many companies still see it as a grudge cost, but everyone knows bad compliance is not good for business. While more companies are beginning to rely on compliance data for key decisions, not enough companies are executing on what compliance data is revealing,” says Bhana.
“It is time to reverse this by effectively managing it through integration in related functions like risk management, stakeholder relations and internal audits all implementing a good governance network and the whole organisation leveraging on that data. Ideally, data optimisation should be the starting point where the same data can be used for multiple purposes and objectives ranging from strategic planning to business development to risk management, to process optimisation to managing compliance and reporting,” he says.
Of the 364 qualified responses in the survey, the single largest industry group represented was financial services at 29%. Next were healthcare and consumer & industrial products, both at 15%; technology, media, and telecommunications at 8%; energy and life sciences both at 5%. Twenty large corporations across Africa participated in the survey, which formed part of the Deloitte Compliance Week.
The survey found that more than 80% of global organizations are undertaking some sort of enterprise-wide compliance risk assessment, with nearly two-thirds conducting such an assessment at least annually. But a stubborn minority of respondents still say they do not measure the effectiveness of their compliance programmes – 30% in 2015, down from 37% when the survey began in 2011.
The survey found that 50% of African companies did not consider compliance in the measurement of senior management’s annual performance and discretionary compensation, while 44% of companies outside Africa did not take it into account.
“Not enough companies in Africa are monitoring the execution of compliance. For example, many companies enter into contracts with service providers, for example, but then fail to monitor whether margins are being whittled away by things like non-delivery or delays. Even a 1% margin improvement can be enormous,” says Bhana.
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