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Business Ethics

Why Ethics and Compliance Are Critical to Audit Committees


By Josh Young Feb 21, 2017

why ethics and compliance are critical to audit committees

With economic uncertainty and a host of policy changes anticipated throughout this next year, professional services company KPMG recently released a set of recommendations to help audit committees navigate these uncertain times.

Among these proposals, the firm encouraged businesses to “redouble” their focus on ethics, compliance, and culture. By establishing strong corporate guidelines regarding what is and is not appropriate behavior for employees, your organization can potentially prevent any scandals or prosecutions from harming your company and your reputation.

The Organization for Economic Co-operation and Development (OECD) makes similar recommendations.

Based off its extensive research and years of experience dealing with corporate fraud, the OECD suggests that your business build a culture of anti-corruption from the top down, relying on leadership from key executives and your board of directors.

Do you want to better ensure that your employees are actually embracing your company’s values and expectations? Read our Code of Conduct Training Best Practices resource guide.

A business that tolerates the occasional ethical impropriety from management will quickly find similar, if not more egregious, behavior rampant through its entire workforce. However, by making it clear that ethical behavior and strict compliance with corporate guidelines is a priority for the most powerful within the organization, you can make employees think twice when faced with an opportunity for misbehavior.

Measures Your Business Can Take to Strengthen Ethics and Compliance

Update corporate policy

Have your audit committee revisit corporate guidelines regarding ethical practices and employee behavior. Review these policies with outside experts and legal counsel to ensure that there aren’t any blind spots in existing programs and processes.

Once these guidelines have been updated, communicate them throughout the organization with code of conduct and ethics training. Where relevant, incorporate these guidelines into job descriptions and employee performance evaluations.

Most important, visibly show your board and executives participating in these efforts (e.g. training). When compliance is a priority for the head of the organization, it will be a priority for the whole organization.

Offer a global perspective

Your audit committee should have visibility into the entire ecosystems supporting your organization – this vision includes subsidiaries, suppliers, and any third-party vendors.

Even though they operate outside of your direct control, federal guidelines clearly state that your organization can be held criminally liable for the actions of these outside companies as long as your business knows with a high probability that corruption is occurring.

In fact, according to research conducted by the OECD, 75 percent of bribery cases prosecuted in 2014 involved payments made through third-parties.

Enable grassroots reporting

Or more colloquially, support whistleblowers. According to a report published in 2016 by the Association of Certified Fraud Examiners, the most common method for detecting fraud was tips. And those companies with reporting hotlines were “much more likely” to detect incidents of fraud.

Based on these findings, you should provide your employees with anonymous mechanisms to report potential ethical violations or improprieties. Set up a hotline, email inbox, or dedicated website to gather these tips, and make sure that whatever system you use collects enough information surrounding the reported violation to support an investigation.

If possible, every one of these complaints should be brought to the attention of the audit committee; however, in larger organizations, the volume of reports may make this unfeasible.

If filtering is required, work with legal counsel and available experts to determine an appropriate process that escalates valid complaints. Along with these filtered results, you should provide the committee with reporting that reflects the full scope of all submitted concerns. If they cannot view every incident, they should at least have a firm understanding of the full scope of potential issues.

The Next Step

With corruption and unethical behavior so closely tied to company finances, your audit committee should be fully involved with your organization’s ethics and corporate compliance programs. Clear policies coupled with ongoing training will help build a healthy, sustainable culture that discourages inappropriate behavior.

To learn more about our code of conduct and ethics courses, you can fill out the form to request a demo.

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