Top 5 Compliance Challenges Indian Companies Face
Organisations require ample expertise and resources to remain compliant with the regulations, absence of which could lead to many unnecessary issues hampering operations, finances and credibility of a business.
A medium or large enterprise in India has many compliance challenges. The compliance and regulatory environment in India is complex and ambiguous. Therefore, it requires the services of expert professionals to guide a company successfully through complex compliance obligations. Now, not every medium or a large enterprise in India has the resources nor the awareness to invest in dedicated resources for compliance obligations. Consequently, they end up missing out on achieving compliance targets. This is one of the primary compliance challenges plaguing industries in India.
Organisations require ample expertise and resources to remain compliant with the regulations, absence of which could lead to many unnecessary issues hampering operations, finances and credibility of a business. These compliance challenges rise manifold as the company expands its footprint across India in different states and cities. With each state having their separate compliance laws and bylaws, the nascent compliance management system of a company breaks down. So, let us check out the five top compliance challenges 2020 faced by enterprises.
1. No expertise
In India, medium and large enterprises have to deal with more than a hundred acts, licences and registrations. Moreover, they also have to adhere to hundreds of compliances and innumerable filings in a given year. These are not just limited to the respective state where the industry is located. They even need to follow the compliance standards bestowed by the central government as well as local government regulators.
Following such a complex web of compliance in India requires the right expertise, technology and good knowledge of the processes. This is where things go completely haywire. A typical medium or large enterprise can hardly manage to sustain itself in this competitive and intricate business market, let alone seek the services of experts to successfully guide them through the compliance challenges. Consequently, many companies end up flouting the compliance norms on one aspect or the other due to the lack of an in-house compliance expert. They lack the process of knowledge to manoeuvre or negotiate successfully through the different departments or functions, which are usually manually intensive and time-consuming.
Additionally, close to 91% of the medium and large enterprises don’t know or possess detailed information of all acts and compliances that apply to their business. Also, business owners are mostly unaware of the financial, reputational and operational repercussions of non-compliance.
2. No resources
Most companies do not have the required or dedicated resources to look into compliance issues. Many large companies have only two or three people forming the compliance management team. This number dwindles further for a medium-sized enterprise. To add to this intricacy, the company secretary is usually also tasked with the role of compliance management. This distracts their attention from their core task of handling company law, resulting in inefficiency and lack of productivity in both law and compliance aspects.
Such a small and disorganised team is simply not enough to successfully navigate this Bermuda triangle of compliance. Companies need dedicated resources and a focused approach to overcome this issue.
3. Management unawareness
Most of the time, management is not aware of the different compliances related to their industry. It observed that in more than 81% of the cases, the Key Management Personnel or KPIs such as CXOs, directors and board members have poor or limited understanding of compliance requirements and their significance. Consequently, the top management is neither able to establish the right guidelines in the upper echelons, nor can they provide the right direction to their workforce.
This unawareness within the management affects the entire production cycle, which impacts the overall efficiency and productivity of the organisation. Moreover, any kind of discussion related to compliance becomes an uncomfortable affair for the management due to unawareness. And hence, compliance discussions end up on the back burner during board meetings.
4. Absence of digitisation of compliance management and tracking
Most companies in India operate on an ad-hoc, people-dependent and paper-based model, wherein they manage their compliance obligation status on spreadsheets and utilise phone calls or emails for follow up. This causes a loss in ownership, timeliness, accountability and transparency, which results in missing out on compliance obligations every time, eventually leading to penalties and notices from the authorities.
Most of the time, crucial compliance documents get misplaced or cannot be tracked. For instance, physical copies of statutory registers, files and historical challans go missing when they are needed the most. This leads to an environment of unnecessary stress and strain among the management. The absence of digitisation and sole dependence on paper and manual work pose a real challenge to compliance.
5. No access to legal updates
And finally, one of the many compliance-related challenges that companies face is no access to any kind of legal updates or any changes in the compliance obligations.
India has a highly dynamic compliant and regulatory ecosystem. Here, laws change frequently and quickly resulting in innumerable changes in the given year. Most of the time, these updates result in a change in interest computation, duty structures, dates, penalties, forms and many other such aspects which require appropriate and timely changes to ensure accurate filings, registers and returns. These updates are generally published in innumerable government websites and other official releases.
Now, with so many departments and different announcements from each department, it is not that easy to keep a tab of all these changes manually with a team of few people. Also, if you happen to overlook any of those updates, you will miss the bus. Asa result, you will face compliance issues on the entire batch or product if you happen to miss a single update. Technology is the only way that a business can overcome this challenge.
These are the five main compliance challenges that Indian companies face. Compliance can no longer be handled by a bunch of human resources. Companies need a comprehensive compliance management system to navigate the complex compliance and regulatory system. The industry has to embrace newer and better ways to mitigate the compliance problem. And digitisation and automation of compliance management is the only way that medium and large enterprises can keep themselves up to date and obligated to the compliance requirements by regulators.
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