Now more than ever, companies are under the microscope, as federal investigators are beefing up the enforcement of regulations.
For instance, although the anti-bribery and public company accounting statutes in the Foreign Corrupt Practices Act were established nearly 40 years ago, enforcement has exploded in recent years. In 2004, the U.S. Securities and Exchange Commission and the Department of Justice brought a combined five FCPA enforcement actions. That number rose to 33 in 2008 and 66 in 2009, as reported by Corporate Secretary, a news service for general counsel and governance professionals.
In addition to increased regulatory scrutiny, the recent passing of The Wall Street Reform and Consumer Protection Act (commonly referred to as the Dodd-Frank Act) is resulting in increased enforcement of a federal anti-bribery law, as reported by Compliance Week, a corporate governance news service.
Created with the intent of preventing another financial crisis, the new law contains financial incentives for whistle blowers to bypass internal corporate compliance protocols and go directly to authorities. The new legislation adds to the risk exposures associated with the decisions made by corporate directors and officers, especially as they act on issues of governance and executive compensation.
“A number of silver-bullet remedies — audits, policies in a box, even software — have been on the market well before the Sarbanes-Oxley Act, which declared specific awards for employees to notify government agencies of any tax fraud committed by their employers,” says Edward X. McNamara, a senior vice president at Aon Risk Solutions. “The conflict is that these solutions are mostly reactive or after the fact, doing little to directly avoid or prevent legal or ethical violations.”
Smart Business spoke with McNamara about the rise in enforcement actions and why establishing a culture of compliance is so important.
Why is an effective compliance program so vital?
Several studies reveal that employers with credible, proactive compliance programs that encourage employees to speak up are most effective at discouraging bad behaviors before they manifest into irreversible actions.
The Association of Certified Fraud Examiners studied 508 companies that had experienced occupational fraud and discovered companies that unearthed troubling activity were more likely to have learned of it from a coworker’s tip than from any internal or external audit. Moreover, organizations that had anonymous reporting systems in place suffered less than half the financial losses from fraud sustained by companies without such systems.
Building a culture of compliance empowers a company to easily mitigate risks and be vigilant about regulatory requirements. It fundamentally influences and shapes decisions made involving the attraction and retention of ethical people. The byproduct of such a culture is an operational framework that is effective, measurable and delivers long-term results.