Economic Downturn an Opportunity for CCOs

A Chief Compliance Officer’s Opportunity to Capitalize on the Current Economic Downturn

The recession can fuel a rise in fraud and other crimes committed by employees, but it can also act as a catalyst for strengthening the systems in place for detecting and deterring corporate malfeasance. According to The Network’s Quarterly Corporate Fraud Index, the number of fraudulent-related incident reports across all industries nearly doubled to 21% in the first quarter of 2009 from 10.9% in the first quarter of 2006.

While it appears that the level of identified acts of fraud has risen, it is difficult to discern if there actually has been an increase in fraudulent acts. It may be that the level of fraud has remained consistent but more acts are being identified due to the rise in reporting activity. During times of economic stress, companies experience tightened budgets and a reduction in employees, resulting in high tension and low morale. As an employee’s level of apprehension toward the security of their own job increases, they are more apt to report incidents of unethical workplace activity that further threaten the stability of their organization.

But as with many situations of adversity, an opportunity presents itself. For a Chief Compliance Officer (CCO), this is an ideal circumstance to strengthen their company’s ethics and compliance programs.

No longer a new presence on the corporate leadership landscape, the CCO position has experienced a tremendous amount of maturity over the past few years. Their role in creating and maintaining an ethical culture establishes employee loyalty, teamwork and productivity. In turn, an organization with a strong ethical culture experiences reduced misconduct and perpetuates positive employee morale.

Mandated Compliance & Reporting Programs

The development and changes in government compliance oversight programs, such as Sarbanes-Oxley and the Federal Sentencing Guidelines for Organizations, have advanced a culture of compliance among public and private corporations. Coupled with the advances in reporting technology designed to easily capture, track and identify potential incidents, the ability to identify trends and possible areas of risk within an organization has increased dramatically over the past few years. This provides a CCO with substantiated data that support how the implementation of compliance and reporting programs may reduce the level of fraud and its negative impact on the company.

An investment in combating fraud and building an ethical workplace can deliver real dividends, not only in terms of fewer incidents of fraud, but also in terms of real dollar savings. To ensure a successful program, the CCO can implement the following principles to establish a strong system for combating workplace fraud.

Develop a holistic ethical culture. A holistic ethical culture relies on a cohesive and comprehensive hotline compliance program. These components include strong awareness and training programs, a user-friendly code of conduct, incident capturing tools available in a variety of mediums, case management and reporting tools and finally, analytics. The holistic solution establishes the closed loop feedback mechanism necessary for data to be accurately reported, tracked and analyzed for program enhancements and making future business decisions.

Establish a baseline. Identifying how fraud impacts an organization is essential for determining what steps need to be taken to reduce fraud. Start by gathering data from multiple internal as well as external sources: hotline data, surveys, audits, focus groups, industry data sources. By understanding what type of fraud is most prevalent within an organization and the unique factors that may influence future misconduct, the CCO has the information necessary for developing a comprehensive plan encompassing both short and long-term goals.

The continual monitoring of benchmarking information is an important tool in the ongoing health of an organization by helping to assess the success of new programs, such as the implementation of a new communication tool or a change in reporting guidelines. Organizations will find resources for industry-wide benchmarking data , a valuable asset in determining if changes within their organization are necessary and to help drive future program enhancements.

Lay a solid foundation. The foundation for a successful ethics program begins with a communication program; the cornerstone of which is the code of conduct. It outlines expected behaviors and what actions an employee should take to report unethical behavior. A user-friendly code of conduct, combined with a multi-faceted ethics training and communications program that is relevant to employees and the kind of issues they face in their workplace environment, is proven to increase reporting activities and reduce costly acts of fraud.

Maintain an Environment of Integrity. Maintaining an environment of integrity starts at the top. The leadership’s highly visible adherence to the organization’s code of conduct is critical to a program’s success. The CCO along with the entire management team should communicate on a regular basis their commitment to an ethical workplace and consistently exhibit the types of behaviors they want to instill in their employees: trust, honesty and dedication. Another element in maintaining the positive environment is to monitor the program’s results and enact changes in awareness programs or reporting techniques that will support the improved employee culture.

Focus on investigations. The final step is to establish proper investigative procedures to complete the closed loop process. This is a critical element to the program as the establishment of a strong program for collecting reports and identifying incidents delivers upon leadership’s commitment to an ethical workplace. It communicates to employees that wrongdoing will not be tolerated and that employees participating in the reporting process are contributing to the company’s success.

Foundation for Future Success

With the implementation of improved reporting mechanisms, a user-friendly code of conduct and a top-down commitment to an ethical corporate community, a CCO will instill positive changes to combat current and future episodes of corporate misconduct. As the economy improves and employees join the organization, the strong foundation built during a time of economic struggle will reap its rewards with a reduction in employee fraud and a cohesive employee community.

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For more information on The Network, visit the company’s website at www.tnwinc.com or e-mail Luis Ramos at luisramos [at] tnwinc [dot] com.

About the Author

Mr. Luis Ramos became the Chief Executive Officer for The Network in early 2009. In this capacity, he is responsible for the overall strategic direction and leadership of the organization toward the achievement of the company’s vision, strategic goals and financial objectives. In addition, Mr. Ramos oversees all functional areas of the organization including operations, IT, finance and sales.

Tags: CCO, chief compliance officer, Compliance, compliance culture, compliance officer, compliance reporting, economic downturn, Ethics, Fraud, luis ramos, recession