Creation of Roundabout and Operationalization of Compliance

by Thomas Fox
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Readers of this blog know of my love for progressive rock music and that my favorite prog rock group is Yes. You might understand how thrilled I was when the Wall Street Journal (WSJ), of all places, ran an interview with three of the remaining members of the band about the creation of their seminal hit, Roundabout. The article featured comments from Steve Howe, Rick Wakeman and Jon Anderson.

It detailed how the song began with Anderson penning the initial lyrics during a haze-filled drive through the west of Scotland in an enhanced condition. Their route included roundabouts, winding roads, deep valleys and even Anderson missing his wife, all of which made it into his lyrics. After they returned to the studio, Howe laid down the rhythm tracks and then he and Wakeman added the flourishes for iconic lead guitar opening, organ and keyboards. It all came together when the full band entered the studio to lay down the vocal tracks and for the first time the band sang harmony to end the song.

In addition to giving me all the excuse I needed to listen to the song on a continuous loop all afternoon at volume 11, it gave me another insight into the theme from the recently released Department of Justice (DOJ) Evaluation of Corporate Compliance Programs (Evaluation). Just as the song was the creation of several very talented people, any corporate compliance program is also the result of a collaboration of multiple persons and disciplines within an organization.

The Evaluation emphasizes the operationalization of your compliance program. Obviously a Chief Compliance Officer (CCO) cannot accomplish either alone or even with an entire compliance department. However, the manner in which the DOJ laid out its inquiries in the Evaluation can help any CCO or compliance professional to create a roadmap to move compliance directly into the fabric of every organization.

One need only consider the questions posed in Prong 4B, b. Operational Integration;

  • Responsibility for Integration – Who has been responsible for integrating policies and procedures? With whom have they consulted (e.g., officers, business segments)? How have they been rolled out (e.g., do compliance personnel assess whether employees understand the policies)?
  • Controls – What controls failed or were absent that would have detected or prevented the misconduct? Are they there now?
  • Payment Systems – How was the misconduct in question funded (e.g., purchase orders, employee reimbursements, discounts, petty cash)? What processes could have prevented or detected improper access to these funds? Have those processes been improved?
  • Approval/Certification Process – How have those with approval authority or certification responsibilities in the processes relevant to the misconduct known what to look for, and when and how to escalate concerns? What steps have been taken to remedy any failures identified in this process?
  • Vendor Management – If vendors had been involved in the misconduct, what was the process for vendor selection and did the vendor in question go through that process?

This Prong specifies as well as any other the concentration of the DOJ on the operationalization of a corporate compliance program. It points directly to business unit personnel being responsible for the integration. Not queried in the Evaluation, but obviously a key part of adhering to the Evaluation, is how well you have documented this involvement (as in: Document, Document, and Document) by business unit personnel.

As CCO when was the last time you went down the hall to have a chat with the payroll folks? Based on the Evaluation my suggestion would be that you have this conversation sooner rather than later. Consider just some of the ways payroll could help to operationalize your compliance program:

  • Audit. Have either internal or external auditors conducted an annual audit of the payroll accuracy to see if there are any red flags present?
  • Change authorizations. Only if an employee submits a written and signed request for the company to change to an employee’s marital status, withholding allowances, or deductions and there is an appropriate level of review, documentation and approval.
  • Change tracking log. If you are processing payroll in-house with a computerized payroll module, have a secure change tracking and one that captures who made the change request and approval.
  • Expense trend lines. Look for changes in payroll-related expenses in the financial statements and then investigate if any red flags appear.
  • Issue payment report to supervisors. Request that front line supervisors review payroll summaries for correct payment amounts and to spot any unfamiliar names.
  • Restrict access to records. Prevent unauthorized access to payroll records.
  • Segregation of duties. You should never allow one person prepare the payroll, authorize it and create payments.

This payroll example is not just good compliance; it is good business. If a company does not have some of the above controls in place, it is certainly open to becoming the victim of employee fraud. It can also become a defendant in a Foreign Corrupt Practices Act (FCPA) enforcement action if the compliance function does not have visibility into these areas. Once again consider the lowest of the low hanging fruit; gifts, travel and entertainment (GTE).

GTE is the most basic data base in every company yet one which not every compliance function has visibility into because the data is often siloed in systems not available to the compliance department. This is something that if the compliance function could access it could engage in a wide variety of analysis; including such reviews as FCPA, conflict of interest and duplicate payments. There certainly are technological solutions to this compliance issue and they have the added benefit of cutting across siloed corporate financial data.

Just as the Yes classic Roundabout was the result of collaboration, any best practices compliance program should be truly a corporate effort, starting at the top all the way through an organization. With the Evaluation, the DOJ now expects that effort and expects that such effort be documented.

To listen to YouTube clip of Roundabout click here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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