Definitions: Compliance Costs

Definition

Compliance costs are defined as the amount of money and time required to meet government instituted legislations or regulations. For example, the Health Insurance Portability and Accountability Act (HIPAA) required healthcare related businesses to conform to specific data security and privacy standards. To meet these requirements, companies had to add staff, computer systems, and software, and also increase storage capacities, all of which had a major impact on budgets.

Business applications

Depending on the specific legislation or regulation, a company may have months or years to bring itself into compliance. In the HIPAA example, businesses affected had up to 24 months to comply with the final rules. To meet such requirements, a company would need to institute a plan on how to meet the objectives and decide if new staff would need to be hired or  whether current staff could be trained to take on new roles or had time to  perform new duties. Adding employees or training current ones for new duties can both be costly endeavors.

Other costs incurred in HIPAA compliance would include additional computer systems and software, increased paper work and paper usage, and the need for larger data storage systems. These additional costs weighed heavily on the budgets of many businesses.

Concerns

If a business does not meet compliance standards, it would face civil and criminal fines. HIPAA non-compliance could have saddled a company with $25,000 in civil fines per violation. Criminal fines ranged from $50,000 to $250,000 and imprisonment.

Details

When such legislations are handed down, there are often consultants who specialize in bringing businesses within the compliance standards. If a  company decides to attempt to meet the compliance regulations by itself, it should be sure to create a detailed compliance checklist.

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