Designing a Corporate Compliance Program

Harrisburg Accountants & Advisors help keep your company safe when its agents break the law

At Breon & Associates, our antifraud experts spend a great deal of time informing business clients on the ways a company-wide ethics program can protect against employees’ deviant behavior directed against the organization. But what happens when an employee’s illegal actions implicate the entire organization? The business headlines are littered with prominent examples, from Volkswagen’s emissions fraud to Wells Fargo’s deceptive sales practices to Uber’s privacy violations. Suppose an officer of your company steered the business in an unethical direction, drawing the ire of the U.S. Dept. of Justice. If you had an adequate corporate compliance program in place, you could qualify for lenient treatment in any prosecution, which could save your company from crushing fines that might otherwise ruin your business. At Breon & Associates, we help companies like yours design and implement programs that can reduce criminal conduct by your agents, or, at the very least, help shield your company from liability when such conduct occurs.

How to gain protection for your company under Federal Sentencing Guidelines Chapter 8

In 1984, an Act of Congress created The United States Sentencing Commission, an independent agency of the judicial branch of the federal government tasked with producing sentencing guidelines for the U.S. federal courts. Chapter 8 of the Federal Sentencing Guidelines presents recommendations for sentencing companies that have been convicted of a federal offense. The essential question for sentencing is whether the officer(s) of the company who broke the law were rogue agents acting against company policies. In such a case, the officers would be individually guilty, but the company would be largely innocent. But if the convicted officers were representative of the company as a whole, a court could impose potentially crippling fines on the business.

To make this determination, the court examines the company’s compliance program to see whether the company sincerely cared if its officers obeyed the law, or if it seemed willing to profit at any cost. The mere existence of a compliance program on paper is not enough to warrant lenient treatment. According to the U.S. DoJ, there are three “fundamental questions“ a prosecutor should ask:

• “Is the corporation’s compliance program well designed?“
• “Is the program being applied earnestly and in good faith?“ i.e., effectively.
• “Does the corporation’s compliance program work“ in practice?

At Breon & Associates, we help companies design, implement and test their compliance programs, so, if it ever becomes necessary, they can present evidence that persuades the court that lenient sentencing is in order.

Designing a corporate compliance program

Designing your compliance program starts with understanding your company’s specific risks of noncompliance. Risks are generally industry specific. For instance, if you’re in manufacturing, your company might be tempted to cut corners on environmental standards. If you deal in securities, insider trading would be a major concern. You must thoroughly assess your risks, institute safeguards against those risks, allocate resources to risk management, and frequently make revisions in light of lessons learned. You must have policies and procedures, including a Code of Ethics/Conduct that expresses your company’s commitment to strict compliance. You must train your employees on the compliance program and implement procedures for reporting, investigating and sanctioning violations.

Implementing your compliance program

The DoJ warns that “Even a well-designed compliance program may be unsuccessful in practice if implementation is lax or ineffective.” Management must fully commit to compliance and demonstrate by their words and concrete actions that there is no room for unethical behavior. Personnel charged with day-to-day oversight of compliance must be qualified for the task and empowered to act with adequate authority. They should have adequate resources to perform their duties and autonomy from management, particularly direct access to the board of directors or the board’s audit committee. Effective implementation also relies on established incentives for compliance and disincentives for non-compliance, which must be consistently applied.

Testing how well your compliance program works

There are many ways to measure effectiveness of a program, and your company should employ all of them. Internal audits are essential to test your controls, but you must also use the knowledge you gain to improve those controls. When you discover evidence of misconduct, you must pursue the issue and remediate the problem. Remediation can mean disciplining an employee in a timely manner but should not be limited to singular acts of discipline. Some kind of root cause analysis is necessary.