A Comprehensive Guide to Compliance Gap Analysis

Importance

Extensive gap analysis is the first step in any compliance program. However, this should be integrated into the company’s ongoing risk management lifecycle. Relevant across a wide range of industries, this crucial activity ensures the following:

• Manage risks proactively – Companies can effectively address potential non-conformances, such as negligence, data breaches, and possible fraud before they escalate into serious issues if they can identify compliance gaps early.
• Enhance operational efficiency – Regular audits highlight inefficiencies in business processes. Addressing these immediately can streamline operations, reduce waste, and improve the company’s overall productivity.
• Reduce costs – Aside from determining operational inefficiencies that arise from reactive problem-solving and better resource allocation, identifying non-compliance early prevents costly regulatory penalties, fines, and associated legal costs.
• Improve compliance – Conducting periodic internal reviews results in better outcomes during comprehensive audits by external regulators and other third-party inspectors.
• Maintain trust and safeguard reputation – Organizations consistently compliant with GRC standards are viewed as trustworthy and reliable. Compliance gap analysis strengthens relationships with customers, partners, and investors.

7 Most Common Compliance Gaps

Understanding the current state of compliance is the company’s first step to developing and successfully managing a comprehensive compliance program that builds a culture where upholding standards and adhering to regulations is a top priority. Here are the most common compliance gaps:

1. Lack of Data Privacy – Failing to protect data privacy or sensitive personal information based on the General Data Protection Regulation (GDPR), Health Insurance Portability and Accountability Act (HIPAA), and California Consumer Privacy Act (CCPA) guidelines often result from weak security protocols, insufficient access controls, or failure to encrypt sensitive information.
2. Failing Cybersecurity Systems – Outdated software, weak passwords, and lack of regular security audits make cybersecurity systems vulnerable to hacking, malware, and phishing attacks, to name a few.
3. Ineffective Employee Training – Companies that overlook the importance of comprehensive and continuous training fail to reinforce knowledge on compliance-related topics such as workplace safety, data security, regulatory requirements, and ethical behavior.
4. Poor Documentation – This gap arises when companies fail to establish or maintain clear records of their compliance efforts. Missing or outdated contracts, insufficient financial records, and unclear employee training documentation hinder investigations, audits, and legal proceedings.
5. Audit Trail Gaps – These are missing or incomplete links in the chain of evidence for tracing transactions, activities, or decisions back to their source. Deficient logs, missing access records, and inadequate change management documentation make compliance tracking difficult in the long run.
6. Inconsistent Policy Enforcement – Compliance failures occur when there’s a divide between policy creation and implementation. Poor communication between leadership and frontliners, decentralized operations, or unclear accountability for enforcement are the top causes of this issue.
7. Inadequate Third-Party Risk Management – External vendors, suppliers, and service providers should also comply with the organization’s regulatory and compliance standards. Failure to manage third-party risks exposes the company to hazards and associated legal liabilities.

How to Conduct Compliance Gap Analysis

Following a structured approach in analyzing compliance gaps ensures careful examination of all relevant areas, meticulous risk identification, and adequate mitigation. Here’s a compliance gap analysis example that any organization can easily adopt:

Step 1: Identify applicable standards and regulations.

Start by identifying the regulations, standards, and internal policies that apply to your organization. For some, it may be an industry-specific standards from the International Organization for Standardization (ISO) like the ISO 27001 for information security or ISO 45001 for Occupational Health and Safety (OHS). For others, it may be a regulation with broader guidelines, like GDPR for data privacy.

Delegating this task to legal and compliance teams is a must to guarantee alignment between internal policies and external requirements.

Step 2: Evaluate current compliance status.

Once the relevant standards are known, it’s time to assess the organization’s level of compliance by gathering documentation, interviewing stakeholders, and observing existing practices.

Engaging department heads and frontline employees helps assigned teams understand the company’s compliance management efforts.

Step 3: Determine and document the gaps.

The third step involves comparing the company’s compliance status against the applicable standards and regulations to highlight the gaps. Having subject matter experts, like legal, IT, environmental, and safety consultants renders accurate assessments. Here are two specific must-dos:

• Create a detailed compliance matrix that lists each requirement alongside the status, noting each as compliant, partially compliant, or non-compliant.
• Quantify the gaps to understand their extent. Use metrics like compliance scores or risk levels.

Step 4: Prioritize gaps for remediation.

Not all gaps are equally critical. Organizations should prioritize them based on two factors: risk and impact on the operations. These establish proper resource allocation, directing funds and personnel where needed. For instance, it would be best to focus on areas where non-compliance could result in legal penalties, safety risks, or financial losses, among others.

Step 5: Develop a remediation plan.

One of the most critical steps in the process involves creating an actionable plan to close compliance gaps. Here are a few best practices to consider:

• Create realistic and achievable timelines, especially for high-priority gaps that require immediate action.
• Develop both short-term fixes and long-term strategies to maintain compliance over time.
• Assign responsibilities to specific departments or individuals and set clear deadlines for remediation efforts.

Step 6: Implement changes and track progress.

The changes must be implemented and monitored once the plan is developed and approved. Companies should ascertain that adjustments made stay on track by utilizing specialized tools like the following:

• Compliance management software automates tracking and reporting of compliance efforts.
• Risk assessment tools identify and assess potential instances of non-compliance.
• Document management systems ensure all compliance-related records are up-to-date, organized, and accessible.

Teams conducting these specialized analytics should also coordinate with in-house training managers to provide compliance-related training to ascertain employees receive the know-how regarding new procedures or updated regulations.

Step 7: Perform regular audits and communicate the findings to stakeholders.

Monitoring the initiative’s progress is vital because compliance isn’t a one-time activity. This can be done through follow-up compliance audits to assess effectiveness. To uphold accountability and transparency, relevant stakeholders should know the reviews, compliance status, and ongoing risks.