Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. In this episode, Matt Kelly and I take a very deep dive into the upcoming changes into a question posed by Jonathan Marks at the GHBER Summer Members Workshop, “What is a control?”
Some of the highlights from this podcast are:
We unpack of all these points and consider strategies going forward.
For more reading: see Matt’s piece Compliance 101-Defining a Control
For further reading see Jonathan Mark’s article of the same title
In this special five-podcasts series, Matt Kelly and I are exploring the future of internal audit (IA), compliance and analytics. In Part II, we go through the three steps of evolution that an IA function must traverse so that it can move beyond its traditional audit duties under Sarbanes-Oxley (SOX) compliance and testing of financial controls. These three steps of evolution are: (1) Strengthening internal controls for financial reporting and SOX compliance; (2) Enhanced analytics; and (3) Risk optimization for other business functions. Kelly believes that companies must go through these three steps of evolution and in this prescribed order.
The profession has been working as a whole since the passage of SOX back in 2001. It included strong internal controls for financial reporting, disclosure controls and compliance controls. Here companies would see which of these they had in place, which were working or effective and which could be removed or deleted. SOX 302 governs the disclosure controls and SOX 404 governs internal controls over financial reporting. The key is that once you have the appropriate internal controls required by SOX you can begin to test, see how they work and see what types of data they are generating. The fundamental bedrock is strong internal controls. If you have bad controls, they will give you bad data that will lead to bad conclusions and trouble at some point.
From this foundation of step one, the IA function is ready to move to a more analytics-based function. Kelly provided an example, “you could see how many of our invoices are paid before a purchase order arrives and you could see how often we are closing the books at the end of the month, within seven business days after the end of the month as opposed to out in 10 days.” It would allow an analysis of whether your finance function is narrowing that window or not? Finally, once you are able to build up a sufficient body of analytics, you can then move to a more risk monitoring, risk management and optimization for other business functions. This is a more robust risk management process. Kelly emphasized that you cannot take these steps out of order.
This evolution drives the importance of data governance up the priority list for internal auditors, compliance officers and risk officers. Kelly said that you need to consider the taxonomy of your data. This would include the “data you are generating, validation that the data is fitting, that it makes sense from a value perspective.” It would also include issues such as whether the data is in the right format and is it complete? While such issues as completeness of data, accuracy of data, validations and clear data taxonomies, all have long been considered by external audits for their financial audits, IA will now need to be more vigilant on such questions.
Kelly believes this will make “data governance closer to becoming an effective internal control, even like an entity level control.” Data governance is going to have to apply across all business processes to achieve this. It would allow you to document your risk management process, in a very data driven way and harbor the confidence in it because your data governance is robust. Kelly said, “it is such an important thing that we have nailed it time and time again. Internal audit and the business functions all work together to understand this is the data we have, this is how we classify it, this is how we validated, this is how we know it's all complete.” This also means that a Chief Audit Executive will need to work with the Board of Directors and C-Suite executives to ensure data governance has their attention as an entity level concern.
This also brings up the issue of taxonomy which Kelly described as “the dictionary or vocabulary of data”. He provided an example from the compliance arena, third parties. What are all the types of third parties your organization engages with and what is the taxonomy you are going to apply to such a diverse group as resellers to joint venture partners to sales agents? Further, do you want a taxonomy that splits it down to “sales agents by region, by country or something else?” There must be some type of definition so that all compliance professionals are clear on the definition of what a third party is, so they can be tagged for data analysis. They would all fit in this taxonomy and then a you can analyze the data presented as there is a clear understanding of each definition.
In Part III, we consider some specific examples.
In this special five-podcasts series, Matt Kelly and I are exploring the future of internal audit (IA), compliance and analytics. For Part III, we consider three examples of how a framework of a risk management process could be used. The examples are (1) Invoice before PO; (2) Travel and Entertainment (T&E) spending at $49; and (3) Hotline metrics for compliance and culture analysis.
Invoices and no POs
The first one actually comes from Cisco Systems, Inc. (Cisco) where they develop all their technology in house and while the technology they are using is not important, it is interesting to think through the theory of what they are trying to accomplish. Cisco wanted to determine how many times they get an invoice hitting the accounting department to be paid before a Purchase Order (PO) has been received by the accounting department. What Cisco was trying to do was track every instance where an invoice arrived before the PO. The company created a visualization tool so there would be a little red dot for each instance and studied how often this happened across several quarters.
Through this visualization tool Cisco was able to classify every expense by such criteria as: When did we get the purchase order? When did we get the invoice? What department is this for? From this point, the company could begin to detect and analyze. Equally important, with the use of the visualization tool, literally anyone in the company could see and use the data. By defining the practice as it violated internal company policy, quantifying it and then putting it into a visual format, this led to a reduction in the number of times this situation occurred because employees were more attentive to their spending.
T&E Spend at $49
The second example came from a public utility company in the Midwest. The company had a policy where any employee with a T&E expense for more than $50 had to submit a receipt. For any expense at $49 or less, the employee could submit an expense without the receipt and it would be processed and paid. This process was an anti-fraud measure to see if any employee(s) were trying to slip something by at the $49 level where they were not required to supply documentation.
Interestingly, the company did not find any instances of egregious fraud. However, they were able to communicate to all employees it could monitor such reimbursement requests and could impose strong fraud controls in the situation where there was no requirement for the employee to supply documentation. This innovation gave them the opportunity to monitor when the $49 threshold was “just a little bit too often or a little bit too frequently where it seemed shifty”. Kelly emphasized that this is the clear analytics which improve the company's bottom line and risk management because (1) you are improving your ability to find instances of fraud in the transaction and (2) it communicates to the employees the strength of the control environment. This can be an important signal to send from a control environment perspective.
Hotline metrics for compliance and culture analysis
The third example was one of hotline metrics and analysis. Many Chief Compliance Officers (CCOs) and compliance professionals focus on metrics from hotlines such as are you having a lot of calls or having no calls? Is that good or bad? Is your program working or is it not? What does it say about the culture tracking hotline calls themselves? However, following such metrics does not tell a CCO anything really about the culture. Kelly believes the better way to do this is to configure your intake system to get as many characteristics about the call as possible, specifically around retaliation complaints.
Kelly said such analysis would include looking at questions, such as how many retaliation complaints relative to: all complaints; a type of manager; a specific time of year; in specific markets; at specific levels of the company or even against specific people if you can track it all the way down? What you are trying to do is identify where the problem areas are and where people seem to be retaliating more than usual. If you track those metrics over time, not only does it tell you about your culture but it gives insight into why we have this retaliation problem in the first place. It can lead to an analysis around your ethics training if it is working because if complaints about retaliation continue to increase, that tells you that maybe the ethics and anti-retaliation training you are providing to your managers is not working.
Kelly concluded by noting that these three examples on invoices before PO orders, a T&E reimbursement expense request without documentation and examining retaliation complaints to get a better sense of your corporate culture can provide very practical steps you can take today which you might not have been able to accomplish 10 years ago because the tech was not available. However, with the evolution in the IA function and capabilities, you should be able to do going forward.
In Part IV we will consider new working relationships based upon the evolution of IA.
In this special five-podcasts series, Matt Kelly and I are exploring the future of internal audit (IA), compliance and analytics. In Part IV, we consider the new relationships which can be created based upon the evolution of IA. These changes will allow IA to work more closely with 1stand 2nd lines of defense. However, how does your organization prepare for that empowered audit function? Finally, we will consider corporate culture and ask if analytics and monitoring can drive behavior even more forcefully than ethics?
Typically, IA is thought of a part of the Third Line of Defense. However, through the use greater use of analytics, IA can move closer to the second or first line of defense or at least work more closely with those who are traditionally seen as the first or second lines of defense. This speaks to one of Kelly’s key points, that the evolution of IA will change the relationship between audit and other functions. Kelly also said it raises in important question, “As internal audit moves towards better analytics and risk monitoring drives up the importance of strong control design, people really need to start thinking about how to detect, how to monitor the risks that are important to my business process.”
Consider internal financial controls and the review of its effectiveness by an external auditor. In most situations bribes are funded through marketing or similar internal budgetary items. An external auditor will only consider material costs so if your marketing budget is over $100,000,000,000 annually for a worldwide, multi-national, a bribe payment of even $1,000,000 hidden in marketing expenses might not be considered material. Therefore, under this IA evolution, the function would need to not only understand the company’s risk but work with the first line business process owners to “clarify what your risks really are and figure out how to manage more accurately, more closely and more effectively.”
This does not mean IA will become a new department of risk monitoring as it will always need to maintain independence and objectivity. It does mean that other corporate departments, such as compliance, should consider taking advantage of IA’s expertise to help create a control for compliance risk that can be monitored and the results quantified. By having that conversation between IA and compliance, both corporate functions can become aware of the types of controls they are using and how they can be made more efficient or even streamlined. Now imagine that conversation with other risk areas in a corporation; anti-harassment, anti-trust, anti-bidding rigging, IT security and data privacy. It is all about the operational risk for each corporate function. But the business process owner would continue to actively manage the risk.
CCOs and heads of other functional units need to be having those conversations now as Boards of Directors are starting to ask those same questions. But it comes with something along the lines of “If not, why not?” Boards see these types of conversations are improving the overall risk management process. I believe that compliance is uniquely suited to having those conversations now with IA to move the process down into the business unit to more fully operationalize the compliance function into an organization. This is certainly the approach advocated by the Department of Justice (DOJ).
Now consider a world where analytics is more prominent. If your organization is more analytics driven, how will it work in your corporate culture? Obviously, if abused or mis-used, a data driven analytics culture can also wind up being a negative place to work. In most organizations, we have seen that that which is managed or measured gets managed well. However, if you measure and manage everything, then you are micromanaging people. Everyone involved will need to consider how does this really impact the human beings who are in an organization? You should also realize that if you are managing and observing everything, what does that say about making your organization a nice place to work? Is it an interesting and challenging place to work or is it simply an organization which manages risk well? Finally, will analytics and monitoring drive behavior even more forcefully than ethics? Those are the types of conversations every company should be having now, not later.
Tomorrow we conclude with getting started and moving forward.
In this special five-podcasts series, Matt Kelly and I have been exploring the future of internal audit (IA), compliance and analytics. In the final episode, Part V, we discuss how IA can get started and provide some concluding remarks. We consider whether the technology is here today to implement the suggestions put forward this week. Can (or perhaps should) a company outsource internal control testing or internally develop a tool for analytics? We consider some of the biggest obstacles audit leaders cite for moving forward; lack of resources, business complexity, and lack of staff and how the Chief Compliance Officer (CCO) can aid IA in this evolution. We conclude with some thoughts that to succeed, an organization should know its objectives, get good data and think in terms of harnessing and channeling risk, rather than fulfilling compliance.
It begins with complete and accurate reports and all of the financial data present. You must begin with complete and accurate list of data. You need to think all of this through at the beginning and have strong internal controls around it because without good data you get bad data, which leads to bad internal controls and this leads to bad conclusions. From that point, Kelly noted, “everything we have talked about here goes out the window because it started with a bad foundation.”
From there it moves to the analytics. Fortunately there are multiple vendors which currently provide those types of products which have some type of data analytics capabilities. For instance, they exist in the gift, travel and entertainment (GTE) database space, third party management platforms and hotline reporting tools. The key is to have a central repository of data that you can trust, that is validated and tamper-proof. The next step is to extract the data out from its respective repositories with an analytics tool and present the data in a visualization tool.
The next requirement is staff. Right now (and for the foreseeable future) data analytics professionals can write their own tickets. So this may be a problem for startups or smaller companies. However, larger companies may have business analysts who could fill this role. Kelly said that you could potentially pair them with IA to perform analysis projects. IA are going to know how to audit and what questions to ask, however they may not know how to get the visualization and the analytics done well and that is where the business analysts come in.
The pairing of a subject matter expert (SME) with IA can also work. Kelly pointed to the example from the Cleveland Clinic where the Chief Integrity Officer, Don Sinko, has had success using employees from the nursing staff as they know the operations inside and out and when you pair them with an internal auditor it “creates a nucleus of operational knowledge.” Other examples are banks which use employees from the customer care centers because they have the greatest knowledge of the company’s problems.
Another key issue which Kelly pointed to was does the company truly understand its objectives? He stated, “What are the actual objectives? Does everybody know them? Does everybody know which one is ranked number one and which one is ranked two, three and four? You really need to think through this is what we want to achieve.” From there you should ask what are the risks that might prevent us from achieving these objectives? The next step is to then reverse engineer what business process controls are to minimize that is going wrong. Kelly said another way to consider it is that “you need to manage the risk and actually the more technical school of thought out there is, it's an objective based risk management is what you need. What are my objectives? What are the risks to achieving them? How do I reduce those risks?” The implicit assumption is the business knows what its objectives are and which ones are more important than others.
The IA evolution that we have explored over this five-part series follows what I see as the evolution of compliance where it went from a paper program to doing compliance to operationalizing compliance and beyond that now. IA, compliance and a wide variety of other corporate disciplines really need to change their thinking about risk and looking at risk as not only an opportunity to harness and channel but also to more nimbly manage that risk going forward, not simply just fulfilling some legal compliance. Kelly added some thoughts from the compliance realm, which is that “many compliance officers’ wince at the idea of compliance as a bolt on addition which you engage in only at the end of the business process.” This outdated definition of the corporate compliance function, “is a drag at the end of the otherwise aerodynamic operation. It slows everything down and you don't want that. You want compliance embedded throughout the whole organization and smart ethical conduct all the way through.”
This has a similar dynamic with IA because historically IA would do a financial statement audit and it would be bolt on because you only do the annual audit once a year. It was performed and completed after the end of the fiscal year. Now we are moving beyond this as Boards of Directors need more assurance on more risks. They need to know that risk is governed and it is governed all the way through from the risk management cycle.
Now overlay the same dynamic with the compliance function. As Kelly noted, “we're talking about risk monitoring and internal audit as opposed to ethics and compliance and the compliance function. This is where internal audit needs to get to because this is where business processes are moving to. All information is becoming datafiedand you are able to monitor this data.” Kelly added a visualization when he said, “You are able to analyze when something drifts out of the Green Zone and into the Red Zone.” Kelly believes this is where we are headed and closed by stating, “I think we can probably get there, but there's no reason why we cannot do so. With some good thinking and good use of technology now, there is no reason why you could not start your organization on that path right away.”
In this episode, I visit with Ellen Hunt, the Chief Audit Executive and Ethics & Compliance Officer at AARP. She is a lawyer and ethics & compliance professional with extensive management experience in designing, implementing and operating ethics and compliance programs including board governance and reporting, designing ethics education, managing enterprise risk processes as well as handling investigations and regulatory agency inquiries. In light of all of the corporate recent scandals, the role of the Board in Ethics & Compliance has been getting more attention. Some of the key highlights are:
Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. In this episode, Matt Kelly and I take a deep dive into a recent speech by Deputy Assistant Attorney General Matthew Miner where he highlighted the new Justice Department focus on FCPA enforcement in the mergers and acquisition (M&A) context and his remarks on Opinion Releases.
Some of the highlights from this podcast are:
We unpack of all these points and consider strategies going forward.
For more reading: see Matt’s piece FCPA Enforcement and Inherited Liability
How do you measure the impact of your ethics and compliance program? In the new the second of its four-part series of the Global Business Ethics Survey for calendar year 2018, the Ethics and Compliance Initiative (ECI) have released the report, “Measuring the Impact of E&C Programs” which shows you how to do just that. In this podcast, I visit with Dr. Pat Harned, Chief Executive Officer of ECI about the report as it provides a wealth of information on the return on investment for the compliance professional and builds on the High Quality Program structure initiative by ECI in 2016. The Report identifies 15 operational element you can use for your program as well as 17 cultural validation points to help assess your compliance program. Some of the highlights in this podcast are:
To receive a copy of the ECI report, Measuring the Impact of E&C Programs, click here.
What is the most famous line in Shakespeare about lawyers? That is an easy one because lawyer-haters across the world (and lawyer-lovers as well) know it - First thing we do is kill all the lawyers. It comes from Henry IV, Part II. Most lawyers understand that by killing all the lawyers, it will create an atmosphere that would allow for tyranny and anarchy. Unfortunately this clear import is not as widely seen by civilians (i.e. non-lawyers).
While I think the debate about whether the compliance function should be located in a company’s legal department or in a separate compliance function has largely concluded that it should be independent because of the difference in the two discipline’s mandates; many in a corporate compliance function came from the General Counsel’s office or have legal training. The lack of law schools providing training in leadership skills has led to a paucity of such proficiencies in my brethren.
Byron Hanson, in an article in MIT Sloan Management Review, entitled “Leading by the Numbers”; discussed the sometimes difficult transition financial professionals have to make when moving to broader leadership roles. I found some of his insights to be useful to the lawyer moving from a corporate legal department or large law firm into a leadership role in a compliance department. He listed five changes needed which I have adapted for lawyers.
The ability to critically think is still the gift that most US law schools bestow on their graduates. That ability can serve you well as an in-house lawyer and as a CCO. However, the mandates of the legal department and the compliance department are so different and in many ways divergent that the transition from one to the other is not always guaranteed to be smooth. Hanson’s article gives some fine pointers that every lawyer should consider when they make the move to the CCO chair.
This week I am celebrating the intersection of Shakespeare and compliance with a week-long podcast series on the Bard & Compliance. Most people remember the St. Crispin’s Day speech in Henry V as one of the greatest speeches in all of Shakespeare. However many people do not focus on what led to that speech which was that Henry went out among his troops, disguised as a commoner to ask they what they thought and to hear what they had to say about the upcoming battle with the French. One of the most important things that Henry learns is that his men, while willing to do their duty, believe they will all die the next day in battle, most particularly because of the overwhelming size differential in the two armies. Henry takes this information and incorporates those fears, together with English patriotism, into the rousing speech he gave before he led his men to victory. It was an early use of social media.
How can you get your head around the structure of a social media program for your company? In an article in the MIT Sloan Management Review, entitled “Finding the Right Role for Social Media in Innovation”, Deborah Roberts and Frank Pillar laid potential remedies as a useful tool to help CCOs design an internal company wide social media campaign.
The most important thing to remember is that communication in social media is two-way; both inbound and outbound. It can help to bring your employee base together in an efficient manner to create an environment conducive to compliance for your organization. It also has the benefit of continued engagement. It is more than putting on training or even a week set of initiatives, you can continue the conversation and enthusiasm about compliance going forward.
The authors broke this down further into three parts that emphasize (1) the need to listen to and learn from user-generated content; (2) the need to engage and facilitate dialogue with employee innovators; and (3) to find an audience of early adopters to create excitement and collect feedback. No doubt inspired by some fond childhood memories, the authors monikered these three concepts as (a) Explore, (b) Create and (c) Communicate.
CCOs and compliance practitioners need to develop a dedicated compliance strategy around social media, in the context of your corporate objectives. Just as Henry V gave one of the most rousing speeches in all of Shakespeare, basing it on the input he received from his men, you can take the input from your employee base and create a compliance experience that your employees will embrace.
This week I am celebrating the intersection of Shakespeare and compliance with a week-long podcast series on the Bard & Compliance. How does Shakespeare portend social media in the 21stcentury? I would submit that one only need look at Much Ado About Nothingto see how it should all play out. As with all Shakespeare’s plays there is quite a bit going on but the play centers around the action and dialogue of Benedick and Beatrice who go after each other in a manner which shames modern NBA trash-talkers. Apparently, everyone else in the play understands the two are meant for each other so they engage in a very social media style of communication to put the two together. Of course, as this is a comedy, everyone ends up married so Beatrice and Benedick, prompted by their friends' interference, finally, and publicly, confess their love for each other.
One of the first companies to embrace social media as a key tool in their compliance strategy was Dun & Bradstreet (D&B) who actively uses social media to make more effective the company’s compliance regime. The D&B experience provides three key insights for the Chief Compliance Officer (CCO) and compliance practitioner. The first is how compliance, like society, is evolving, in many ways ever faster. As more millennials move into the workforce, the more your employee base will have used social media all their lives. Once upon a time, email was a revelatory innovation. Now if you are not communicating, you are falling behind the 8-ball. Employees expect their employers to act like and treat them as if this is the present day, not 1994 or even 2004.
The second is that these tools can go a long way towards enhancing your compliance program going forward. Recall the declination to prosecute that Morgan Stanley received from the Department of Justice (DOJ), back in 2012, when one of its Managing Directors had engaged in FCPA violations? One of the reasons cited by the DOJ was 35 email compliance reminders sent over 7 years, which served to bolster the annual FCPA training the recalcitrant Managing Director received. You can use your archived social media communications as evidence that you have continually communicated your company’s expectations around compliance. It is equally important that these expectations are documented (Read – Document, Document, and Document).
Finally, never forget the social part of social media. Social media is a two-way communication. Not only are you setting out expectations but also these tools allow you receive back communications from your employees. The D&B experience around the name change for its Code of Conduct is but one example. You can also see that if you have several concerns expressed it could alert you earlier to begin some detection and move towards prevention in your compliance program.
This week I am celebrating the intersection of Shakespeare and compliance with a week-long podcast series on the Bard & Compliance. Which play in Shakespeare’s cannon presents the biggest clash of cultures, which leads to the most catastrophic result? I would have to opine Othello, one of the great tragedies in all of Shakespeare. Othello, a Moor and General in the service of the Venetian republic, wins great honors on the fields of battle with the Turks. He also wins the hand of the lovely Desdemona. However, off the battlefields, Othello falls prey to the whiles of Iago, who convinces Othello of the infidelity of his bride. Othello murders his wife and then, realizing his mistake, takes his own life.
There are many culture clashes going on in the play. The military ethos vs. the deceit of civilian life, African tribal culture vs. the isolation of life in Venice, and even the warm bloodedness of a Moor vs. the chilly civilization of 16thcentury Venice. Yet it all leads to one thing - destruction.
One of the more difficult things to predict in a merger and acquisition context is how the cultures of the two entities will merge. Further, while many mergers claim to be a ‘merger of equals’ the reality is far different as there is always one corporate winner that continues to exist and one corporate loser that simply ceases to exist. This is true across industries and countries; witness the debacle of DaimlerChrysler and the slow downhill slide of United after its merger with Continental.
In the Foreign Corrupt Practices Act (FCPA) space this clash of cultures is often seen. One company may have a robust compliance program, with a commitment from top management to have a best practices compliance program. The other company may put profits before compliance. Whichever company comes out the winner in the merger, it can certainly mean not only conflict but if the winning entity is not seen as valuing compliance, it may mean FCPA investigations and possibly even FCPA violations going forward.
I conclude my week-long podcast series on compliance lessons from Shakespeare and by using my favorite character in all his work. He is The Fool from King Lear. Of Shakespeare’s many theatrical innovations, his transformation of The Fool from the Renaissance Court Jester of songs, music, storytelling, medieval satire and physical comedy to commentator is right up there for me. The Fool became closer to the Greek Chorus. Shakespeare brought the Chorus commentary function back. As noted in Wikipedia, “Where the jester often regaled his audience with various skills aimed to amuse, Shakespeare's fool, consistent with Shakespeare's revolutionary ideas about theater, became a complex character who could highlight more important issues. Like Shakespeare's other characters, the fool began to speak outside of the narrow confines of exemplary morality. Shakespeare's fools address themes of love, psychic turmoil, personal identity, and many other innumerable themes that arise in Shakespeare”.
While Lear’s Fool was actually a font of wisdom and commentary, the same cannot always be said for the corporate fools who put evidence of bribery and corruption in emails, excel spreadsheets and PowerPoint slide deck presentations. In Foreign Corrupt Practices Act (FCPA) training I always remind attendees that if you put your bribery scheme in emails, it will be uncovered. Further, if you put together an excel spreadsheet tying your nefarious acts, such as hiring the family member of a foreign official or state owned enterprise employee to the award of a contract, it will be uncovered. Finally, if you put your fraudulent scheme in a PowerPoint slide deck for presentation to senior management, you will be uncovered.
The issue previously arose at GlaxoSmithKline PLC (GSK) who put together such a presentation in 2013 for targeted bribery campaign code named “Vasily”. More recently was Volkswagen (VW) and its now infamous emissions-testing scandal. In an article in the New York Times (NYT), entitled “VW Presentation in ’06 Showed How to Foil Emissions Tests”, Jack Ewing reported that a top technology executive at VW prepared a PowerPoint presentation for management in 2006, laying out in detail how the automaker could cheat on emissions tests in the United States. From my experience, if you have an illegal scheme enshrined in a PowerPoint slide deck presentation, even if you never implemented that scheme, it probably means that the propensity for such is pervasive throughout the system.
You might think only idiots would put into emails, spreadsheets and PowerPoint presentations not only intent to violate laws but also their plans and how the company would benefit from such illegal conduct. As bad as all of this is, it points to an even greater insight relevant to FCPA enforcement, that being the Myth of the Rogue Employee. The GSK and VW PowerPoint presentations both added yet another spike in its coffin. If your corporate culture is such that you not only communicate internally about illegal conduct but also record those communications in the form of PowerPoint presentations, it speaks to a culture that supports and embraces skirting the rules. Commentators who claim that companies should not be punished by the actions of a small group of employees miss this greater truth; these employees would not engage in illegal conduct if their company, either through compensation, succession or other remuneration, did not reward them for engaging in such conduct.
That is the greater truth that Lear’s Fool would impart to corporate management.
In the new the most recent issue of Fraud Magazine, three authors, Scott Fleming, Jonathan T. Marks, and Richard Riley, presented the article “Meta Model of Fraud”. In this piece, the authors acknowledge that the Fraud Triangle is tried and true, but feel the need for more tools to more to understand fraud cases. The authors go on to describe a “meta-model of fraud” that combines the “why-based” Fraud Triangle with the “what-based” Triangle of Fraud Action to better explain fraud cases. While it may be difficult to know exactly why fraudsters commit crimes, investigators can always gather facts and evidence to help prevent and deter fraud.
In this podcast, I chat with one of the authors, Jonathan Marks, a partner at Marcum LLP, on the limitations of the Fraud Triangle and why a new model can be helpful in the modern fraud detection and prevention context. The authors developed the triangle of Fraud Action to overlay with the Fraud Triangle to help fraud examiners understand where weak points might be exploited by fraudsters. Equally importantly, it helps compliance professionals understand how internal control systems can be exploited and how to help prevent such exploitation.
The article Meta Model of Fraud also appears on Marks’ blog Board and Fraud and can be viewed by clicking here.
Over a five-part series I will visit with Caterina Bulgarella on the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite” (the “White Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI and the author of the white paper. In this white paper, she introduces a strategic cultural framework which compliance professionals and companies can use to not only help them assess their ethical culture but provides a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. Today we introduce the strategic cultural framework.
Bulgarella believes we are in a time of profound change and the speed at which things are changing. The fourth industrial revolution is happening now and bringing sweeping change. Over the next five years, 50 billion machines will be connected across the globe, on pace to revolutionize the way companies and people operate. This makes everything uncertain and ambiguous and that the changes are rewriting our value system faster than we can even realize. She provided a couple of examples. More generally, we know technology is changing how we act, operate, deliver and do many other things. More specifically, simply consider Artificial Intelligence (AI) and how this tool is going to cause a loss in privacy and confidentiality. Some of the questions it raises is whether these changes are ethical or not? Is the pace of change and the change itself a reasonable price to pay to or should we be more cautious?
When you overlay all this with the complexities of not only the modern world but also the current business environment, you can see the need for a more coherent framework for discussion and analysis of ethics and compliance. What may have been acceptable business practices can change literally overnight; here you can witness the number of companies that are scrambling to explain their contracts with ICE and that they were not involved with the child separation policies instituted by the Trump Administration. With so much at stake and with so many variables, companies need a more robust framework to help them make not only the right decision but ethical decisions as well.
The strategic cultural framework was created to help improve many of these corporate practices in tangible ways. It integrates a wealth of insights from behavioral science, as what we know about human behavior today is vastly more precise than what we knew even five years ago. Many of these insights have not been incorporated in organizational practices and that is where the strategic cultural framework comes in, to connects the dots. The strategic cultural framework explains how culture affects people’s ability to do the right thing and what risks an organization faces.
The framework is a model for maximum impact because it identifies the two culture dimensions that organizations should actively manage to reduce risk and increase ethical performance. The first dimension is delegation of ethical dilemmas. This is the extent to which the culture of an organization creates dilemmas and leaves these dilemmas un-addressed. The second dimension is distance to which the culture builds ethical capacity. This means that the culture must build resources, practices, and resilience that help people to deal with ethical challenges successfully.
Bulgarella noted that while there is really a broad and deep discourse around corporate values and around the idea of building business ethics around corporate values, she does not believe there is sufficient dialogue as to what organizations actually value. It is what the organization actually values that ultimately shapes how things are done and what is given priority within that organization. Company values shape the decision-making and execution and it is critical to understand them, together with the consequences they can create and risks they entail.
Bulgarella concluded with some thoughts on corporate culture, which she characterized as “the DNA of an organization which goes to the heart of an organization’s identity and purpose.” This is really what an organization believes and it is the “source of the substratum to all that is human, all the human endeavors in an organization.” However, she also cautioned that culture is a complex architecture. It is important to keep in mind the complexity of every corporate culture, when trying to implement any for best practices ethics and compliance program.
Bulgarella listed several different complexities of corporate culture and how corporate culture shows up in the way an organization’s systems and processes are designed; it shows up in the way people behave in their types of expectations and it can even show up in their mindset. This can make it difficult to simply find one formula or one definition for culture. I would encourage people to focus on what the organization beliefs and values and recognized the corporate values of an organization’s belief system. That distinction can be critical.
Tomorrow, what does senior management and a Boards of Directors and C-Suite need to know about ethical risk?
For a fully copy of “Predicting Risk: A Strategic Culture Framework for the C-Suite” click here. For more information on SAI Global, click here.
Over this five-part series I, visit with Caterina Bulgarella on the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite” (the “White Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI and the author of the white paper. In this white paper, she introduces a strategic culture framework which compliance professionals and companies can use to not only help them assess their ethical culture but provides a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. In this Part II, we discuss what the Board of Directors and C-Suite needs to know about ethical risks.
Bulgarella began by noting that the strategic culture framework is really a model for maximum impact for organizations to manage risk and ethical performance practically. It is based on two dimensions of culture. The first is whether your organization is delegating dilemmas, so when the cultural dilemmas after left unaddressed, employees are more likely to face difficult tradeoffs and make poor decisions. This translates that delegation of ethical dilemmas creates unwanted risk. The second dimension is whether an organization is creating an ethical capacity, which are the resources, practices and built-in resilience that helps employees to deal with ethical challenges successfully.
Companies can use the strategic culture framework to create a realistic risk profile. It lays out six determinants, three each within the dimensions listed above. The framework forces organizations to look at the ethical tradeoffs people are dealing with day in and day out and the implications of those trade-offs. The framework evaluates the capacity that your organization has internally; as that will help you predict how people respond to ethical challenges. I asked Bulgarella if she could provide an example.
She responded with the following example. Assume we both work for Acme and one of our values is safety. Acme trains its employees on safety procedures and that tells us that safety matters now but Acme also puts a great deal of emphasis on cost effectiveness. This means Acme prides itself on running things lean and fast. Safety and cost effectiveness do not have to butt heads all the time, but if there is too much emphasis on cost effectiveness; safety will eventually suffer if Acme has never looked at the relationship between safety and cost effectiveness. If the company does not understand the norms and expectations around safety and cost effectiveness, it may well face a tangible risk, that people may downplay safety to save the company money. This is where the framework comes into play as it can be the lens through which Acme can garner all the insights it needs to fully understand these dynamics and to recalibrate them to mitigate risk and increase the organization’s ethical performance.
We then turned to the three determinants of each dimension. For the dimensions of delegation of ethical dilemmas the determinants are: (1) What are your organization’s Principals of conduct? Under this determinant you need to know if your Principals of Conduct are clearly set out, is there a conflict between these standards and your organization’s values and are potential conflicts being addressed? (2) What is your organization’s leadership behavior and how does management exercise power? Here you need to know what the criteria is for promotion to or hiring of senior management; are senior management both talking the talk and walking the walk and, finally, do senior leadership view their roles as one of responsibility or entitlement? (3) What are both the incentives and discipline within your company? Under this determinant, you need to assess what are both the rewards and sanctions used by your organization, how are top performers treated when they act unethically and are employees rewarded for doing business ethically and in compliance?
For the dimension of ethical capacity the determinants are: (1) What is the ethical ownership? Under this determinant, you assess if your ethics and compliance responsibility is shared with the business units or siloed in compliance, is your company leadership being held accountable through ethical goals and are ethics framed as a chore or opportunity within the company? (2) What is the ethical reasoning? Here you need to consider whether you provide effective, targeted training with follow up communications, what company factors or experiences may hamper ethical reasoning in your organization and whether managers promote an open dialogue around ethical issues. (3) What is the ethical voice? This determinant deals with the channels through which information on ethical lapses are raised in the company; do they exist, is there a cost to sharing bad news or being an internal whistleblower and how has the company used such employee feedback?
Tomorrow we consider the gap between an organization’s espoused ethics and its actual values.
For a fully copy of “Predicting Risk: A Strategic Culture Framework for the C-Suite” click here. For more information on SAI Global, click here.
Over this five part series I am visiting with Caterina Bulgarella on the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite”(the “White Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI Global and the author of the white paper. In the white paper, she introduces a strategic cultural framework which compliance professionals and companies can use to not only help them assess their ethical culture but, equally important, a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. In Part III, we discuss the gap between an organization’s espoused ethics and its actual values, how this can lead to tension and the risks that arise from conflicting priorities and goals.
We began with a review of culture and how it can be viewed through the lens of the framework. Bulgarella emphasized that the architecture of culture is complex. It is not just about behaviors, not just about Codes of Conduct and/or policies and procedures. It is about key beliefs and the manner in which systems and processes are designed. Moreover, it also consists of the norms and expectations. In looking at each culture determinant, the framework addresses the specific systems addresses norms and mindsets that should be managed. The framework tells us that if we want to manage delegation of ethical dilemmas, we should look at principles of conduct. If we want to look into principles of conduct that we should not just stop at corporate values but also consider the implicit norms when it comes to leadership and power in an organization.
So in addition to making ethical factors a consideration in the hiring of and promotion to senior management, you need to consider senior leadership’s behavior and what they believe their power is based upon. When it comes to values, do companies put their money where the mouth is and financially reward employees who do business ethically and in compliance and not simply those who make their numbers every quarter? The framework allows you to consider not only whether employees receive training but also is it targeted training and is the training effective? The bottom line is that the framework helps an organization understand the contradictions that define culture. It highlights the different directions in which people are pulled, the gap between what is said and what is done. Finally, it addresses the way in which people are likely to respond to these inconsistencies.
The two cultural dimensions in the framework, ethical capacity and delegation of ethical dilemmas, are helpful in considering both the different types and different levels of risk. The more dilemmas present in an organization, the more pressure will be forced upon employees and the greater likelihood they will make poor ethical decisions. The key is to have both dilemmas working in concert so that when culture is mature in your organization, the company works hard to address and contain dilemmas, while creating ethical capacity. Conversely, if your organization has an immature culture, your dilemmas are widespread and the ethical capacity is a law between the two. In addition to being overly focused on profit, these organizations do not help people address the ethical tradeoffs they are likely to encounter.
In addition to the immature and ambivalent organizations, Bulgarella identified two other types of organizations, the righteous organizations and mature organizations. Righteous organizations avoid delegated dilemmas but lack ethical capacity, thereby experiencing lower risk than immature organizations. However, their risk is higher than mature organizations since people don’t have much ethical capacity. These organizations create high risk when they impose their ethical principles on people in a cult-like manner, disabling the muscle of independent reasoning.
Ambivalent organizations experience less risk than immature organizations due to their higher ethical capacity, but Bulgarella believes they can pose greater risk than mature organizations due to their tendency to delegate dilemmas. By forcing its employees to make difficult ethical choices, an ambivalent organization’s exposure to systemic risk is still high. Employees may blow the whistle or resist the internal pressure, but ethical dilemmas are so widespread that employees do not have the trust to feel their company will stand behind them when they make a difficult, yet ethically correct decision. This means that an ambivalent organization remains exposed to considerable risk and should be monitored closely.
Bulgarella concluded with some thoughts on how risk changes across these four types of organizations. In mature organizations, ethical dilemmas are addressed at the top and the ethical capacity is consistently matured. This makes its business model low risk and growth is ethical. In righteous companies, there are clear ethical standards but little is done to build ethical capacity. This creates moderate business risk and such inflexible principles may inhibit ethical capacity. In ambivalent organizations ethical trade-offs are pushed on employees, even as the company takes steps to build ethical capacity. This creates high business risk, as there is intense pressure, which, in turn, creates widespread misalignment between stated and actual goals. Finally, there is the immature organization where there is a high delegation of dilemmas combined with low ethical capacity. This makes for very high risk and the business’ growth is generally not sustainable.
Tomorrow we apply the culture framework to a real-life case study, Wells Fargo.
For a fully copy of “Predicting Risk: A Strategic Culture Framework for the C-Suite” click here. For more information on SAI Global, click here.
I am joined in this five-part series by Caterina Bulgarella. We are discussing the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite” (the “White Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI Global and the author of the white paper. In this white paper, she introduces a strategic cultural framework which compliance professionals and companies can use to not only help them assess their ethical culture but, equally important, a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. In Part IV, we consider the Wells Fargo fraudulent accounts scandal within the structure of the framework.
Bulgarella began by noting that the culture determinants that created systemic risk were largely in the red zone, presaging Wells Fargo’s cultural and ethical failures. However, while the culture determinants that shape ‘Delegation of Ethical Dilemmas’ were solidly red, Wells Fargo did possess some degree of ethical capacity, as demonstrated by the fact that several employees tried to blow the whistle. In terms of culture maturity, Wells Fargo oscillated between the conditions of immature and ambivalent; the two culture types that expose an organization to high levels of risk.
When there is a discussion around tone at the top and middle, we are referring to the extent to which leaders and managers acknowledge ethical principles and behave in a way that is consistent with those principles. This leads to the manner in which leadership and power are exercised in an organization, which is a huge component of the culture of an organization and these two huge components of a determination of whether the organization is delegating ethical dilemmas or not as well as the nature of those dilemmas. The type of pressure that may arise from senior and middle are all very relevant.
The next step is to see how senior leaders and middle managers shape any ethical dilemmas. Bulgarella related that if a leader holds an ethical belief but provides a different set of signals in their leadership style, it may well create a set of competing priorities. This can lead to the types of pressure we discussed in prior posts that may lead to ethical lapses.
Saying something like “just get it done” may well blind a leader or manager to tradeoffs. Bulgarella characterized this as a “form of motivated blindness” which has an interesting way of manifesting and resolving itself. Finally, any form of abusive conduct when it comes to leaders and managers is likely to weaken ethical principles.
So how did a company whose corporate values included integrity, respect and principled performance fall into such disrepute? According to the white paper, it actually began in the 1990s when the then Chief Executive Officer (CEO), Dick Kovacevich, “told Fortune magazine that banks had to figure out how to sell money. He believed that financial instruments were consumer products, the same way “… Wal-Mart sells socks or Home Depot sells screwdrivers. Much like those businesses, financial services is huge ($1.9 trillion in assets) and fragmented.”” Unfortunately this innovation for the bank was not matched with its ethical capacity as regional and business unit autonomy led to not only increased sales pressure but almost slavish devotion to the internal sales theme “8 is great” which required salespersons to sell eight Wells Fargo financial products to every Wells Fargo customer; whether they needed or even wanted them. Finally, stakeholders began to engage in retaliatory behavior to those employees who raised ethical concerns that fraudulent accounts were being created.
Utilizing the framework, the culture coordinate of delegation of ethical dilemmas has the following observations. The determinant of Principals of Conduct noted, “Wells Fargo’s internal and external values were strongly at odds. On the one hand, the company proclaimed its commitment to the customer and fostering trust. On the other, it pushed employees to sell ‘customers as many products as possible.’” Under the determinant Leadership & Power, regional, local and business unit leaders used their influence to force overly ambitious sales goals on employees. Finally, under the determinant of Reward & Sanctions, “Incentives were tied to cross-selling: Salespeople received between 15% to 20% of bonus compensation if they met their sales goals. Though roughly 5,000 salespeople were let go between 2011 and 2016, these layoffs touched only 1% of the workforce.”
In the culture coordinate of Ethical Capacity the white paper noted the following observations. Under the determinant of Ethical Ownership, it stated, “The company’s official position was that the businesses owned ethics, yet senior leadership framed the scandal as a ‘compliance and operations’ problem.” Under the determinant of Ethical Reasoning, it stated, “The ethics program trained employees to spot conflicts of interest and provided them with a Code of Conduct—valuable but inadequate resources to help employees cope with the sales pressure they experienced daily.” Finally, under the determinant of Ethical Voice was the following, “Wells Fargo fostered a culture of threat, intimidation, and retaliation to discourage employees from speaking up. Five percent of the workforce eventually joined forces to file a petition that asked the company to discontinue its cutthroat culture.” Bulgarella concluded by relating, “What’s interesting, however, is that the Wells Fargo story is a cautionary tale for leaders in general because it demonstrates how they can be in a way victimized by their own ambitions, innovation and vision. This is something worth keeping in mind. The science tells us that it’s not always the case that unethical outcomes derive from malicious intent. You may give into an excessively ambitious yet very enticing vision.”
Tomorrow we conclude with a look at the ins and outs of ethical reasoning and then take a veiled look into the future.
Over this five part series I have been visiting with Caterina Bulgarella on the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite” (the “white Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI Global and the author of the white paper. In the paper, she introduced a strategic culture framework which compliance professionals and companies can use to not only help them assess their ethical culture but, equally important, a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. In Part V, we conclude with a review of the ins and outs of ethical reasoning and take a veiled look into the future.
We began with a discussion of common biases that might influence employees to make the right ethical decision and how entities might able to manage this problem. Bulgarella noted the most common bias is that employees think they are much more ethical than their co-workers. This can work to give employees license to engage in unethical behavior, rationalizing that everyone else is doing it or even through some type of internal balance sheet analysis figuring the company may owe them something. This can also work to create a type of righteousness that, once again, allows employees to rationalize bad conduct.
Bulgarella says it starts with a re-architecture to get employees to do the right thing. It begins with the insights derived from seeking and providing feedback. This also speaks to the complexity of managing corporate values in a way that activates our moral identity without making us righteous and a complacent. Sometimes even feeling loyalty to the group can impinge ethical decision-making or ethical behavior so care must be taken around this bias as well.
Bulgarella believes that organizations developing loud and clear speak up cultures “experience high ethical efficacy”. They are a fundamental part of an ethical culture and both speaking up and silence communicate information to an organization. Bulgarella believes they are two sides of the same coin and that that speaking up and silence are properly viewed as a part of a process and not discrete acts. Employees will not simply begin to speak up unexpectedly. There must be training and, more importantly, trust by employees that their voices will be heard, and there will be no retaliation. This means senior leadership and middle managers must seek feedback on an ongoing basis to engender that trust and relationship. Bulgarella says if that trust is not present, there will be what she termed as “futility of voice” which she identified as one of the most disempowering factors employees face in determining whether to speak up or look the other way.
I asked Bulgarella on why silence is so powerful and what can be its significance. She said, “silence can speak a thousand words.” If a survey is conducted and nobody participates, that says quite a bit about your corporate culture. If employees are asked to provide feedback and everybody has only positive things to say about the topic or issue, that simply is a disconnect with “human nature, silence a disguised as voice.” This means that instead of being satisfied that 95% of respondents report that the things are great, you are compelled to go deeper and find out what is going on.
We then turned to the future and where the framework, could be going and how corporations can utilize the framework to improve not only their culture and values but their business performance as well. Bulgarella emphasized the framework is a tool help navigate complexity. She has seen organizations use the framework in variety of ways to manage risk and ethical performance. Moreover, the framework is a strategic tool that can be used to assess and measure culture, to recalibrate the key cultural determinance, to hold stakeholders accountable and to help executive teams and Boards take a comprehensive look at the risk profile of their organizations. The framework can deliver a very concise and powerful map of both risk and ethical performance because it cuts across different layers of culture as it provides actionable guidance for the reason that it highlights a key priority.
The framework is a tool to use to gauge the effectiveness and impact of ethics and compliance practices. It is well-known that effective compliance and ethics programs can reduce dilemmas and increase ethical capacity. If they cannot move the needle in those two directions, they are likely missing the mark when it comes to impact. To make progress on the practices we have considered though the framework clearly demonstrates a commitment to creating the internal pathways to a strong, vibrant and healthy listener culture.
Yet, as the white paper notes, in “its simplest implementation, the framework can be used to inform internal discussions on culture and risk. It can also be leveraged to orient the work of independent monitoring committees and create a scorecard of culture and risk for the board to review regularly.”
In the new FCPA Corporate Enforcement Policy, it stated that as one of the items required for a company to receive full credit for timely and appropriate remediation, “Appropriate retention of business records, and prohibiting the improper destruction or deletion of business records, including prohibiting employees from using software that generates but does not appropriately retain business records or communications”.
In this episode, I visit with Brian Burke, partner at Shearman & Sterling and head of the firm’s Asia Litigation practice about the continued fallout since the release of the Justice Department’s new FCPA Corporate Enforcement Policy and its requirement instant messaging. We discuss the new Policy’s requirement and how companies can protect themselves. Brian can also speak to how companies can ensure the use of applications like WeChat and WhatsApp in business settings does not inadvertently threaten an employer’s subsequent ability to seek a declination or reduction in fines – and the practical measures companies can take in an effort to comply with the date retentions requirement under the Policy.
Some of the highlights include:
In this five part podcast series, I will be taking a deep dive into health care monitoring and how the pro-active use of a health care monitor can positively impact all stakeholders in the healthcare industry: the regulators, the health care industry and the consumers of health care services, the public. I am joined in this exploration with two individuals from Affiliated Monitors, Inc. (AMI), the sponsor of this series. The first is Catherine A. Keyes, Vice President of Operations and the second is Jesse Caplan is Managing Director of Corporate Oversight. In this first episode, I visit with Jesse Caplan to introduce the use of an independent integrity monitor in the healthcare sector and explain how such a monitor can increase value.
Independent integrity monitoring can be particularly valuable and important in the healthcare sector because in many way healthcare is the perfect storm for significant compliance risks, but also has a greater opportunity to mitigate those risks. Using an independent third-party compliance expert or monitor can be one strategy to help mitigate risks.
Healthcare occupies a unique space in the American business world. First of all is the size of the healthcare industry as it accounts for almost 20% of our economy. Moreover a very large portion and an ever growing portion of that money comes from the taxpayers, federal programs like Medicare, Medicaid, the VA and state funded programs. When you have lots of money being spent in a particular industry, there is always the potential for fraud, waste and abuse. Now overlay this with the public money involved, there is the potential for a False Claims Act or government action, civility or criminally. Finally, the healthcare industry is highly regulated, with most, if not, all healthcare providers, whether individuals or organizations, licensed by the state, either by a Board or state agency and some might even be licensed or certified by federal authorities.
Not every healthcare organization has a good handle on either the effectiveness of their compliance program or the compliance culture of their organization. Independent integrity monitoring can proactively assess compliance programs and culture, identify potential areas of compliance risk. Furthermore they can help mitigate or limit the adverse consequences of violations and help persuade regulators to look more favorably on an organization.
By using an independent compliance expert to do a proactive assessment of a compliance and ethics program and culture, a healthcare organization can get a lot of value by assessing not just whether the organization has a compliance program that appears to meet all the elements of an effective compliance program but the monitor can come in and actually assess whether that program truly is effective. The assessment can identify the ethical culture of the organization, detect gaps, make recommendations to remediate those gaps and provide the organization with a particular level of comfort that the structure of the program is truly effective and that the culture of the organization is such that compliance has been embraced by the workforce throughout the organization from the top to the bottom.
In the second instance, where there is a compliance issue and the organization has the government looking at it, bringing in an independent compliance monitor can help demonstrate to the government that any compliance violations are not indicative of a systematic problem with the compliance program or the ethical culture of the company. It can show the problems have been remediated. Through monitoring, the government can feel comfortable that the organization is going to be a compliant organization going forward. Using an independent integrity monitor can help an organization avoid more severe sanctions, such as license suspension or even exclusion from a government healthcare program.
There is also value to the government of approving a monitoring relationship in a matter they are involved in. Governments and healthcare regulators want to ensure, above all, that patients and healthcare consumers receive high quality and safe care, that taxpayer money is efficiently and well spent, and that there is a healthcare industry environment and culture of compliance, transparency, and quality. An independent monitor can help the company meet these objectives and provide assurance to the government that the compliance risks have been addressed.
An independent integrity monitor can work with the government to ensure compliance with an oversight requirement, such as a Corporate Integrity Agreement (CIA) or other resolution agreement. Yet an independent compliance monitor typically is going to be an expert in compliance and ethics. The healthcare industry is incredibly complex. Hospitals have many different regulations with which they must comply, which are different from regulators under which a health insurance company must comply, which, again, are different from a medical device company. These are but some of the challenges that an independent compliance monitor needs to have expertise on. The independent monitor can come in and do a proactive assessment, identify gaps in particular areas, such as HIPPA (Health Insurance Portability and Accountability Act of 1996) privacy, data security, compliance program and internal controls.
Next up, how proactive assessments can enhance healthcare ethics and compliance programs and culture.
For more information on how an independent monitor can help improve your healthcare entity's ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
In this five-part podcast series, I am taking a deep dive into healthcare monitoring and how the pro-active use of a healthcare monitor can positively impact all stakeholders in the healthcare industry: the regulators, the healthcare industry and the consumers of health care services, the public. I am joined in this exploration with two individuals at Affiliated Monitors, Inc. (AMI), the series sponsor, Catherine A. Keyes, Vice President of Operations, and Jesse Caplan, Managing Director of Corporate Oversight. In this Episode 2, I visit with Caplan on the significance of proactive assessment in healthcare ethics and compliance program in determining culture.
Caplan noted that not every healthcare participant has a good handle on how effective their compliance program is and whether the culture of the organization is such that compliance risks are likely to be timely identified, mitigated and remediated. However an independent integrity monitor can help healthcare participants to do a thorough pro-active assessment of a healthcare organization’s ethics and compliance program and culture.
An independent compliance expert can bring a fresh set of eyes to any organization or entity. Such an expert can provide several valuable inputs to any organization including: demonstrating to the Board organization’s ethical culture and effective compliance program; identify gaps or weaknesses in the compliance program when a healthcare organization has a problem, for instance, a compliance problem where the government gets involved; provide recommendations for remediations demonstrate to government regulators the seriousness and effectiveness of the organizations compliance program; educating an organization’s workforce; and, finally, sending a strong positive message throughout the entire organization that they take compliance very seriously and expects the workforce to take it seriously as well.
There are multiple ways to conduct a pro-active assessment of an organization’s ethics and compliance program and AMI selects the style and techniques which best fit the situation. Caplan noted some of these techniques can include areview of applicable policies and procedures, whether the organization has a hotline which is use and compliance training.However, Caplan emphasized such techniques can only get you so far.
This means you need to also perform an assessment of compliance program effectiveness by a variety of mechanisms such as determining if the compliance policies and procedures are effectively implemented, whether staff are familiar with and truly understand their compliance obligations and even whether they feel they can communicate compliance and ethical concerns or questions without fear of adverse consequences.
We next turned to how to make such an assessment. Here Caplan noted there are several ways to do so. It can include interviews with individual employees, focus groups with larger numbers of employees, visits to not only the corporate headquarters but also remote company locations and, of course, the analysis of all relevant data. He provided an example where AMI would test a hotline and how, when complaints come in, they are actually handled. Such testing would use all these techniques including employee interviews, focus groups meetings and review of data on hotline complaints and case closure rates and data.
A proactive assessment can be used in times simply beyond when an organization may have a reason to believe that it has an ethics or compliance problem. It can be used when there is a change in leadership and the new leadership team wants to see more precisely where they may be on the ethics and compliance scale. It can also be used when there is a major acquisition or a healthcare provider establishes new business units or even goes into new markets.
In some situations an independent evaluation team may be called to work collaboratively with others such as outside counsel. It all starts with the value of the pro-active assessment that they are independent and unbiased which gives them greater credibility with stakeholders. However, the organization and evaluation team can and should work collaboratively to develop the work plan and target potential risk areas. There should also be collaboration in deciding findings and recommendations of the assessment to be communicated. All of this helps to provide an independent, unbiased proactive assessment of a compliance and ethics programs and can make the organization stronger and the workforce more engaged in compliance.
One of the key differences in healthcare as opposed to perhaps the energy or tech sector or another commercial enterprise, is that the government and the regulators would prefer not to exclude healthcare providers from the healthcare industry. This means even if a healthcare provider has a compliance issue, the government and regulators may be loathed to deliver an ultimate sanction and put a healthcare provider out of business. Access to quality healthcare providers is a continuing issue within the industry and particularly for government programs like Medicaid. One of the reasons is that not every healthcare provider is willing to participate in Medicaid programs and, particularly for vulnerable populations, there can be an inadequate number of healthcare providers available to treat those populations. This means from a public policy perspective, whether it is the federal government or state government departments of public health, they all want to have as many quality providers as possible so people and the patients have adequate access to those services.
This can sometimes run up against the tension of healthcare providers in those areas of medical services who have run into difficulties that could pose a threat to patients and the public or could pose a threat to the public financing by misusing or abusing the funds that are being paid. This means that the government or regulators must be comfortable that the problems an organization has have been remediated and will be addressed so that those issues will not arise going forward. If using an independent integrity monitor can help the government by meeting these two objectives of both quality providers and providing sufficient access for its citizens, it is a win for all involved.
Next up, using independent integrity monitoring in licensing and disciplinary proceeding.
For more information on how an independent monitor can help improve your healthcare entity's ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
In this five-part podcast series, I am taking a deep dive into healthcare monitoring and how the pro-active use of a healthcare monitor can positively impact all stakeholders in the healthcare industry: the regulators, the healthcare industry and the consumers of healthcare services, the public. I am joined in this exploration with two individuals at Affiliated Monitors, Inc. (AMI), the sponsor of this series, Catherine A. Keyes, Vice President of Operations, and Jesse Caplan, Managing Director of Corporate Oversight. In this third episode, I visit with Keyes to discuss how an independent integrity monitor can be used in healthcare licensing and disciplinary proceedings.
I started off by asking Keyes about the situation where a state Medicaid Fraud Control Unit finds a provider billing for an unusually high number of patients or procedures per day. Through an investigation, the state unit finds poor documentation that looks like fraud. How can an independent integrity monitor serve as an overall part of a resolution? Keyes noted that initially such a settlement will allow the provider or clinic to continue to practice, which is important for Medicaid providers. Keeping a Medicaid practice open is often very important in some areas, where there are very few Medicaid providers, so having a Medicaid provider remain open is important, not just for the person whose business it is, but also in the community. Keeping or bringing up such a healthcare provider to professional standards is also important. Finally, it is critical all the way around to keeping pressure on the provider to make the promised changes to fix the system and it protects the public by bringing the provider in line with professional standards.
We next discussed the scenario where someone makes a complaint to a licensing board, the complaint is investigated, and the licensing board finds, among other things, that the practitioner’s patient records lack basic elements: for example, adequate notes about treatments. Keyes noted that oftentimes a complaint is made to a state regulatory agency, a licensing board, for example. It might be a dental board, it might be a medical board, it might be a chiropractic board. Most of these licensing boards have regulations that say what minimally should be included in patient records. And this is the standard you would hope that any kind of a medical provider is recording in writing. This is critical for a patient’s medical care going forward.
Here Keyes believes that an independent integrity monitor can be an excellent option as it allows the healthcare provider to continue to practice while providing prompt feedback to the agency about whether the healthcare provider is making promised changes. This is because a straight suspension may hit the pocketbook without helping the provider make meaningful change.
Yet there is an equal if not greater benefit to the healthcare provider as the independent integrity monitor can provide tailored advice about how to bring the practice up to professional standards. Keyes provided a simple yet straight-forward example, “I once saw the difference between having a chiropractor’s friend act as a monitor and write an overly simplistic report – “the charts look fine” – and the in-depth feedback given by professional monitors: “the history of present illness needs to be more complete, including info about the effectiveness of other treatments received”.”
I asked Keyes about using an approach of an independent integrity monitor in a current situation such as the opioid crisis. She said that such use could allow an independent integrity monitor to track prescriptions and prescribers of opioids and other drugs. She said that as part of a multi-pronged approach to the opioid abuse issue, many states are looking to see who their high prescribers are and whether these are legitimate practices or just pill mills. A monitor can help a provider to put policies and procedures in place to (a) assess the underlying need for pain medication; (b) determine whether someone is actually taking the medications; (c) refer to other specialists for supplemental care: physical therapy, acupuncture, pain clinics; and (d) appropriately terminate care of patients who appear to be getting prescriptions primarily to re-sell the pills.
Yet the benefits do not end there as monitoring, as part of settlement agreement, could require the provider to reduce the number of pain patients and the quantity of pills prescribed over a certain period. An independent integrity monitor can keep the regulators informed as most state agencies do not have the staff available to track compliance with the details of such an agreement. Independent monitoring is paid for by the licensee. Such use of a monitor also works to protect the public by bringing the professional in line with national standards for assessment, treatment and follow-up of pain patients. Finally, using a monitor can allow the provider to remain open and demonstrate their commitment to improved practice. Healthcare providers are quick learners and, in some cases, putting a structured program in place is a relief.
Next up, using monitors in administrative proceedings not related to discipline and licensing issues.
For more information on how an independent monitor can help improve your healthcare entity's ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
In this five-part podcast series, I am taking a deep dive into healthcare monitoring and how the pro-active use of a healthcare monitor can positively impact all stakeholders in the healthcare industry: the regulators, the healthcare industry and the consumers of health care services, the public. I am joined in this exploration with two individuals at Affiliated Monitors, Inc. (AMI), the sponsor of this series, Catherine A. Keyes, Vice President of Operations, and Jesse Caplan, Managing Director of Corporate Oversight. In this episode, I visit with Keyes to discuss how an independent integrity monitor can be used in non-disciplinary administrative proceedings.
The first scenario is around hospital conversions. Many states have laws in place to protect the public’s interest when a not-for-profit hospital is sold to a for-profit entity. The state’s Attorney General or Department of Health may impose conditions on the new entity, in some cases to prevent it from simply “flipping” the hospital and extracting the dollar value of the goodwill that was invested by the state when it was not-for-profit.
Hospitals started by charitable or religious organizations may have been acquired or approached by for-profit entities who might be interested in acquiring them. States are concerned that they simply want these healthcare institutions snapped up, so the states want to make sure that the interest of the public are really protected. There are multiple interests that the public has when a not-for-profit entity is bought by a for-profit entity; including things like making sure that the for-profit entity will exist as a healthcare provider for a reasonable period of time, they are good neighbors, that they pay taxes and if there were charities that were in place, those charities continue.
When such a conversion occurs, the purchaser may agree to a wide variety of conditions, such maintaining certain services, making capital improvements, expanding in certain areas, meeting certain public health standards (for immunizations, treatment standards, coordination of care) and addressing certain public health priorities, such as opioid overdose risks or area-specific issues like Lyme disease. An independent integrity monitor may engage in some or all of the following: review of money to be sure it is spent according to conditions; review of policies, procedures, contracts, training materials; review of assignment of assets, e.g. donations that were earmarked for a purpose that is no longer possible; visits to the hospital to see if certain programs are functioning, to see if services are being offered as agreed-upon; interviews with staff to see how medical requirements are being met; and review of charts to see whether processes are being followed. In short there are wide variety of conditions which be in place or which the state or regulators want visibility into and a monitor can provide that visibility.
A monitor can also consider other factors, which may seem to less healthcare related but could impact a conversion. There might be an agreement for capital improvements, for example, there might be total dollar amounts to be invested, dollar amounts per year or there might be dollar amounts over a span of time. It could all depend on what the long-term plans are for the acquirer. As an acquirer typically does not make a lot of capital improvements in the first year, a regulator would need a monitor in place for some period of time to make sure the investments are made and the money spent is actually going on capital improvements. There could be ancillary agreements such as participation in and sponsoring of community activities or education, all of which need to be monitored.
A monitor can drill down into whether the healthcare provider put out advertisements about those kinds of things and see if the public and the person or persons involved actually attended them. Another area often seen is around charitable assets, where a donor may have made a bequeath to a hospital for a specific purpose. If the specific purpose is no longer available; for instance, if it was for a hospital wing that is getting closed down and not being used for the kind of care that it was set up for, those assets might be reassigned.
A second area could be granting of licenses or Certificate of Need and the conditions that a state may impose. This could be for a new hospital, a renewal or some other healthcare facility where the state really wants to have some continued oversight. Keyes explained that while it is not substantively different than the acquisition realm, it is more quantitatively different. There may be a smaller set of conditions, that have been agreed upon. An example might be a Certificate of Need associated with the purchase of a large piece of equipment which might change the dynamics around a facility.
An independent integrity monitor extends the capability of the state agencies and regulators, it allows them to confirm that the entities are meeting the conditions. A monitor can review the paper trail indicating that the agreed-upon processes are in place and can help to keep a healthcare provider’s compliance program on a schedule, so that it does not slip too far down the list of company priorities.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
Over this five-part podcast series, I have been taking a deep dive into healthcare monitoring and how the pro-active use of a healthcare monitor can positively impact all stakeholders in the healthcare industry: the regulators, the healthcare industry and the consumers of healthcare services, the public. I have been joined in this exploration by two individuals at Affiliated Monitors, Inc. (AMI), the sponsor of this series. They were Jesse Caplan, Managing Director of Corporate Oversight, and Catherine Keyes, Vice President of Operations. Today, I conclude the series with Caplan on using independent integrity assessment and monitoring to limit adverse consequences.
Many compliance practitioners in the healthcare space (and those in commercial space) often ask if an independent integrity review and monitoring be helpful where an organization may have reason to believe it has an actual or potential compliance problem but has not yet been subject to an enforcement action or a Corporate Integrity Agreement (CIA) imposed by the government. There are several reasons this is particularly true in the healthcare space. He noted that the government expects, in fact demands, that healthcare organizations self-report certain types of compliance violations. He provided some examples such as overpayments healthcare providers may have received from the government, or false or fraudulent claims that they have billed the government and certain types of privacy breaches.
Caplan believes that using an independent compliance expert can be useful in dealing with the government enforcement agency and convincing that agency to look more favorably where severe sanctions might otherwise be imposed. An independent integrity monitor can be helpful to a healthcare organization where they may have compliance violations. It can even be true with current healthcare issues such as the opioid crisis and excessive opioid prescribing.
Moreover, this is where an independent integrity monitor can be very useful when the organization thinks they have a problem. A monitor can be brought in to assess the compliance program, make recommendations for improvements and then be available to monitor the remedial recommendations as they are implemented. If an organization makes a self-disclosure or if the government comes and investigates the company, they can use the fact that they have used an independent integrity monitor to assess the compliance program and, equally importantly, themselves and they will continue to use the monitor to ensure continued compliance.
By using an independent integrity assessment, an organization can demonstrate to the government entity that the problems with the company’s compliance regime are not endemic or structural but more of an isolated incident. This can help to provide confidence to the public that they can continue to operate safely and in compliance and provide assurance to the government and regulators that it can continue to participate in the government programs with little fear of having those violations reoccur. This can have a very large impact on what types of action the government or regulator will take.
The bottom line in healthcare regulation is that government enforcement and regulatory agencies would prefer not to exclude important healthcare providers who have compliance issues. Their goal to ensure access to sufficient quality providers is a constant challenge for healthcare policymakers. Regulators generally agree that the best solution is to have providers with compliance issues remediate their problems and implement a sustainable and effective ethical compliance program. By engaging an independent compliance expert and monitor can provide the government with confidence that organization has remediated and will be an effective, compliant participant.
We conclude this episode with a few of Caplan’s thoughts on how an independent integrity monitor could have impacted two matters widely in the public eye. They are the matter of Theranos, Inc. and the opioid crisis. With regards to Theranos, a wide variety of stakeholders could have requested a truly independent come in and assess compliance at the company. It could have been the Board of Directors, the Securities and Exchange Commission (SEC), state or federal healthcare regulators or even third parties who were looking to do joint ventures with the company. Such an assessment might have saved many jobs, investments, careers and reputations.
In the opioid crisis, an independent monitor could have done the assessment around large numbers of drugs being prescribed by one doctor or prescribed to be delivered through one pharmacy. But the analysis could have gone much deeper by focusing on the corporate compliance programs, their implementation and training. It could have also looked at those who spoke up by using the hotline or other internal reporting mechanisms.
All of this means that an independent integrity monitor in the healthcare space can be used in a variety of ways and through a variety of mechanisms.