After you complete your risk assessment, you must then translate it into a risk profile, as Rick Messick has noted, to estimate where bribery is likely occur, so prevention efforts will be properly targeted. Ben Locwin explained, in “Quality Risk Assessment and Management Strategies for Biopharmaceutical Companies”, “Once we have assessed risks and determined a process that includes options to resolve and manage those risks whenever appropriate, then we can decide the level of resources with which to prioritize them. There always will be latent risks: those that we understand are there but that we cannot chase forever. But we need to make sure we have classified them correctly. With a good understanding of each of these, we are in a better position to speak about the quality of our businesses.” This makes the evaluation of your risk assessment a key element in your compliance regime.
William C. Athanas, in an article entitled “Rethinking FCPA Compliance Strategies in a New Era of Enforcement”, posited that companies assume that Foreign Corrupt Practices Act (FCPA) violations follow a “bell-curve distribution, where the majority of employees are responsible for the majority of violations.” However, Athanas believed that the distribution pattern more closely follows a “hockey-stick distribution, where a select few…commit virtually all violations.” Athanas concludes by noting that is this limited group of employees, or what he terms the “shaft of the hockey-stick”, to which a company should devote the majority of its compliance resources. With a proper risk assessment, a company can then focus its compliance efforts such as “intensive training sessions or focused analysis of key financial transactions — on those individuals with the opportunity and potential inclination to violate the statute.” This focus will provide companies the greatest “financial value and practical worth of compliance efforts.”
David Lawler, in “Frequently Asked Questions in Anti-Bribery and Corruption”, suggested that you combine the scores or analysis you obtained from the corruption markers you review; whether it is the Department of Justice (DOJ) list or those markers under the UK Bribery Act. From there, create a “rudimentary risk-scoring system that ranks the things to review using risk indicators of potential bribery. This ensures that high-risk exposures are done first and/or given more time. As with all populations of this type, there is likely to be a normal or ‘bell curve’ distribution of risks around the mean. So 10-15% of exposure falls into the relative low-risk category; the vast majority 70-80% into the moderate-risk category; and the final 10-15% would be high risk.”
In an article entitled “Improving Risk Assessments and Audit Operations” author Tammy Whitehouse focused on how one company, Timken Co., created a risk matrix to evaluate risks determined by the company’s risk assessment. At Timken, the most significant risks with the greatest likelihood of occurring are deemed to be the priority risks. These “Severe” risks become the focus of the audit monitoring plan going forward. A variety of tools can be used to continuously monitoring risk going forward. However, you should not forget the human factor. At Timken, one of the methods used by the compliance group to manage such risk is by providing employees with substantive training to guard against the most significant risks coming to pass and to keep the key messages fresh and top of mind. The company also produces a risk control summary that succinctly documents the nature of the risk and the actions taken to mitigate it.
The key to the Timken approach is the action steps prescribed by their analysis. This is another way of saying that the risk assessment informs the compliance program, not vice versa. This is the approach set forth by the DOJ from the 2012 FCPA Guidance, through the Evaluation of Corporate Compliance Programs (Evaluation), up to the FCPA Corporate Enforcement Policy (Policy). I believe that the DOJ wants to see a reasoned approach with regards to the actions a company takes in the compliance arena. The model set forth by Timken certainly is a reasoned approach and can provide the articulation needed to explain which steps were taken.
Three Key Takeaways
- Even after you complete your risk assessment, you must evaluate those risks for your company.
- The DOJ and SEC are looking for a well-reasoned approach on how you evaluate your risk.
- Create a risk matrix and force rank your risks.
Evaluating a risk assessment in a well thought out manner is a key step going forward.Click to tweet
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