Dec 27

It’s not fine to break the rules: Totting up the cost of non-compliance

In business as in life, you need to get your affairs in order if you don’t want to be hit with a fine. If you flout the rules and don’t tow the line in every aspect of your life, business or personal, you run the risk of a penalty. In fact, it doesn’t matter who you are. Zigging when you should have been zagging can cost you.

The most extreme example of this is the banking industry. According to a 2017 report by the Boston Consulting Group, global banks have paid more than $321 billion in fines since the 2007 financial crisis. While small businesses around the world won’t ever have to pay that much, it’s humbling to think that even the richest and most powerful institutions in the world can be stiffed with large fines for not following the rules.


Agencies Will Always Get their Cash


“DON’T HONK” (CC BY 2.0) by Peter Kaminski

So, who are these people handing out fines? Well, in reality, any company or organisation you have signed a legal contract with has the power to take you to court over breach of that contract. In a general sense, the government has the power to issue penalties if you break the laws. For instance, the UK government issued more than two million speeding tickets to motorists with a minimum fee of £100. In Finland, the cost of speeding is even higher, with the government calculating the size of a fine according to each individual’s earnings.

Beyond contracts between individuals and the state, businesses are also at risk if they don’t comply. In 2013, the IRS collected almost $4.5 billion in fines from more than 6.8 million penalty notices sent to businesses that failed to satisfy payroll taxes linked to Social Security and Medicare. In line with this data, research by risk consultancy Control Risks has shown that US large companies spend less than $25 per staff member on compliance. To put it another way, companies are wasting money by not spending on compliance.


The Cost Always Outweighs the Risk


HowCanIHelp COMPLIANCE” (CC BY 2.0) by Luc Galoppin

A working example of the potential cost of not tackling compliance can be seen when you look at the EU’s General Data Protection Regulation (GDPR). Applicable to any company within the EU or dealing with data collection and storage of information about people residing in the EU, the GDPR is a new set of guidelines that will come into effect on May 25, 2018. As well as setting the protocols by which companies must protect data, such as data impact assessments and security by design measures, GDPR sets out fines for businesses that fail to comply. At the top end of the spectrum, companies that miss their targets could be hit with a fine worth €20 million/£17.6 million or 4% of global revenues. Although that’s the extreme, it’s easy to see why adhering to the rules in situations like this is crucial for businesses.

Indeed, even a small infraction can have major consequences if left untreated and that could be the difference between a business thriving or failing. While many see rules and regulations as a inconvenience, the fact remains that they aren’t an optional extra. Regardless of whether you’re an individual or business, the cost of not complying always outweighs the cost of ensuring you follow the rules. As individuals, it’s usually a matter of time and knowledge. However, as a business, spending physical resources is necessary. Although it might be tempting to cut corners in this department and follow the trend of spending as little as possible on compliance, the potential impact clearly outweighs the risk.


*Top image “Fines” (CC BY 2.0) by Steve Snodgrass



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