During this five-part podcast series, I visit with Terry L Orr, a Managing Director at Kroll, a division of Duff & Phelps, the sponsor of this podcast series. We visit on the current state of compliance through the lens of recent Foreign Corrupt Practices Act (FCPA) enforcement actions and the Evaluation of Corporate Compliance Programs, 2019 Guidance, consider some of the specific issues in compliance for private equity and the increased importance of compliance in the healthcare industry. It is a comprehensive look at state of compliance at the half-year mark of 2019. In Part III, we consider the recently released Department of Justice (DOJ) 2019 Guidance and what it means for compliance professionals.
I began by putting the following question to Orr, “What can we learn from Assistant Attorney General Brian A. Benczkowski’s recently announced new guidance for the evaluation of corporate compliance programs?” He believes the 2019 Guidance is “more of change in form than in substance – much of the updated framework can be found in prior informal guidance from speeches made by Fraud Section of the Criminal Division since 2017.” However, Orr does find some significant differences between the guidance issued in 2017 and the 2019 Guidance.
He began by noting that a Prosecutor’s assessment of the adequacy and effectiveness of a compliance program will be critical in determining: “(1) whether and how to bring a corporate criminal case; (2) in determining a company’s culpability score under the U.S. Sentencing Guidelines and (3) whether an independent monitor is required post-resolution.” Moreover, the 2019 Guidance provides a more explicit roadmap of the type of questions prosecutors consider when determining the effectiveness of a company’s compliance policies, through three key inquiries: (a) Is the compliance program “well-designed”? (b) Is it effectively implemented; and (c) Does it actually work in practice?
Orr believes that under the 2019 Guidance there is an increased focus on the roles of senior and middle management in enforcing a compliance program. For instance, a prosecutor may well ask the focused question “Did senior management encourage a culture of compliance?” as, Orr stated, the “DOJ will look for specific occasions where managers “encouraged employees to act unethically to achieve a business objective” or did they demonstrate leadership in the company’s compliance and remediation effort?” The next level of inquiry would be down the line, “Did the company seek feedback from employees about the performance of senior and middle management to better understand the efficacy of the company’s messaging on compliance?”
Another areas the 2019 Guidance considers in a more fulsome manner than the previous Evaluation is internal controls. It instructs prosecutors to assess whether a company’s internal audit function is identifying issues relevant to the risks that should be addressed by the compliance program. It mandates that prosecutors consider the process by which internal audit determines the location, frequency and types of audits it conducts. Finally, it mandates that companies demonstrate how they have used any information on the efficacy of their program to loop back in on a continuous improvement basis.
In the area of training, Orr believes the 2019 Guidance speaks to an enhanced level of training. It looks to whether a company measures the effectiveness of compliance training and whether there is remedial training for employees who fail to pass compliance tests. Moreover, the 2019 Guidance enquires into tailored training not only for high-risk employees but also the geography, the transaction and a plethora of other similar risks. The updated guidance suggests that companies can enhance training programs by incorporating practical advice or case studies to address real-life scenarios.
Hotlines are expanded in the 2019 Guidance into an increased interest in corporate anonymous reporting mechanisms. Noting that confidential reporting mechanisms are highly substantiating of whether a company has established corporate governance mechanisms that can effectively detect and prevent misconduct. As Orr stated, the 2019 Guidance “specifically tasks the prosecutor with ascertaining whether a company has an anonymous mechanism in place, and if not, why. If one does exist, the DOJ will further inquire as to the whether the mechanisms have been utilized and whether the company has created a workplace atmosphere without fear of retaliation for reporting complains.”
Orr concluded by observing that the new tri-partite format allows greater focus and clarity for the compliance practitioner. Further, the structural change from questions in the prior 2017 Evaluation to largely statements in the 2019 Guidance may make using the document more straight-forward for the compliance professional who wants to pressure test their compliance program around it.
Which will be the topic of our next Podcast. For more information on Kroll, a division of Duff & Phelps, click here. For more information on Terry Orr, click here. Join us for our next episode where take a deep dive into the unique issues of Private Equity and compliance.