Creating a Culture of Compliance

"Tone at the top" is an overused phrase, but if companies want to mitigate fraud senior leaders need to speak up forcefully.

Adding to the pressure, the federal government recently gave whistle-blowers a powerful incentive to snitch. The Dodd-Frank Act awards bonuses of up to 30% of enforcement penalties to individuals who provide “original information” about illegal activity by their employer. Understanding the implications of the new incentives and crafting a policy that encourages employees to speak up is essential.

2) Make the Corporate Counsel Your Ally

As every finance chief knows, there is a crackling tension between compliance and the company’s or business unit’s mandate to perform. CFOs who tackle compliance issues may feel they are entering a political minefield. In such cases, don’t go it alone.

Stephen Pedneault, founder of Forensic Accounting Services, cites a common example: the salesperson who posts big numbers yet puts tens of thousands of dollars in personal expenses on the company credit card. Every month, the CFO approves the expenses, which aren’t tax deductible and should be reported to the Internal Revenue Service on the salesperson’s W-2.

If a CFO questions this, the CEO or the head of the salesperson’s business unit may offer the kind of nonresponse that Pedneault characterizes as, “Thank you for pointing it out; if it gets abusive we’ll take care of it.” That kind of see-no-evil culture has serious ramifications; if employees know such abuse is taking place, it sends a signal that they can abuse the system, too. An employee might say to himself, “If that guy can do it, why can’t I?” says Pedneault.

Thomas Quilty, head of BD Consulting and Investigations, recommends that CFOs establish a strong relationship with the general counsel, who typically has the credibility to make a strong case that a problem is serious and must be addressed. “The corporate counsel wields enormous power within any corporation,” Quilty says. “Any CFO who is not listening to the corporate counsel has got to be crazy.”

3) Really Deliver the Message

“I am sick of the phrase ‘tone at the top,’” says Tracy Coenen, a Chicago investigator. Sending a message from on high is far more effective, she says, when it’s coupled with some face time. Making the effort to deliver this important message in person shows that “you’re a real person, and [your employees] can hear you say that it’s important to have an ethical company.”

The definition of “the top” is also changing. Regulators are demanding that boards of directors assume greater responsibility for shaping a company’s culture. The U.S. Justice Department’s recent bribery case against Panalpina blamed “a culture of corruption,” which “trickled down” from the board and senior executives to “employees who accepted bribery as a part of Panalpina’s standard business practice.”

Employees even adopted a nickname — “apples” — for bribes, according to the November settlement by the global oil-industry logistics firm. Panalpina pleaded guilty to two violations of the FCPA regarding $49 million in cash bribes paid to customs and government officials in Angola, Azerbaijan, Brazil, Nigeria, Russia, and Turkmenistan.

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