We previously considered the Prong in the Evaluation of Corporate Compliance Programs which was not present in the Ten Hallmarks of an Effective Compliance Program; that being root cause analysis. This addition was also carried forward as a requirement in the Department of Justice’s new FCPA Corporate Enforcement Policy. I want to consider how you should utilize the results of a root cause analysis in remediating a compliance program.

Under Prong 1 Analysis and Remediation of Underlying Misconduct, the Evaluation stated:

Remediation – What specific changes has the company made to reduce the risk that the same or similar issues will not occur in the future? What specific remediation has addressed the issues identified in the root cause and missed opportunity analysis? The new Department of Justice (DOJ) FCPA Corporate Enforcement Policy brought forward this requirement for a root cause analysis with the following language: “Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes;”.

I begin with the question of who should perform the remediation; should it be an investigator or an investigative team which were a part of the root cause analysis? I put this question to well-known fraud expert Jonathan Marks, a partner at Marcum LLP who believes the key is both “independence and objectivity”. It may be that an investigator or investigative team is a subject matter expert and “therefore more qualified to get that particular recourse.” Yet to perform the remediation, the key is to integrate the information developed from the root cause analysis into the solution.

Ben Locwin considered it from the ‘blame’ angle, when he wrote “Simply ‘cataloguing’ and ‘assigning cause’ to a defect or error is not compliance. Compliance presumes systems and processes are designed to adhere to regulatory pronouncements. Selecting ‘human error’ from a dropdown list and assigning it as root cause means that user is accountable for having thoroughly investigated the causal factors of the error or defect, identifying and determining which root causes(s) are most likely, according to the preponderance of evidence, to have been associated with the defect. This means the person selecting the root cause has actually performed 5 Whys, fishbone diagram analysis, human factors analysis, fault tree analysis, and/or many other tools for actually determining root cause(s).”

Locwin went on to state that it is “unlikely that the real cause of the deviation was human error, it makes sense to adopt the lean manufacturing principle of a no-blame culture. Use an error as an opportunity for elevating your company’s problem-solving processes; don’t think of it as an annoyance that must be rapidly misclassified and pushed into the deviation process black box.

This means not blaming some individuals and terminating them but actually fixing the broken compliance systems which allowed the violation in the first place.”

As required under the Evaluation, from the regulatory perspective, the critical element is how did you use the information you developed in the root cause analysis. Literally every time when you see a problem as a compliance officer, you should perform a root cause analysis. Was something approved or not approved before the untoward event happened? Was any harm was done? Why or why not? Why did that system fail? Was it because the person who is doing the approval was too busy? Was it because people didn’t understand? It is in answering these and other questions which have been developed through a root cause analysis that you can bring real value and real solutions to your compliance programs.

The key is that after you have identified the causes of problems, consider the solutions that can be implemented by developing a logical approach, using data that already exists in the organization. Identify current and future needs for organizational improvement. Your solution should be repeatable, step-by-step processes, in which one process can confirm the results of another. By focusing on the corrective measures of root causes is more effective than simply treating the symptoms of a problem or event you will have a much more robust solution in place. This is because the solution(s) are more effectively when accomplished through a systematic process with conclusions backed up by evidence.

Three Key Takeaways

  1. An effective system of internal controls provides reasonable assurance of achievement of the company’s objectives, relating to operations, reporting and compliance.
  2. There are two over-arching requirements for effective internal controls. First, each of the five components are present and function. Second, are the five components operating together in an integrated approach.
  3. For an anti-corruption compliance program, you can use the Ten Hallmarks of an Effective Compliance Program as your guide to test against.

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