Even the Most Successful and Well-Managed Business is not Immune to Compliance Failure…
Even the most successful and well-managed business is not immune to compliance failure. Whether it’s a data breach that could have been prevented or an employee complaint that was mismanaged, companies should always view missteps as a learning opportunity. After all, that’s the most effective way to prevent similar mistakes in the future.
A staggering 40 percent of the former chief ethics and compliance officers who were surveyed reported that their corporate boards did not conduct an in-depth investigation into the root cause following compliance failures and scandals. Many also don’t regularly assess their culture of compliance. “We don’t do culture diagnosis. Management and the board think they know the company culture but then are offended and surprised when something goes wrong,” one compliance officer stated.
Evaluating the Effectiveness of Corporate Compliance Programs
In 2017, the Department of Justice’s Criminal Division (DOJ) provided several important sample questions that its Fraud Section considers when evaluating a corporate compliance program. While the DOJ cautioned that the document should not serve as a “checklist,” it serves as an extremely useful starting point when evaluating the compliance issues that may have contributed to workplace misconduct or another compliance issue. Below are several examples:
Analysis and Remediation of Underlying Misconduct: What is the company’s root cause analysis of the misconduct at issue? Were there prior opportunities to detect the misconduct in question, such as audit reports identifying relevant control failures or allegations, complaints, or investigations involving similar issues? What specific changes has the company made to reduce the risk that the same or similar issues will not occur in the future?
Senior and Middle Management: How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question? What specific actions have senior leaders and other stakeholders (e.g., business and operational managers, Finance, Procurement, Legal, Human Resources) taken to demonstrate their commitment to compliance, including their remediation efforts? What types of information have the board of directors and senior management examined in their exercise of oversight in the area in which the misconduct occurred?
Autonomy and Resources: Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? How have decisions been made about the allocation of personnel and resources for the compliance and relevant control functions in light of the company’s risk profile? Have the compliance and relevant control functions had direct reporting lines to anyone on the board of directors?
Policies and Procedures: Has the company had policies and procedures that prohibited the misconduct? How has the company assessed whether these policies and procedures have been effectively implemented? How has the company communicated the policies and procedures relevant to the misconduct to relevant employees and third parties? What controls failed or were absent that would have detected or prevented the misconduct?
Training and Communication: What training have employees in relevant control functions received? How has the company measured the effectiveness of the training? What has senior management done to let employees know the company’s position on the misconduct that occurred? What resources have been available to employees to provide guidance relating to compliance policies?
Confidential Reporting and Investigation: How has the company collected, analyzed, and used information from its reporting mechanisms? How has the company ensured that the investigations have been properly scoped, and were independent, objective, appropriately conducted, and properly documented? Has the company’s investigation been used to identify root causes, system vulnerabilities, and accountability lapses, including among supervisory manager and senior executives?
Of course, this post provides a brief summary. The DOJ guidance includes additional questions that can help businesses evaluate the effectiveness of their compliance programs.
Even before a lapse occurs, it is imperative for businesses to regularly assess and test the effectiveness of their policies and procedures. At Scarinci and Hollenbeck, our business attorneys regularly assist companies of all sizes in conducting compliance audits and remedying any weaknesses that are detected.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Charles Yuen, at 201-806-3364.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Key Questions to Ask After a Compliance Failure
Author: Scarinci Hollenbeck, LLC
Even the Most Successful and Well-Managed Business is not Immune to Compliance Failure…
Even the most successful and well-managed business is not immune to compliance failure. Whether it’s a data breach that could have been prevented or an employee complaint that was mismanaged, companies should always view missteps as a learning opportunity. After all, that’s the most effective way to prevent similar mistakes in the future.
A staggering 40 percent of the former chief ethics and compliance officers who were surveyed reported that their corporate boards did not conduct an in-depth investigation into the root cause following compliance failures and scandals. Many also don’t regularly assess their culture of compliance. “We don’t do culture diagnosis. Management and the board think they know the company culture but then are offended and surprised when something goes wrong,” one compliance officer stated.
Evaluating the Effectiveness of Corporate Compliance Programs
In 2017, the Department of Justice’s Criminal Division (DOJ) provided several important sample questions that its Fraud Section considers when evaluating a corporate compliance program. While the DOJ cautioned that the document should not serve as a “checklist,” it serves as an extremely useful starting point when evaluating the compliance issues that may have contributed to workplace misconduct or another compliance issue. Below are several examples:
Analysis and Remediation of Underlying Misconduct: What is the company’s root cause analysis of the misconduct at issue? Were there prior opportunities to detect the misconduct in question, such as audit reports identifying relevant control failures or allegations, complaints, or investigations involving similar issues? What specific changes has the company made to reduce the risk that the same or similar issues will not occur in the future?
Senior and Middle Management: How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question? What specific actions have senior leaders and other stakeholders (e.g., business and operational managers, Finance, Procurement, Legal, Human Resources) taken to demonstrate their commitment to compliance, including their remediation efforts? What types of information have the board of directors and senior management examined in their exercise of oversight in the area in which the misconduct occurred?
Autonomy and Resources: Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? How have decisions been made about the allocation of personnel and resources for the compliance and relevant control functions in light of the company’s risk profile? Have the compliance and relevant control functions had direct reporting lines to anyone on the board of directors?
Policies and Procedures: Has the company had policies and procedures that prohibited the misconduct? How has the company assessed whether these policies and procedures have been effectively implemented? How has the company communicated the policies and procedures relevant to the misconduct to relevant employees and third parties? What controls failed or were absent that would have detected or prevented the misconduct?
Training and Communication: What training have employees in relevant control functions received? How has the company measured the effectiveness of the training? What has senior management done to let employees know the company’s position on the misconduct that occurred? What resources have been available to employees to provide guidance relating to compliance policies?
Confidential Reporting and Investigation: How has the company collected, analyzed, and used information from its reporting mechanisms? How has the company ensured that the investigations have been properly scoped, and were independent, objective, appropriately conducted, and properly documented? Has the company’s investigation been used to identify root causes, system vulnerabilities, and accountability lapses, including among supervisory manager and senior executives?
Of course, this post provides a brief summary. The DOJ guidance includes additional questions that can help businesses evaluate the effectiveness of their compliance programs.
Even before a lapse occurs, it is imperative for businesses to regularly assess and test the effectiveness of their policies and procedures. At Scarinci and Hollenbeck, our business attorneys regularly assist companies of all sizes in conducting compliance audits and remedying any weaknesses that are detected.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Charles Yuen, at 201-806-3364.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
