Where Has All the Money Gone? Longtime Passing, Oh Where Has it Gone?

Compliance officers have enough challenges.  Most compliance officers, if you ask them, will candidly admit they are constantly putting out fires.  It is just part of the profession and comes with the territory.

I hate to add to their burden but here goes anyway – companies face serious financial risks: I do not mean in the profitability way but in the fact that employee misconduct typically circles around unauthorized access to money, or in other words, stealing.  Bribery requires money and usually requires circumvention of internal accounting controls.  Theft requires the same – I can go on and on.

Several important compliance controls intersect with a company’s comprehensive financial controls.  For example, a company’s gifts, meals, entertainment expenditures requires financial controls to reimburse or pay for certain expenses.  Another important area is payment of third-party vendors, and the contract-to invoice-to payment process.  In this area, we read about FCPA cases that usually involve circumvention of these controls as a way to fund third-party bribery schemes.

Even though there is this intersection between compliance and financial controls, compliance and finance have a different perspective.  Finance focuses on “material” transactions; Compliance focuses on “immaterial” transactions that create significant risks for the company (e.g. bribery).

I understand the reason for the different perspective.  Financial officers and employees live and die with their internal controls, financial reporting and the accuracy of their reports that require individual attestations, subject to criminal penalties.  We all know that.

However, such a difference in perspectives does not mean that finance and compliance cannot cross the barriers and collaborate.  Financial officers and employees tend to get defensive when compliance officers tread into their territory and ask some simple questions about the controls and documentation of various transactions.

Finance has to take a deep breath and collaborate – sure, we can all protect our territories, deny the existence of issues and pretend that we do not need to collaborate.  But compliance officers are used to this and have to redouble their efforts to break down barriers with their finance team.  In other words, compliance has to reassure finance that they are not out to poke holes in their internal controls but are simply out to advance the compliance mission – to prevent and detect potential violations of the company’s code and applicable laws.

In many instances, compliance has a natural ally in this effort – the Internal Auditor.  Depending on the relationship between the CFO and the Internal Auditor, which should be positive, compliance can build an alliance with the Internal Auditor who fully understands the danger of those less than materials transactions.

Working together, compliance and the Internal Auditor can “encourage” the CFO and his team to communicate and collaborate on financial issues that pose less than material risks.

My observations appear to be another in the line of profound grasps of the obvious but I continue to hear from compliance officers on this issue, and have experienced it myself when working with companies.  CFOs are a proud bunch and they are under enormous pressures, but an alliance with compliance is mutually beneficial for a number of reasons.

It is important to remember that a company’s compliance program, consisting of policies and procedures, is an important component of a company’s overall internal controls.  A defective compliance program, by definition, precludes a company from relying on its internal controls or certifying to the reasonableness of its internal controls.

While all of this may seem obvious, I am only reminding everyone as to the importance of collaboration and operationalizing a compliance program in this specific area.

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