Third Party Controls Lacking In Ethics and Compliance Expectations Says SCCE Survey

One of the hot button topics in the compliance and governance world today is the Foreign Corrupt Practices Act (FCPA). The U.S. Department of Justice has stepped up its aggressiveness in enforcing the FCPA and companies like KBR and Halliburton are two examples of companies who have felt the full brunt of the Justice Department’s FCPA enforcement focus.

According to a recent survey conducted by the Society of Corporate Compliance and Ethics (SCCE), the third party controls deficiencies that led to hot water for KBR and Halliburton are endemic to today’s business environment.

In January of 2009, the SCCE surveyed over 400 compliance and ethics professionals at private, public, and non-profit and government institutions. Among the relevant findings concerning third party controls in the SCCE survey:

• Only 47% of companies disseminate their internal employee code of conduct to to third partiesl
• Only 26% of companies require that third parties certify to their codes of conduct;
• Only 17% of organizations have a code of conduct that is applicable to third parties.

The findings of the SCCE survey on third party controls sends a strong and clear message that companies across all industries could use a renewed focus on the importance of third party controls. As Halliburton learned the hard way, deficient third party controls can be costly — to the tune of $555 million.

The survey results regarding third party controls come at a time when more and more businesses are engaged in third party relationships. With the continued increase in the global nature of business, there has been a proliferation of companies engaged in third party relationships. According to SCCE CEO Roy Snell, companies simply have not been as committed to instituting effective third party controls, despite an overall uptick in general compliance and ethics focus.

“Companies have really stepped up their activities internally when it comes to compliance and ethics,” said Snell, according to the official press release from regarding the results of the SCCE survey on third party controls. “But we’re just not seeing the same level of commitment by companies when it comes to managing third parties. There’s a great deal of risk there, as the KBR and other cases have shown. Companies risk both wrongdoing occurring on their behalf, and substantial liability that might have been mitigated by a more rigorous approach.”

Snell is also quoted in the press release explaining the two primary ways in which companies are leaving themselves vulnerable by being deficient in having effective third party controls:

1. They are allowing relationships to develop with third parties that can have grave or desultory future impacts on their business;
2. They are opening themselves up to significant risk without putting effective third party controls in place to mitigate the risk.

With the immediate economic environment seeming to become more dire by the day, and the government stepping up its enforcement of compliance laws like the FCPA, the importance of third party controls will continue to grow. What is becoming increasingly clear is that many businesses are engaging in third party relationships without having effective third party controls in place to manage those relationships; and this practice is exposing such businesses’ reputation, assets, and efficiency to unnecessary risk.

Tags: fcpa, haliburton, roy snell, scce, survey, third party controls