IT ARCHITECTS

What is compliance testing?

It is important that any product or service, before being released into the market, meet certain criteria, especially with regards to safety.

But safety and performance are abstract terms, that need more context. Standards and regulations exist so that we know the objective meaning of such terms. Consumers trust standards and policies enforced by authorities so they don’t have to worry about technically examining everything they buy.

So in order to compete in a market, it becomes crucial that your company is compliant with the existing norms and practices of your industry.

It is done to ensure that manufacturers and companies are producing safe and effective products and that they are not being negligent or cutting corners.

Compliance testing or conformance testing

It is a process conducted to determine if a process, product, or service meets a set of requirements, based on internal or external standards or regulations.

It is a broad term that refers to testing performed in different industries, including construction, medicine, pharmaceuticals, electronics, IT, and so on. Depending on the type of product or service, the methods and parameters used for testing also vary.

For example, a vaccine would need to undergo rigorous compliance testing with regard to safety standards, before it can be released to the general population.

Different Forms of Compliance Testing

It may be internal- conducted by the company itself, or external- conducted by another agency with the necessary authority. Testing may also be mandatory or optional.

Legally Mandatory Testing: This is done by an external government or government-approved agency. Certifications obtained through such testing are necessary for the legal operation of a company. Failure in such tests may result in an action such as retracting government contracts, fines, payment of damages, issuing public notifications leading to damage of reputation, and so on.

Other Obligatory Testing: Another company working with the company in question, external independent organizations, or stakeholders may demand mandatory compliance testing. Failure to do so may result in loss of business or damage to reputation or may even lead to lawsuits.

Voluntary Testing: Third-party organizations may be contracted or invited to perform compliance testing, to ensure performance, or to obtain certifications.

Internal Testing: Internal testing is done to ensure the performance and efficiency of products, services, and processes, and is necessary to ensure the smooth functioning of a company. Conducting such tests is solely at the discretion of the management.

Standards in Compliance Testing

Most commonly, there are external standards, developed by professional organizations, and recognized and followed by a vast majority of the industry.

Internal standards may also be set by the company, after analyzing how they want their product or service to perform. These are case-specific and goal-specific. These internal standards may demand a higher level of performance than standards set by an authority.

External organizations that usually set standards commonly used in different sectors include-

External organizations that usually set standards commonly used in different sectors include-International Organization for Standardization (ISO)

Institute of Electrical and Electronics Engineers (IEEE)

American Society of Mechanical Engineers (ASME)

World Wide Web Consortium (W3C)

Consumer Financial Protection Bureau (CFPB)

General Data Protection Regulation (GDPR)

Health Insurance Portability and Accountability Act (HIPAA)

Need for Compliance Testing

Compliance testing is usually done for several reasons, for satisfying the government, the customer, and the company itself –

Safety

Safety is one of the key concerns that drive the need for compliance testing. Negligence, cutting corners, or unawareness of safety standards may result in safety issues that may be overlooked without external testing.

Quality

Compliance testing ensures the quality, efficiency, and efficacy of processes, products, and services. Periodic audits ensure that performance is as desired.

Legality

In the case of mandatory testing, it would be illegal to release a product or service into the market without it having proven to satisfy some stipulated standards or conditions.

Customer Satisfaction

Compliance testing is good for the reputation of the company and helps in maintaining customer assurance and satisfaction.

Conformance

Following uniform standards ensure conformance and compatibility among products in the market.

Compliance Management System

A Compliance Management System (CMS) is how an organization smoothly integrates its activities for maintaining compliance into the overall framework of operation.

CMS helps in determining plans for compliance fulfillment, communicates compliance responsibilities to employees, periodically ensures that they are up to date, and takes action and corrects processes and systems when needed.

According to CFPB, an organization responsible for enforcing compliance testing in the finance sector, CMS has the following components-

Board and Management Oversight

The management and a board of directors are responsible for initiating and implementing a CMS program in an organization. A Chief Compliance Officer can be appointed to oversee compliance operations.

Organizing periodic audits, setting up a clear and adequate compliance policy, and resolving issues, all fall under the management of this officer. The management is responsible for setting up a culture of compliance within the organization.

Compliance Program

A compliance program describing the steps to ensuring compliance must be devised and enforced. Proper documentation of the compliance program needs to also be maintained and made available. As per CFPB, a compliance program has the following components-

Policies and procedures

What are the mandatory regulations and standards you need to follow? What are the other industry standards that are necessary due to market pressure?

The policies you need to follow, and the procedures on how to follow them, should be determined and described. Not just external, parameters for internal compliance testing need also be set up, for best performance.

Training

Adequate compliance training should be given to employees on all levels.

Monitoring and corrective action:

Processes within the organization should be closely monitored to ensure they are in line with the compliance program. Corrective measures should also be taken based on reports.

Response to Consumer Complaints

Compliance audits are the ultimate test of your CMS. For authenticity, you need external audits conducted by independent third-party organizations.

But failing external audits can have a negative impact on your reputation or even result in legal action. That is why it is crucial to conduct periodic internal audits, to make sure everything is as expected.

The reports from an audit should result in immediate and adequate corrective action.

Steps in Conducting a Compliance Audit

For internal compliance audits, your compliance officers will be in charge of the audit. They will set the requirements and the standards to be checked, perform the audit, assess the results, and take necessary action.

If you’ve decided to conduct an external compliance audit of your company, how would you go about it?

Though it varies from industry to industry, there are a few steps generally followed when conducting a compliance audit-

Contracting External Auditors

External authoritative agencies that provide audits have to be hired or contacted. The auditors have to be suited for your industry and specialized in the standards or regulations you are checking for.

Supplying Data

The internal data of your company has to be passed over to the auditors for them to perform a comprehensive evaluation.

Audit

Audits are performed by the agency through different means. Communication and cooperation with the auditors are crucial for a successful audit. The process may include audit questionnaires, on-site inspections, employee interviews, and so on.

Audit Report

An audit report submitted by the external agency with the results of their findings. Recommendations may be made for improvements. Certifications or accreditations may or may not be granted at the end of the audit.

Corrective Action

Action must be taken based on the recommendations given by the audit report. If the findings of the audit are unsatisfactory or reflect poorly in any way, steps for immediate rectification must be taken.

Conclusion

Conducting compliance testing and setting up a compliance management system is important to ensure the optimum performance of a company. Compliance testing should center around catering to consumer needs because ensuring consumer satisfaction is the key to ensuring the success of your company.

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