The LRN ethics and compliance risk management practices report

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KEY FINDINGS This lack of coordination with partners and supply chain should be a red flag as companies increasingly build or utilize overseas manufacturing plants, make deals with foreign governments and companies using agents and partners, and transact financial exchanges with parties whose inner operations they may not know. It is well known that the Department of Justice has little tolerance for fraudulent transactions, even those performed unwittingly. Ultimately, enterprises need to make greater efforts to ensure their agents, resellers, distributors, consultants and suppliers possess the same high degree of ethical conduct and compliance with the law that they hold up for themselves. Lack of resources – budget and staff – continues to be the leading challenge in conducting risk assessments and in implementing prevention programs Half the respondent companies cited lack of resources as the primary challenge they face when doing risk assessments, far surpassing other challenges, including obtaining accurate and quantifiable information, difficulty in conducting a global assessment, analyzing and applying the findings, and insufficient technology. Lack of resources also topped the list in providing ethics and compliance education and/or certification activities and programs. Almost 60% of companies marked it more frequently than the other possible challenges, such as cultural differences among workers, regulatory differences, and the need for translated materials. The slow economy and the need to comply with new and increasingly more regulations being issued by governments around the world are making companies to cite lack of resources as key challenge in all stages of risk management process. Another cause may be related to the fact that the U.S. Department of Justice and other governments are becoming more aggressive enforcing the laws, forcing companies to become more vigilant about their responsibilities. They need to hire more staff, purchase more education programs, communicate details about organizational hotline and education program, conduct risk assessments on a more regular basis – and lacking resources to do all that is fast becoming a real, not imaginary, deficit to success. LRN | 2008 Ethics and Compliance Risk Management Practices Report | 10
20 SIGNIFICANT RISK MANAGEMENT TRENDS 2007-2008 LRN’s annual Risk Management Practices Survey provides an opportunity to evaluate trends in how companies approach their ethics and compliance efforts to better manage risks, year over year. Our analysis indicates that significant trends are occurring across the lifecycle of ethics and compliance functions. Many indicate that corporate programs are becoming increasingly robust and expansive. The following provides an overview of the most salient trends captured by comparing the 2007 and 2008 data. Defining Risks Properly defining ethics and compliance risks usually requires the office in charge to use existing knowledge of potential risks to design a questionnaire or interview process that asks key business-unit employees to evaluate the prevalence of known risks, such as: • Accounting breakdowns, including fraud, inaccurate record keeping, inappropriate record retention or destruction and noncompliance with the requirements of Sarbanes-Oxley • Business ethics failures, such as the exposure of confidential client information, conflicts of interest and giving and accepting inappropriate gifts • Employment related risks, like equal opportunity violations, workplace harassment and immigration offenses • Fair trading laws, Year which cover price % Respondents fixing, abuse of dominance and collusion 2007 5200% • Customer and workplace violations, 2008 for example, 5800% aiding and abetting illegal customer acts and creating unsafe workplace conditions • Product issues such as product safety failures and intellectual property violations, patent infringement 2007 2008 Executive Team 4200% 5600% Board of Directors 1500% 4700% There is growing sophistication in defining and assessing risks. 2007 2008 Employes 1500% 2300% Managers 5100% 4700% Board & senior executives 8000% 6600% Integrating ethics and compliance risk assessments into other assessments processes is rising – By comparison with 2007, there was a 12% increase in the number of companies that integrate ethics and compliance into other organizational assessments. The number of enterprises that integrate risk assessments is even slightly higher among lesser and non-regulated companies. Ethics and Compliance Risk Assessment Integration in Other Enterprise Risk Assessment Risk As 100% 80% 52% 58% 60% 40% 20% 42% 2007 2008 0% % Respondents Executive T Top Risk Assessment Challenges Educational P 35% 26% LRN | 2008 Ethics and Compliance Risk Management Practices Report | 11 Difficulties in Conducting 40% Obtaining 34% 50% 40% 30% 20% 10% 0% % Respondents 58% 7 Manageme leadership
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