Builders and Contractors Exchange
Weekly Bulletin: 20 Sept 2004
Corporate Compliance Programs
By: William Dozier
In prior Builders and Contractors Exchange articles, we have discussed the need for Government Contractors to have a "Compliance Program" in place and periodically test the Program to ensure employees are performing properly. A Compliance Program, in the broadest sense is consists of internal policies and procedure to ensure that laws and regulations applicable to the contractor's business are followed, and good business ethics practices are followed. This is particularly important for contractors doing state and federal government contract work because there are significant legal penalties - criminal, civil, and administrative (e.g. debarment) - for non-compliance with laws and regulations governing all aspects of contract performance.
Unfortunately, most contractors never institute a viable Compliance Program until they have a "problem." This is particularly short sighted and sometimes results in a corporation being criminally prosecuted in addition to suffering the monetary losses from the underlying conduct. In a recent discussion of "What Prosecutors Look for in a Compliance Program," the statement was made that "when a federal prosecutor is considering charging a corporation, the lack of a Compliance Program is like blood on the water." Accordingly, corporations without internal Compliance Programs are frequently prosecuted criminally for the misconduct of employees.
However, if there is a Compliance Program in place and there is misconduct within the corporation, the first question that will be asked is how the criminal behavior occurred when there was a Compliance Program in existence. A corporation must be prepared to answer this question but clearly the corporation is better off having a Compliance Program, even though it failed to deter the misconduct, than not having a Compliance Program at all. The Government views the existence of a Compliance Program as an indication that the corporation is dedicated to operating in a proper business ethics environment. The Government has stated that it wants businesses to be good corporate citizens because corporate misconduct can have an enormous impact on everyone's lives. One only has to look at the problems brought on by ENRON to appreciate this position. At a minimum, the Compliance Program needs to inform employees of all the laws and regulations that apply to them and outline procedures that the employees need to follow. A Compliance Program should be configured so that a single Compliance Officer, who is well qualified for the position, heads it. A company must provide adequate resources for the Compliance Program and the Compliance Officer must have direct access to high-ranking officers, the Board of Directors, and the Boards Audit Committee.
An effective Compliance Program must include a discipline and reward system that provides that misconduct is appropriately punished. Supervisors and other upper level managers who have failed to maintain compliance should be disciplined and dismissed if appropriate. The Compliance Program must ensure that employees who report violations are protected from reprisal and rewarded for their reports.
If a corporation has such a Compliance Program it will greatly influence the decision of a prosecutor to charge or not to charge the company criminally for the misconduct of employees.
Vandeventer Black welcomes questions on how to set up an effective Compliance Program and to monitor established programs to ensure their effectiveness.
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.