- December 01, 1996, MacArthur, Malcolm D.
To avoid legal problems, every company should consider instituting a corporate compliance audit. Such an audit consists of an assessment by inside and outside experts to ensure that your operations fully comply with all laws and regulatory requirements.
The areas that should be covered by the audit will vary, depending on the nature of the company. For most companies, however, those areas should include the following: quality assurance; corporate law requirements; antitrust; health, safety, and environmental laws; employment matters, including Employment Retirement Income Security Act, Americans With Disabilities Act, and other federal employment laws; securities; and taxes.
A closer examination of how the above laws may affect you shows the importance of conducting corporate compliance audits. In the first place, many of the laws contain severe criminal penalties, including long jail sentences. While corporate officials seldom think they will be subject to criminal prosecution, most corporate officers who become criminal defendants did not think so either.
In the antitrust area, for example, a conviction for price fixing or other serious violations carries with it a virtually automatic jail sentence. Severe criminal penalties may also be imposed under a host of other federal laws, including tax, occupational safety and health, food and drug, and certain environmental laws.
Second, willful violations of certain laws can result in the imposition by juries of punitive damages in the millions of dollars. Such laws include product liability, employment relations, and other laws where the jury may decide to punish the violator. While a good quality control program is the primary defense for product liability, a corporate compliance audit gives further assurance that the company is doing all it can to reduce exposure to product liability risks. The audit can also result in fewer legitimate claims, fewer lawsuits, and lower legal costs.
Third, under the federal sentencing guidelines, federal judges around the country make an attempt to equalize penalties. A properly structured corporate compliance audit helps a defendant in a criminal action by giving the court the authority to impose a lower sentence. Absent such a program the court can increase penalties.
Finally, while it is not typically a legal benefit, a good corporate compliance program cannot help but reflect positively on your company's image with regulatory agencies. Such an audit is a clear demonstration that the management of your company realizes its moral and legal responsibilities and intends to make certain that corporate policies are carried out properly.
Each corporate compliance audit varies somewhat, depending on the nature of the company, and each should be designed to meet the specific needs of a company. Initially, a company should obtain the interest and direction of the board of directors, because they are critical to the success of the program. In addition, the involvement and support of the CEO is extremely important for every effective corporate compliance audit. Indeed, participation and cooperation at all levels of the corporation are essential.
Pay particular attention to the personnel who will supervise or conduct the audit, and consider including outside consultants, particularly for industries regulated by certain agencies, such as the Food and Drug Administration. In addition, many companies ask outside attorneys to participate in corporate compliance audits, and frequently they are principally involved in planning and carrying out the program.
For illustrative purposes, it is useful to look at corporate compliance audits dealing with just one subject, for example, antitrust law compliance.
Antitrust audits initially involve four steps: The first is a conference of legal and top corporate officials to plan the audit. The second consists of interviews with corporate personnel, particularly personnel with pricing authority. Third, those conducting the audit make a random search of documents in the company's files. Finally, they prepare an antitrust compliance plan, including guidelines to follow. The compliance audit is reviewed annually, and periodic seminars are conducted with corporate officials to ensure that the company continues to comply with the guidelines.