Advanced Forensic Accounting – May 4th, Richmond, VA

On May 4, 2015, I am offering our “Advanced Forensic Accounting” course in Richmond, VA.  The course offers 8 hours of CPE (for CPAs).  Click here for a link to the official advertisement with all the relevant information.

“Advanced Forensic Accounting” is designed primarily to influence the way that one approaches and thinks when analyzing financial records in the course of a financial investigation.  This is an improved and appropriately modified course that was used to train new FBI Agents at the FBI Academy, many of whom had no prior investigative, audit or financial experience. In 2013 and 2014, the Securities and Exchange Commission engaged us to teach this course to its Enforcement Examiners and Examiners in 7 of their 11 Divisions.

The course begins with an introduction to critical thinking in an investigative environment and how that is different from the way in which an auditor thinks.  Time is also spent discussing how financial records can be used to build a profile of a person and how that profile is useful to an investigation.  Specific and technical steps are then discussed related to how to go about collecting, organizing and analyzing financial information and how to document that analysis.  The vast majority of learning is through participation in and discussion on a detailed practical exercise where the class is given three months of bank statements, including the supporting documentation for each transaction, and tasked to conduct analysis using the techniques discussed.

Come join us and see if you can figure out what Samir Samour is up to!

Messaging Risks – When IS the Right Time?

There was an awful lot of outrage about the Nationwide commercial drawing attention to home accidents affecting children during the Superbowl this year. It didn’t seem that the outrage was so much directed at the message as much as it was the timing – it was done during a time when people were trying to be entertained, not horrified.

I have four young daughters, so I get that anything that makes me think about their mortality (much less my delinquency or negligence contributing to something that harms them) causes a certain amount of discomfort. A lot of discomfort. But I was with my family watching the game when this commercial aired and I have to say, though it certainly put a temporary damper on our festive spirits, it also caused a moment of reflection. I had forgotten about securing a television set in our home that could fall if one of my kids climbed on it (such a scene was in the commercial).

So I am supposed to be angered that I suffered a brief interruption of my precious and fleeting television entertainment-induced happiness to be reminded that I needed to do something the consequences of which could cause a constant interruption of my happiness for the rest of my life?

When exactly is the time for delivering messages that draw our attention to risks? The argument that this commercial was poorly timed because it interfered with our entertainment is, in my mind, absurd. Television is predominately for entertainment. Therefore, there could be no appropriate time for a commercial like this. Perhaps there are some shows that cater to the melancholic, where “depressing” commercials might resonate better?

The idea behind heightening awareness of risks is to draw the largest amount of attention possible to those risks. In the case of this message, using a Superbowl commercial was sure to reach a heck of a lot more people than some educational/informational show that airs in the middle of the night watched by a couple hundred people.

The public uproar stimulated questions relevant to my professional compliance and consulting work – Are we living in a culture that has no appreciation for hearing about and taking actions to mitigate risks? A culture that actually takes offense when we do?

In business, we need to appreciate, understand and act on risks. Yet compliance and ethics professionals face similar challenges with Boards, Executives, Senior Management and even line employees and/or agents of an organization. Though there is an expectation that these roles know about and deal with risks, it’s not something they particularly care to hear about, particularly in the higher ranks, where it is of great importance and impact. They prefer to discuss financial results, stock performance, mergers & acquisitions, etc. – you know, the REAL and IMPORTANT stuff.

I face a similar challenge when trying to develop proactive compliance and ethics consulting work. Organizations simply don’t want to hear about faint, non-imminent, and “philosophical” dangers that could sink or significantly impair their organization.  Much less do they want to spend a little money to properly deal with it.

Using the Nationwide commercial as an analogy, one might think the risk of an unsecured weapon in the home is minimal because one’s children have been well educated on the risks and, due to their obedience, would not play with the weapon. Perhaps true. But what about the kids who come over to play?

The rationalizations in business are really no different.  I can’t tell you how often I heard victims of a fraud (both when I was an FBI Agent and now as a consultant) tell me something like “But Sally was such a nice and religious lady whose been with us for 15 years – she COULDN’T have stolen from us!  You must have made a mistake.” 

To all the compliance and ethics professionals out there working hard to do the right thing, whose risk messages too often fall on deaf ears, I raise my coffee cup to you. You ever need an ear, my number ain’t hard to find.

Improving Corporate Settlement Agreements

I recently put out a paper providing suggestions on how government agencies and defense counsel might improve corporate settlement agreements (e.g. deferred prosecution agreements, non-prosecution agreements, consent agreements, administrative agreements, etc.).  I believe that the vast majority of current agreements are not effectively addressing corporate compliance and ethics programs and thereby failing to achieve the spirit of what the parties to the agreements, particularly the government, hope – the prevention and timely detection of future misconduct.

For those interested in reading the paper, please click here.

10 Thanksgiving “Thanks” of Occupational Fraudsters

Happy Thanksgiving 2014.

While we enjoy family, football and food this Thanksgiving and give thanks for our blessings, don’t forget that occupational fraudsters are giving thanks too!  And their “thanks” may be your bane.

Here are ten things occupational fraudsters may be thankful for around the dinner table (at a fine dining establishment, of course) this Thanksgiving:

  1.  Non-existent and/or poor internal controls
  2. Trust of those above and around them and that fraud can’t happen to them
  3. Fear of retaliation by those who might report them
  4. You think external auditors look for and find fraud
  5. Law enforcement focus on non-financial crimes
  6. Non-existent/weak compliance programs
  7. Ineffective internal audits
  8. Management emphasizing fast growth & earnings over ethics – poor ethical tone
  9. “Golden parachutes” and/or lack of meaningful disciplinary measures and criminal referrals
  10. Clearing Accounts and Adjusting Journal Entries

Mom’s Lessons

If you were wondering whether or not I had dropped off the face of the earth for the last six weeks, you guessed right.  October of 2014 was a month that, along with September 2001, I would love to utterly erase from my memory.

My mother, who had been so courageously battling cancer for the last five years, lost the battle on October 17, 2014.  Despite a contractor catching my house on fire and a kidney stone suddenly showing up, I was able to get to Bristol, VA and be with my mom before her passing.  I remained in Bristol to support my dad and help with all of the funeral arrangements.  After the funeral, I packed their house up and moved dad up to Fredericksburg, VA with my family.

As I reflected on my mom’s life and lessons, there were a few in particular that I find relevant to the work I do today, particularly in the area of compliance and ethics.  My mom was raised in a second generation Italian family in extreme poverty in New Orleans.  I recall hearing stories of how she slept together with her sister and brother in a small room where they had to take turns staying awake to keep the rats off of them.

Despite the obstacles, mom appreciated the value of hard & honest work, education, and selfless service.  Working various jobs, she put herself through nursing school and began what became a forty-one year long career as a nurse.   Mom’s nursing accomplishments were of no comparison with Nobel Prize winners and will never be remembered outside of the small circles of those whom they affected, but they are nonetheless as profound and meaningful, both to those affected and to those who might see in her life and work the impact and role of a positive high ethical tone and commitment to always doing what was right and in the best interests of her “customers” – her patients.

My mom always stressed the importance of honesty and showed me the benefits of it every time I owned up to something I did wrong as a child.  As long as I was honest about my mistakes, the punishment was appropriately reduced.  Thank God – or I would still be in “time-out” some forty years later!   That is a lesson I have carried all my life and am trying hard to pass on to my children, as well as those with whom I work.

Positive ethical tone within an organization begins with honesty.  And ends with dishonesty.

An effective compliance & ethics program will include on-going education and training.  While my mom worked hard to put herself through school to become a nurse, she never stopped her education there.  Over the course of her career as a nurse, she took on many new challenges/specialties, some of which she did pioneering work in.  The lesson is that education never stops.  We never stop learning and we always have room to learn more, regardless of where we are now in our lives and careers.  Compliance training IS on-going education.  It is not checking a box.

Being a nurse is among the most altruistic jobs one might have.  Caring for those who, in many instances, can’t care for themselves.  Helping them with the most humbling and/or simple tasks – many tasks that even family might shy away from.  Not losing sight of their human dignity and treating them with respect, even as they lost respect for themselves.  My mom was always a champion of the patients, even when being so was not always in the financial best interests of the hospital or kindly looked upon by her superiors.  As best as I know, mom never had to deal with any “corporate” fraud issues as a nurse/employee, but she certainly had her share of ethical issues.  Sometimes described as a “firecracker” when it came to advocating for her patients, I am sure mom upset her share of hospital superiors of lesser ethical constitution over the years.

It’s a great lesson for us.  By placing greater value on what we do and doing things right (rather than on where our stock price is), we find a more fulfilling and long-lasting success.  When someone acts unethically or engages in some sort of misconduct, we have to speak up – until somebody listens.

I recall with both joy and sadness a little boy named Stephen, who was a cancer patient under my mom’s care in a pediatric intensive care unit.  I was living far away at the time, working as an FBI Agent.  In caring for Stephen, my mom had learned that he had dreamed of one day becoming an FBI Agent and so she asked that I might visit him when I next came to town – in fact, she made certain to remind me of it MANY times as I planned my next visit!

When I got to town, my mom made sure that the hospital was my very first stop.  She also insisted that I wear a suit – my official FBI Agent “uniform.”   After Stephen’s chemo treatment(s) that day, she rolled him in a wheelchair to a private little waiting area where she had asked me to wait.  Stephen was probably about ten years old and his cancer was terminal – in its latest stage.   It was obvious that this child had suffered much and long, and was still in pain.  He didn’t have a single hair on his head and maybe weighed forty pounds in all his clothes.  Yet when my mom introduced me as her FBI Agent son, he lit up like a Christmas tree.  My mom and Stephen’s mom left briefly, so that we could have our “top secret debriefing.”  I let him hold by badge and credentials, let him see my handcuffs and the gun holstered on my hip, and answered every question he could muster the strength to ask – and many that I knew he would ask if he could.

When our time was over, I gave Stephen an official FBI t-shirt, a junior FBI Agent badge, some FBI pens, and other little things that I can’t even remember – though they meant the world to him.  I learned a couple months later that Stephen had passed and that he had specifically requested that he be buried in that FBI t-shirt that I gave him.  To this day I can’t think about that without tearing up.

This is just one example of how my mom took the time to listen to her “customers” and to appropriately do more for them than what just her job required.   She got no honors, medals, promotions, mentions or bonuses for this – and that was fine by her.  The joy brought to Stephen was priceless.

I’ll miss you mom.  Thanks for all you did for me and for everyone you touched.  I hope I can pass on the lessons I learned from you to my children as well as you passed them on to me.  I also hope that I might follow your example(s) with the same humble obscurity as you sought and that I might touch just one tenth of the number of lives that you did.

Tell Stephen hello for me.

Advanced Forensic Accounting – Norfolk, VA

I am offering my wholly unique and practical “Advanced Forensic Accounting” course on November 5, 2014 in Norfolk, VA. The course is worth 8 hours of CPE for CPAs, which should be accepted also for CFEs, CIAs and others who accept CPA CPE.

Using just three months of bank account information, will you be able to unravel “Sammy’s” plan? Lives may depend on it….

This unique and interactive course is designed primarily to influence the way that one approaches and thinks when analyzing financial records in the course of a fraud or financial investigation. It is an improved and appropriately modified course (i.e. nothing “classified”) that I developed and used to train new FBI Agents at the FBI Academy, many of whom had no prior investigative, audit or financial investigations experience.  In 2013 and 2014, the SEC engaged me to present this course to many of its Enforcement Examiners and Examiners in most of its 11 Divisions.

The course begins with an introduction to critical thinking in an investigative context, followed by a discussion about how financial records can be used to profile a person and how that profile can be critical and useful in an investigation. Specific and technical steps are then discussed about collecting, organizing and analyzing financial information and how to document that analysis.

The vast majority of learning is through participation in and discussion about a detailed practical exercise where you are challenged with a forensic accounting role within a real-life scenario. In the scenario,you work in teams and are provided with three months of bank statements,including the supporting documentation for each transaction, and tasked to conduct analysis and live internet research using the techniques you have learned. The places and people in the scenario are mostly real or otherwise back-stopped on the internet to challenge and enthrall new and experienced financial investigators alike.

The practical based nature of this course, team-work (as small teams and as a larger class) and double-reinforcement of the learning through repeated application works, effectively impacting the way that you think and making you a better financial/fraud investigator.

The course not only works – it’s the most fun eight hours of CPE or similar training you’ll ever have outside of Hogan’s Alley!

New York Times Article Response

As an expert in the field of Corporate Monitors and a passionate advocate of Monitor reform (in the form of Standards and “best practices”), I follow news about Monitors very closely.  An article recently published in the NY Times by Steven M. Davidoff (“In Corporate Monitor, a Well-Paying Job but Unknown Results”) deserves comment by a knowledgeable and experienced person from this field.  Unfortunately, there are many misperceptions about Monitors that mask and hinder from constructive deliberation the real issues that should be highlighted, discussed, and considered for reform in this field.

Among the most prominent of these issues is the Monitor selection and appointment process.  The misperception that has evolved is that this is a “good old boy network” where current DOJ or other government agency officials give “lucrative” contracts to former co-workers or friends.

The reality is that, since 2008/2009, the DOJ has done an effective job of preventing this from happening with Monitors and that the selection process is, as I will explain more fully later, now driven by customary and effective professional service industry business development practices.  The real issues and concern lies within the Monitor selection and approval process of those outside of the DOJ, who utilize Monitors more frequently than the DOJ and are presently significantly more susceptible to nepotism and/or potential abuse.

There are no hard numbers on this, but as one who tracks it as best as I am able, I would estimate that the DOJ accounts for maybe 20% (that is on the high side) of Monitors among all the agencies that use them.  The rest is spread out among other federal law and regulatory enforcement agencies (particularly in the suspension & debarment area), state & local agencies, the Courts, and non-government oversight organizations (i.e. World Bank).  As is often the case, the DOJ may get the most press on the topic, but that’s only because they have the most high profile matters, not the most matters.

After the Zimmer Holdings controversy led to congressional inquiry and threatened law-making in early 2008, DOJ responded with what is commonly referred to as the “Morford Memo,” which is DOJ’s most widely known policy regarding the selection and use of corporate monitors in pre-trial diversion agreements.  That policy was furthered by another, lesser publicly known and/or referenced Criminal Division memo, issued by Lanny Breuer on June 24, 2009 entitled “Selection of Monitors in Criminal Division Matters.”  In both Memos, the pool of candidates for a Monitorship comes from the Company, not the DOJ.

According to several GAO reports ordered by the congressional inquiry, the DOJ was following its policy on Monitors quickly after institution.  For those with interest, I have linked them here: June 2009, November 2009, and December 2009.

Here’s the reality – there is presently no indication of any political favoritism playing any role whatsoever in the selection and appointment process for Monitors in DOJ matters by the DOJ.  None.  To the contrary, DOJ goes to extraordinary lengths, including applying the Morford and Breuer memos more conservatively than they require, to avoid any appearance of favoritism.  To this point, though each memo could be read as to permit the DOJ to take a more active role in determining the Monitor and/or pool of Monitor candidates, the DOJ does not – it instead requires the Company to propose a pool of Monitor candidates and refuses to provide any candidate names, even if asked.

There is a simple and wholly commercial reason why many Monitors come from the ranks of former federal prosecutors.  It is because the white-collar defense attorneys who represent the companies needing Monitors also come mostly from the ranks for former federal prosecutors!  Business development in the white-collar defense world relies on referrals – a Monitorship is simply a business referral.  This is no different than if they represent a company and refer the representation of company individuals to people in their legal network whom they ordinarily make back-and-forth referrals to and believe qualified to do a good job.

In the SAC Capital Advisors matter, there is no indication whatsoever that the DOJ gave a “gift” to the proposed Monitor, Bart Schwartz, a former federal prosecutor, as Davidoff suggests.  It appears that Mr. Schwartz was proposed by the company in accordance with the DOJ policies described and hyperlinked earlier.  Moreover, his approval appeared to be subject to judicial approval as well, adding an additional level of scrutiny and further removing it from DOJ’s ability to “manipulate.”  As it regards Mr. Schwartz, it’s not as though he is fresh out of the government and has no relevant experience in the area.  To the contrary, he is a highly qualified Monitor candidate who left government service decades ago.  Much like with “expert witnesses,” who need not have necessarily been so qualified previously in order to be retained in a matter, many of those proposed as Monitors have never been a Monitor before.  Though this is common, unavoidable, and necessary, it also provides greater opportunity for controversy, disagreement, and discord.  Mr. Schwartz is a very experienced Monitor and likely to avoid such issues and be more effective and efficient than someone lacking Monitor experience.  It is perfectly reasonable to expect that companies would find such persons independent of the government and propose them as Monitor candidates.

Transparency is another issue worth exploring.  If you read the Breuer Memo that I referenced and hyperlinked earlier, you will see that significant documentation should exist within and around the Monitor selection process in the DOJ’s Criminal Division.  I am aware that such documentation is prepared and does exist, but I do not believe that it is something likely to be shared publicly.  I’ve never filed a FOIA request, but I wouldn’t bet on getting those documents if I did so.  I fully appreciate the pros and cons on this issue and would like to see the DOJ explore ways to provide greater transparency in this regard.

Outside of the DOJ, where Monitors are used more commonly and frequently, transparency is largely non-existent.  Many, if not most other agencies that utilize Monitors have little or no written policy around any parts of the process, from selection through reporting.  Much less do they create any documentation during that process that would provide insight into how a particular Monitor was nominated, selected, and/or approved.  The same goes for the Courts (i.e. Judges).

I have noticed a “practice-shift” over the last couple of years where Federal Agencies (outside of DOJ, but perhaps following in DOJ’s footsteps) have begun refusing to provide the names (i.e. more than one – a “pool” of names) of potential Monitor candidates to organizations, even when those organizations request it, for fear of running afoul of “endorsement” prohibitions under 5 C.F.R. §2635.702.  I wrote the US Office of Government Ethics earlier this year asking specifically about the application of any ethical requirements and/or guidance specific to Corporate Monitors, but as one might expect, received no response at all.  I am not an attorney and may well be wrong about this, but I personally do not believe that §2635.702 applies in this context, so long as there is no “private gain” for the relevant government officials.  I would like to see the Government Ethics Office examine this and provide specific guidance as to whether or not a government agency can provide a pool of names of Monitor candidates to a company, particularly when so requested by the company.

Greater transparency and policy/practice documentation is a real issue, particularly as more and more agencies are beginning to appreciate the value of and use Monitors in resolving issues.

Let’s talk fees now.  I seem to always see the word “lucrative” associated with Monitorship agreements in press articles – another broad and inaccurate stereotype born out of the Zimmer Holdings controversy.  Certainly some of the biggest Monitorships cost organizations a sizeable amount, but that is the nature of professional hourly work in complex matters within large organizations.  One could apply the term “lucrative” as well to the fees charged by external defense counsel, subject-matter experts, forensic accountants, information technology consultants, corporate compliance & ethics consultants, e-discovery professionals, document reviewers, marketing professionals, and a whole host of others whom organization’s engage long before a Monitor ever comes into the picture.

For the SAC matter, Davidoff’s suggestion that the Monitor’s fees “will probably run in the millions, if not tens of millions, of dollars” is illogical and wholly out of touch with reality.  This estimate of fees seems to be more of a sensationalistic reference to the Zimmer Holdings matter (which the article brings up later) than to what any reasonable person would expect having read the scope of the “Compliance Consultant” within the SAC Plea Agreement.  Under this Agreement, SAC’s Compliance Consultant will only perform two (2) assessments and file two (2) reports, all done within six (6) months. A third assessment and report may be required, if deemed necessary by the government.

Keep in mind that SAC Capital (now Point72) is not a mammoth organization with thousands of employees all over the world facing a multitude of risk areas.  To the contrary, it appears to me that SAC is now practically nothing in terms of size and will only manage the money of its owner – meaning that the Monitor’s assessments should not be very big or difficult at all, nor will they extend over a lengthy period of years, as is common to many Monitorships.  SAC is hardly a traditional Monitorship and certainly not a large one likely to generate millions of dollars in fees.

Another common question relates to whether or not a Monitor actually has any impact on the organization monitored.  Though I can personally fall back on my own experience as a Monitor to satisfy myself that we do, I can also look to more objective studies that support the real and positive impact of Monitors.  In addition to the GAO reports I linked above, some of which address that question directly with companies that were monitored, one of the best studies that I have seen on the question is a white paper entitled “Can Corporate Monitorships Improve Corporate Compliance?” by Cristie Ford and David Hess (I would love to see them update that paper!).  Short answer – Monitors can and do have an impact, though much of that impact relies on the substance and terms of the underlying Agreements, which really drive the scope, authority, purpose, and role of a Monitor.

Speaking of that, another important and greatly misunderstood issue is the role, authority, purpose, and scope of a Monitor.  Davidoff writes: “He is the ostensible key to ensuring that Point72 will remain on the straight and narrow.  A compliance monitor or consultant is a creation of the last decade. When a corporation accused of wrongdoing agrees to settle the charges or is sentenced to probation, it is often required to pay for a monitor to ensure that it does not break the law again. The corporate monitor is to supervise the compliance procedures of the company as well as beef them up.”

Monitors are not a creation of the last decade.  While there has been an increased visible use of Monitors by the DOJ within the last ten years, Corporate Monitors go back at least two decades.  Also, as previously mentioned, many people mistakenly think that Monitors are only used by the DOJ, which is just the opposite of the reality.

When a company settles a matter, a Monitor is only required around 20% to 30% of the time (even outside of DOJ), certainly not “often,” as Davidoff suggests.  In fact, this percentage has declined within the DOJ since 2008, though it shows signs of increasing, particularly as standards and best practices continue to develop around the field.  Also, there is a developing trend of the DOJ and other government agencies requiring what I call a “hybrid-Monitor,” which is exactly the case with SAC Capital Advisors.  As best as I can tell, though the title used in these Agreements may not even contain the word “Monitor,” the DOJ continues to apply Morford and Breuer principles and process and other agencies still treat the role as they would a “Monitor.”

The purpose and role of a Monitor is largely misunderstood, leading to false and unrealistic expectations.  Davidoff promulgates several scope-related misperceptions that have no basis in reality – such that Monitors are in place to ensure that a company “will remain on the straight and narrow” or that we “ensure that it (the organization) does not break the law again” or that we “supervise the compliance procedures of the company as well as beef them up.”

The purpose and role of a Monitor is to verify an organization’s timely and effective compliance with the Terms of an Agreement.  An Agreement, by the way, that the Monitor had no part in devising.  These Agreement Terms are most frequently associated with an organization’s remediation and improvement efforts in the areas of corporate compliance & ethics programs and internal controls, largely because §8B2.1 of the United States Sentencing Guidelines (“Effective Compliance and Ethics Program”) has made those areas the measuring stick of corporate liability.  As a result, the Monitor’s assessments and scope are often heavily weighted, in accordance with the Terms of the Agreement(s), on corporate compliance and ethics programs.

Because an Agreement is exactly that, an Agreement, the parties could choose and agree to include Terms that provide the Monitor with authorities far exceeding that which I have described as a Monitor’s general purpose and role.  If the parties so choose and agree, they could give the Monitor significant authority beyond merely verification and reporting, such as operational decision-making, contracting approval/disapproval, etc….  This level of authority is extraordinarily rare among all monitorships and presently non-existent among DOJ Agreements requiring a Monitor.

Absent some remarkably unusual Term(s) in an Agreement requiring it of a Monitor, a Monitor’s purpose and role is NOT to ensure that the company “will remain on the straight and narrow” or “ensure that it (the organization) does not break the law again.”  Nobody can do that.  Nobody expects that.

The Terms of the Agreement (not the Monitor) are responsible for ensuring, in principle, that the organization will have a compliance and ethics program that, in accordance with §8B2.1(a)(2) of the US Sentencing Guidelines, “…shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct.”

To recognize and emphasize that all fraud cannot be prevented, §8B2.1(a)(2) continues: “The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”

The notion that a Monitor can prevent and/or uncover all fraud within an organization, is utterly absurd.  It is so unconscionable that suggesting it defies all common sense.

The real scope issue lies within the Terms of the Agreement(s) underlying the Monitorship, which as noted previously, the Monitor had no part in drafting.  Having been a Monitor and having read every Agreement requiring a Monitor that I can get my eyes on, it is my opinion that most of these Agreements are not constructed sufficiently so as to ensure that the monitored organizations have compliance and ethics programs that adequately comport with §8B2.1 of the US Sentencing Guidelines.  While DOJ’s Agreements have improved drastically in this regard over the last few years, they still too narrowly focus on the underlying issues (i.e. bribery, false claims, insider trading, etc…) and not on the whole compliance and ethics program, which is what §8B2.1 covers.

As a result of this, while a company may significantly improve, for example, its anti-corruption compliance program component under an Agreement with the DOJ, it may utterly fail in other risk areas subject to criminal misconduct and/or abuse.  In other words, DOJ risks missing the forest for the trees by too narrowly focusing on the underlying issues and not on the overall compliance and ethics program, which if designed appropriately and implemented effectively, would address all fraud and compliance risks and better prevent recidivism.  Isn’t that the real spirit of what everyone wants to accomplish?

Additionally, as a compliance and ethics program expert, I feel that in these Agreements (particularly those requiring a Monitor) the DOJ and most other agencies overly focus on compliance program components and not enough on ethics and ethical tone.  The title of §8B2.1 is “Effective Compliance and Ethics Program” (emphasis added) and §8B2.1(a)(2) specifically relates to ethical tone, yet rare is the instance that one of these Agreements obliges a Monitor to assess and report on an organization’s ethical tone!  Ethical tone and compliance programs are symbiotic – one cannot succeed without the other – and the government does not yet seem to have come to a full appreciation of it.

Another issue alluded to in Davidoff’s article related, generally, to the concept(s) of “self-monitoring” and/or government monitoring.  In self-monitoring, the company assesses its own performance against the terms of an Agreement and reports to the government.  Government monitoring is where the relevant government agencies conduct the monitoring.

In my opinion, “self-monitoring” is an oxymoron and cannot be generally relied upon to ensure either effective compliance with the Terms of an Agreement or that the organization establishes a compliance and ethics program that achieves the desired end-results (“spiritual compliance”) of an Agreement.  Though many might think that trust and objectivity are the primary concerns in this regard, I have found that the real problem with self-monitoring is technical competence.  When an organization is left to its own to make these assessments, the in-house people assigned to make and/or review such assessments often simply lack the requisite corporate compliance and ethics industry experience and knowledge necessary, leading to a “check the box” process or attitude that can hinder effective and/or “spiritual compliance” with the Agreement.  This is not to suggest that a Monitor should always be required, only that greater consideration of an organization’s technical competence needs to be incorporated into the decision matrix as to whether or not a Monitor should be utilized.

For example, when an Agreement requires that an organization conduct some type of specific compliance training of employees, the company may genuinely believe it has effectively done so simply because they offered a training session (hence, “check the box”) and therefore report successful compliance with that Term of the Agreement to the government.  What I frequently find, as a Monitor and compliance consultant, is that such training was not effective – meaning that those employees at risk to a compliance issue could not reasonably recognize the relevant compliance and ethics risk(s) or apply the relevant policies within the context of their role(s) (hence my term, “spiritual compliance”).

The same lack of compliance & ethics industry technical competence exists within the ranks of relevant government agencies as well, where it is exacerbated by agency budget/resource issues, making fruitful and effective compliance monitoring by the government unrealistic, if not impossible.   The agencies that have the combination of technical competence and resources are very few (i.e. HHS) and even those utilize Monitors from time to time.

Self-monitoring and/or government monitoring assumes an expertise that is presently uncommon among organizations and government agencies – the whole compliance and ethics industry itself is barely out of its infancy, though it is growing and progressing rapidly.  Monitors fill this void perfectly, often playing the role of teacher and guide to both the organization and government.

I much appreciate Davidoff’s dislike that Monitor reports cannot usually be obtained.  There are many who argue that Monitor reports, as a general rule, should be publicly available, albeit with appropriate redactions, primarily to protect proprietary, sensitive, and/or personal information that such reports might contain.  Also, how willing organizations might be to enter into Agreements where they know a Monitor’s reports will be available to the world could have a very chilling impact on both the willingness to enter into such an Agreement and the degree to which the organization might more openly and fully work with a Monitor towards “spiritual compliance.”

Balancing the obligation for the Monitor to inform (report to) the government against the risks of such information being used or misused by outside interested parties is a very difficult task, whose consequences could easily outweigh the public interest as it concerns access to a Monitor’s reports.  For a more recent general exploration of these issues, I suggest “Minding the Monitor: Disclosure of Corporate Monitor Reports to Third Parties” by Karen Green and Timothy Saunders of Wilmer Hale.

There are a myriad of important issues that still exist around Corporate Monitors that yet need to be pointed out, deliberated, and resolved.  I never even touched on “independence,” which is certainly one of the big ones! As someone who is passionate about and intimately involved in the development of Standards and “best practices” for Monitors, I hope that writings such as this may bring attention to the important and real Corporate Monitor issues, allay misperceptions, and lead to a greater appreciation for Monitors – an extraordinarily effective and largely under-utilized means by which government and/or other oversight bodies can better achieve long-lasting success in resolving corporate misconduct, fraud, waste, and/or abuse.