orange handled scissors cutting word budget in half

Budget Cuts to Compliance Programs

When companies are in financial straits, budget cuts are a reasonable expectation. But how deep should the cuts go when it comes to the E&C program? Businesses can’t profess their support for ethics and compliance and then strip resources away.

A fundamental requirement for an effective ethics and compliance program is that it is supported by “adequate resources.” This does not mean a bare minimum requirement, nor is the requirement satisfied by flat-lining a compliance department’s annual budget.

Someone is not getting the message straight; a compliance program has to evolve – that doesn’t mean it has to suck up more resources each year, but it does mean it cannot be strangled. A CCO faces a real dilemma: The CCO is responsible for implementing an effective ethics and compliance program. How can a CCO do so if his/her program budget is cut?

CCOs are experiencing budget cuts after years of consistent growth or consolidation. Such budget cuts pose significant risks unto themselves.

What is a CCO supposed to do when the funding does not adequately support the company’s ethics and compliance program?

I do not mean to suggest that CCOs should be immune from budget cuts or belt-tightening, depending on the company’s financial situation. Such a narrow view would be unrealistic and unfair.

However, a CCO has to be honest about his/her situation. A company has to be able to explain why it has to cut a compliance program budget. If a company increases financial resources and internal audit to ensure compliance with Sarbanes-Oxley or cuts compliance to fund business expansion, the company cannot turn around and fund those initiatives with a blind ax to the compliance function.

If corporate leadership is committed to ethics and compliance and the proposed cuts would significantly hinder the company’s compliance program, corporate leaders better have a well-documented justification and explanation for such a decision.

Companies cannot hide behind budget issues as a convenient way to strangle a compliance program while funding pet projects or initiatives. Such a dangerous strategy will be exposed once a CCO explains the basis for his/her budget request – if the budget amount is carefully calibrated to support a compliance program’s ability to mitigate relevant risks, corporate leaders cannot – and should not – cut the compliance program budget. To do so is nothing less than irresponsible.

Corporate leaders cannot mouth their support for the company’s compliance program while quietly removing or reducing resources needed to carry out an effective compliance program. In these unfortunate circumstances, the message is clear: cut your compliance program at the company’s risk and prepare for potential harm – risks will increase, detection by government investigators is more sophisticated and companies could suffer significant legal and reputational risks.

In these circumstances, a CCO has a responsibility – one that everyone in the profession knows – to speak up and let senior leaders know about the impact such budget cuts could have on company operations. Staying silent is not an option.

A full and frank discussion with senior leadership (and if necessary, the corporate board, is a basic minimum. If a CCO fails to initiate such a discussion, the CCO has ignored his/her fundamental responsibilities. Once the issue is discussed and senior leadership responds, the CCO will then be in a position to decide on next steps.

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.

Michael Volkov

Michael Volkov

Michael-Volkov-leclairryanMichael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services.  He can be reached at [email protected].  His practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.

Michael maintains a well-known blog: Corruption Crime & Compliance which is frequently cited by anti-corruption professionals and professionals in the compliance industry.Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues.

Michael has assisted clients with design and implementation of compliance programs to reduce risk and respond to global and US enforcement programs.

Michael has built a strong reputation for his practical and comprehensive compliance strategies.Michael served for more than 17 years as a federal prosecutor in the U.S. Attorney’s Office in the District of Columbia; for 5 years as the Chief Crime and Terrorism Counsel for the Senate Judiciary Committee, and Chief Crime, Terrorism and Homeland Security Counsel for the Senate and House Judiciary Committees; and as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice.

Michael also has extensive trial experience and has been lead attorney in more than 75 jury trials, including some lasting more than six months. His clients have included corporations, officers, directors and professionals in, internal investigations and criminal and civil trials. He has handled a number of high-profile criminal cases involving a wide‐range of issues, including the FCPA and compliance matters, environmental crimes, and antitrust cartel investigations in countries all around the world.

Representative Engagements

  • Successfully represented three officers of a multinational company in two separate criminal antitrust investigations involving a criminal antitrust investigation in the District of Columbia and the Southern District of New York.
  • Defended pharmaceutical company before the Food and Drug Administration and Senate Finance Committee relating to application for approval of generic drug.
  • Conducted internal investigation which exonerated company against allegations of false statements in submissions to the FDA and against improper conduct alleged by Senate Finance Committee.
  • Represented company before the US State Department on alleged violations of ITAR which lead to voluntary disclosure and imposition of no civil or criminal penalties.
  • Advised several multinational companies on compliance with anti‐corruption laws, and design and implementation of anti‐corruption and anti‐money laundering compliance programs.
  • Advised hospitals, pharmaceutical companies and medical device companies on compliance issues relating to Stark law and Anti‐Kickback law and regulations.
  • Conducted due diligence investigations for large multinational companies for anti‐corruption compliance of: potential third party agents, joint venture partners and acquisition targets in Europe, Africa, Asia and Latin America.
  • Represented individual in white collar fraud case in Alexandria, Virginia and secured dismissal of criminal charges and expungement of criminal record.
  • Represented company before Congress and Executive Branch in effort to modify Justice Department regulations concerning use of federal funds.
  • Advised and assisted World Bank in review of global corruption policies, enforcement programs and corruption investigations and prosecutions.

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