This week I have engaged in a series on how a Chief Compliance Officer (CCO) or compliance practitioner might think about operationalizing a compliance program with other corporate functions and disciplines. I have been joined in this exploration by Russ Berland, a well-known compliance commentator and practitioner who recently joined Dematic Inc., a Supply Chain optimization company, as it CCO. Today I conclude my series with how the Controller’s Office can be used to more fully operationalize compliance.
Another area for further operationalization is the corporate controller’s office. The Controller’s Office generally has the responsibility to accurately record and report the financial transactions of the company, to design, implement and execute the financial processes and controls of the company to be both effective and efficient, and to safeguard the financial assets of the company. Some of the compliance responsibilities of the Controller’s Office include: (1) Designing and implementing internal controls that impact legal, ethics and compliance risks; (2) Accurately recording the financial transactions of the company; and (3) Preventing and detecting fraudulent activity. All of this means, in practical terms the Controller’s Office is both being the keeper of the books and records and the implementer of internal controls. Moreover, while many of these internal controls would most probably be viewed financial internal controls, there are additional internal controls which are not financial in nature.
From Berland’s perspective, “Those guys live really in the battle zone. They are constantly looking at financial transactions. They’re evaluating them. They’re figuring out where things go within the books and records. They are implementing the processes that should be keeping fraud from happening, keeping bribery and corruption from happening. When a remediation occurs within a company you often find that a lion share of the remediation is not about the compliance program as such, but about those internal controls that have been implemented by the Controller’s office.”
This means that not only can the Controller’s Office be one of the compliance function’s strongest corporate allies, the role of a Controller’s Office by its nature works to operationalize compliance. This is because to implement the appropriate internal controls around Foreign Corrupt Practices Act (FCPA) compliance, the Controller’s office must know the specific requirements of the FCPA, know what kinds of issues are likely to come up that might create a risk of bribery and corruption, all leading to an appropriate understanding of the appropriate compliance internal controls to implement.
A concrete example is in the area of offshore payments, which are generally defined as payments made to a location other than the home domicile of the party or the location where the services where delivered. If a Tunisian agent who performs services in Dubai asks for payment in a location other than Dubai or Tunisia, that would qualify as an offshore payment. If you train people who are in the Controller’s group on this issue, “all of a sudden you’ll get someone in the Controller’s Office who’ll give you a phone call and say “Hey, we just saw a request for a payment to this guy in this Middle Eastern country and we’re just not sure what it’s for.” That’s where the controls are really working, as opposed to that person just really dealing with it on an administrative level instead of keeping your antenna up.” Those are the types of communications, when properly documented, demonstrate that your compliance program is operationalized into the fabric of the organization.
Another way to view it is if there is a Controller’s Office control for such a scenario which notes the exception and requires the clearance of a red flag through additional investigation, elevation for approval and documentation of the entire process. This is a financial control which acts as a compliance control as well. It strengthens the company’s internal controls to both prevent and detect key compliance risks going forward.
Another area would on a company’s Vendor Master List (VML). Some obvious internal controls are that no person or third party gets paid unless they are properly on the VML; no person or third party is admitted to the VML unless they have gone through the appropriate level of due diligence, which varies by task and function and country. The Controller’s Office can also put internal controls in place when employees attempt “workarounds when someone can’t get a vendor paid and wants to.” Such apparent financial controls might well include those around the manual check process and your internal requirements for international wire transfers. Finally, even to this day petty cash continues to be a source of funds to fuel bribery and corruption. The Controller’s Office is on the front lines for petty cash.
These issues are usually dealt with what are generally viewed as internal controls specific to controlling the outflow of money to third parties and requiring that those third parties have gone through your due diligence processes. As Berland noted, they are “all sitting right in the Controller’s Office.” Additional benefits to the corporate compliance function include the retrieval and analysis of financial data and design of internal controls. It allows the compliance function to rely on actual financial expertise rather than “home grown” financial expertise within the compliance department. It extends the compliance function influence through the Controller’s Office. Finally, the compliance function is made aware of relevant concerns found by recording transactions, executing internal controls and financial monitoring.
These benefits are not a one-way street for compliance as a Controller’s Office benefits from a closer relationship with the corporate compliance function as well. The Controller’s Office can leverage compliance resources. The compliance function can bring its observations and insights from investigations and emerging risks to the Controller’s Office. A closer collaboration will broaden awareness of compliance risks which relate to the company’s financial processes.
By more fully integrating compliance into the Controller’s Office function a more robust picture of enterprise risk emerges, one which encompasses legal, compliance, ethics, internal controls, financial, business and governance risks.
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© Thomas R. Fox, 2017