One area not often considered by the CCO as a key part of any compliance regime is the corporate Controller. The Controller generally has the responsibility to accurately record and report the financial transactions of the company, to design, implement and execute the financial processes and controls of the company to be both effective and efficient, and to safeguard the financial assets of the company. Some of the compliance responsibilities of the Controller include: (1) Designing and implementing internal controls that impact ethics and compliance risks; (2) Accurately recording the financial transactions of the company; and (3) Preventing and detecting fraudulent activity. All of this means, in practical terms the Controller is both being the keeper of the books and records and the implementer of internal controls. Moreover, while many of these internal controls would most probably be viewed financial internal controls, there are additional internal controls which are not financial in nature.
Russ Berland, the Chief Compliance Officer at Dematic has noted, “Those guys live really in the battle zone. They are constantly looking at financial transactions. They’re evaluating them. They’re figuring out where things go within the books and records. They are implementing the processes that should be keeping fraud from happening; keeping bribery and corruption from happening.”
This means that not only can the Controller be one of the compliance function’s strongest corporate allies, the role of a Controller by its nature works to operationalize compliance. This is because to implement the appropriate internal controls around compliance, the Controller must know the specific requirements of the FCPA, know what kinds of issues are likely to come up that might create a risk of bribery and corruption, all leading to an appropriate understanding of the appropriate compliance internal controls to implement.
This is most particularly true around offshore payments, which are generally defined as payments made to a location other than the home domicile of the party or the location where the services where delivered. If a Tunisian agent who performs services in Dubai asks for payment in a location other than Dubai or Tunisia, that would qualify as an offshore payment. If you train people who are in the Controller’s group on this issue, “all of a sudden you’ll get someone in the Controller you will pick up the phone and call compliance and say ‘Hey, we just saw a request for a payment to this guy in this Middle Eastern country and we’re just not sure what it’s for.’ That’s where the controls are really working, as opposed to that person just really dealing with it on an administrative level instead of keeping your antenna up.” Those are the types of communications, when properly documented, demonstrate that your compliance program is operationalized into the fabric of the organization.
Another way to view it is if there is a Controller control for such a scenario which notes the exception and requires the clearance of a red flag through additional investigation, elevation for approval and documentation of the entire process. This is a financial control which acts as a compliance control as well. It strengthens the company’s internal controls to both prevent and detect key compliance risks going forward.
Another area would on a company’s Vendor Master List (VML). Some obvious internal controls are that no person or business venture partner gets paid unless they are properly on the VML; no person or business venture partner is admitted to the VML unless they have gone through the appropriate level of due diligence, which varies by task, function and country. The Controller can also put internal controls in place to prevent workarounds, which are always a bête noir for compliance. Such t financial controls also include those around the manual check process and your internal requirements for international wire transfers. Finally, even to this day petty cash continues to be a source of funds to fuel bribery and corruption. The Controller is on the front lines for petty cash.
These issues are usually dealt with internal controls viewed as specific to controlling the outflow of money to business venture partners. These controls are housed in the Controller’s domain and are generally ‘owned’ in a corporation but the Controller’s function. Additional benefits to the corporate compliance function include the retrieval and analysis of financial data and design of internal controls. It allows the compliance function to rely on actual financial expertise rather than “home grown” financial expertise within the compliance department. It extends the compliance function influence through the Controller. Finally, the compliance function is made aware of relevant concerns found by recording transactions, executing internal controls and financial monitoring.
These benefits are not a one-way street for compliance as a Controller benefits from a closer relationship with the corporate compliance function as well. The Controller can leverage compliance resources. The compliance function can bring its observations and insights from investigations and emerging risks to the Controller. A closer collaboration will broaden awareness of compliance risks which relate to the company’s financial processes. By more fully integrating compliance into the Controller function a more robust picture of enterprise risk emerges, one which encompasses legal, compliance, ethics, internal controls, financial, business and governance risks.
Three Key Takeaways
This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group. The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense. For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.