Understanding Compliance Monitoring
Monitoring and review is the ongoing process of tracking compliance status, evaluating control effectiveness, and identifying emerging risks. It closes the loop in the risk management cycle, ensuring that risk responses remain effective and the organization maintains compliance over time.
Without effective monitoring, organizations operate blind to their actual compliance status. Controls may degrade, new risks emerge undetected, and violations occur without timely correction. Monitoring transforms compliance from periodic snapshots to continuous awareness.
From Periodic to Continuous
Traditional compliance relied on annual audits and periodic assessments. Modern compliance monitoring provides real-time visibility through automated testing, continuous data analysis, and proactive alerting. This shift enables faster response and more effective risk management.
Monitoring Approaches
Effective monitoring programs combine multiple approaches to provide comprehensive coverage.
Continuous Monitoring
Automated, real-time tracking of compliance indicators using technology to analyze transactions, test controls, and alert on exceptions as they occur.
Periodic Assessments
Scheduled reviews that evaluate compliance status at defined intervals—monthly, quarterly, or annually depending on risk level and requirements.
Compliance Audits
Formal examinations of compliance programs by internal audit or external parties. Provide independent assurance and identify systemic issues.
Self-Assessments
Business unit evaluations of their own compliance using structured questionnaires and checklists. Build ownership while identifying issues.
Key Risk Indicators (KRIs)
KRIs are metrics that provide early warning of increasing risk exposure. Well-designed KRIs enable proactive intervention before risks materialize.
Leading Indicators
Predict future compliance issues
Lagging Indicators
Confirm risk materialization
Thresholds
Trigger actions when crossed
Effective KRI Design
- Relevant: Directly linked to significant compliance risks
- Measurable: Based on available, reliable data
- Timely: Updated frequently enough to enable action
- Actionable: Clear thresholds that trigger defined responses
- Comparable: Enable trend analysis over time
Control Monitoring
Controls must be tested regularly to verify they continue operating effectively. Control monitoring validates that risk responses remain adequate.
Control Testing Methods
- Automated Testing: Technology-based testing that runs continuously or on schedule
- Sample Testing: Review of selected transactions or activities for compliance
- Observation: Direct observation of control execution
- Inquiry: Interviews with control operators to verify understanding and execution
- Re-performance: Independent execution of controls to verify results
Testing Frequency
Base testing frequency on control importance and risk level. Critical controls addressing high risks should be tested more frequently than routine controls for lower risks. Adjust frequency based on control performance history.
Review Processes
Periodic reviews assess overall compliance program effectiveness and identify areas for improvement.
Gather Data
Compile monitoring results, audit findings, incident data, and KRI trends for the review period.
Analyze Findings
Identify patterns, root causes, and systemic issues. Compare performance against objectives and benchmarks.
Assess Effectiveness
Evaluate whether the compliance program is achieving its objectives. Identify strengths and weaknesses.
Recommend Improvements
Develop specific recommendations for addressing identified issues and enhancing program effectiveness.
Report & Act
Communicate findings to stakeholders and implement approved improvements.
Compliance Reporting
Effective reporting communicates compliance status to stakeholders and drives accountability. Tailor reports to audience needs.
- Executive Dashboards: High-level status, trends, and key issues for leadership
- Board Reports: Strategic view of compliance posture and significant risks
- Operational Reports: Detailed metrics and issues for compliance managers
- Regulatory Reports: Required disclosures and certifications
- Exception Reports: Issues requiring immediate attention
Continuous Improvement
Monitoring and review should drive ongoing enhancement of the compliance program. Use findings to identify improvement opportunities, implement changes, and verify effectiveness. This creates a virtuous cycle of ever-improving compliance capability.