What is Compliance and why does it matter to Nigerian Businesses

Imagine an ecosystem where there is no governing business operation standard. Chaotic right?

To avoid this happening or at the very least, reducing its occurrence, there are compliance checks every business must subject themselves to. These checks may vary between different countries, but for the purpose of this article, we will be focusing on business compliance in Nigeria.

When we talk about business compliance, it goes beyond the documents and statutory checks needed for business approval. It is also about how employees should be treated and compensated, how decisions are made in an organisation, how customers and business data are handled etc. Business compliance is an essential position every company should strive to attain.

Definition

Business compliance is the process of making sure your company and employees follow all laws, regulations, standards, and ethical practices that apply to your organisation and industry.

It is also a requirement of all organisations that want their business activities to be approved by their government and investors. With effective management of these processes, businesses can reduce excessive costs, improve margins and increase profitability over time.

The purpose of compliance is to ensure that an organisation’s policy, procedures and actions are in accordance with the law and in compliance with regulatory requirements.

Why is business compliance important?

The importance of business compliance are highlighted below:

• To protect your business from fines, lawsuits and reputation damage that may have otherwise been caused through violation of rules.

• To stay legally compliant with the governing laws of the land your business operates in.

• Protects your business from risk and liability by preventing events that can negatively affect your business operations.

• Enables swift decision making in matters that regards to ethics, values, code of conduct and policies.

Why does compliance matter?

To build a good reputation

By staying compliant as a business, you aren’t only showing the governing authorities that you are fit and veritable to run the business, but also assuring your customers that they can do business with you. It has been said that the success of your business depends highly on it’s public image. If your business is constantly facing legal issues, people will lose trust in the business, which will then lead to low revenue and profits.

To avoid civil and criminal sanctions

This is the most beneficial importance of compliance. No business wants to be on the receiving end of criminal sanctions for not adhering to the law. To avoid this, businesses are advised to have a compliance department to monitor all compliance-related matters.

Higher productivity in the company

Compliance helps you avoid waste, fraud, abuse, discrimination, and other practices that disrupt operations and put your company at risk. It also creates strong business models and an environment where employees feel safe and secure to work in. Also, better decisions are made from management, down to the employees.

Categories of Compliance

Compliance can be divided into two different types:

Internal Compliance- This refers to the measures a company takes within its own business to set a standard and maintain a certain level of quality. Simply put, internal compliance means compliance within a company.

Internal requirements for compliance-

• Physical entrance policies
• Virtual Access
• Password protection
• Security update
• Emergency response
• Risk Analysis
• Audits and reviews

External Compliance- This refers to the measures a company takes to remain compliant with state and federal laws. Simply put, external compliance means compliance outside your company.

External requirements for compliance-

• Annual statements or reports
• Taxation
• Pension and other statutory employer contributions
• Labour standard Acts
• Business Licenses/Permits
• Employer Identification Number, or EIN

Below are the various business compliance according to Companies and Allied Matters Act 2020 (CAMA 2020)

• Incorporation of Companies & Annual Returns
• Taxation
• Employee Compensation Scheme
• Industrial training fund
• Nigerian Immigration Service (NIS)- where applicable
• Financial Reporting Council (FRC)
• Special Control Unit Against Money Laundering (SCUML)

How to ensure compliance

Involve Legal Practitioners

To avoid unintentionally breaking laws, it is advisable that you involve legal practitioners or even consultants to periodically check through and ensure that your business remains compliant. This is particularly important for small and growing businesses.

Stay up to date with changing laws and regulation

The compliance laws are always changing. As a business, it is important that you stay on top of this to monitor and identify that which your business needs to work on, without delay.

Ensure employees follow procedure

These policies should be well communicated to the workforce by the management. There is no point having a company policy if it won’t be followed by employees. Leadership should put structure in place to ensure that the employees stay compliant to these policies.

Conclusion

Companies face the risk of being sanctioned by the governing authorities if they fail to comply with these various requirements. These sanctions could be huge fines which may negatively impact the cashflow or revenue of the company or could also affect the brand identity of the business. It is important that companies that operate in Nigeria stay compliant to the governing authorities requirements.

We advise that beyond following the steps in this article, you should speak with your legal partner to ensure that there are no loose ends.