Compliance Officer Challenges and Frustrations Getting Board and Management Commitment to Compliance Culture
By John H. Fisher II
December 28, 2022
One of the biggest challenges a compliance officer faces is establishing a strong commitment to creating a culture of compliance and obtaining recognition–there needs to be a compliance “tone from the top” of an organization. There are numerous potential challenges to getting buy-in for this concept. This can create frustration for compliance officers aware of the concept of compliance program effectiveness and the importance of a compliance culture beginning at the top of the organization. A common potential challenge is that, to many directors, the resources needed to ensure a compliant organization are at odds with the need to control budgets and create a profitable organization. This is of course very short-sighted because it fails to adequately consider the long-term risks an ineffective compliance program presents to a company and its profitability.
One of the most important tasks necessary to make a compliance program truly effective is creating a culture of compliance. Educating board members and upper management on the importance of compliance culture, having the resources needed to adequately create and operate the program, and the long-term benefit of effective compliance is a significant first step.
Numerous guidance sources from enforcement agencies including the Department of Justice and the Department of Health and Human Services Office of Inspector General (OIG), stress the overall necessity of creating a culture of compliance. It is important that leaders of the organization, not just the compliance officer, buy into this concept and realize the necessity of their involvement in creating the necessary culture. The Federal Sentencing Guidelines also clearly require the governing body of an organization be “knowledgeable about the content and operation of the compliance program” and exercise reasonable oversight of the compliance program and its operation. Guidance documents from the OIG covering various segments of the healthcare industry reinforce the necessity of creating a compliance culture starting at the top of the organization.
Boards are often comprised of a variety of individuals with differing insights, contributions, values, and approaches. Diversity on a board can be quite useful in many circumstances. Yet, it can be this same diversity of views and interests that make commitment to compliance from the top of the organization challenging to the compliance officer. Some board members may be very sensitive to compliance and the value it creates to an enterprise. Others may feel compliance is nothing more than a necessary evil. Others may feel compliance is an interference with the more important business at hand.
The “rubber hits the road” when it comes to compliance budgeting. Some directors may feel creating a compliance budget just cuts into the organization’s profitability and provides no immediate value. Yet a compliance program without a line-item budget leaves the compliance officer scurrying for funds, often from the very division or business component that presents the compliance risk, requires an audit, or even a compliance-related investigation. The actual individuals responsible for the activities of that business component may need to provide approval to release needed funds. This is not an element of a truly effective compliance program created to provide protection to the company.
Here are a handful of challenges that can exist to make it difficult for the compliance officer to create a proper culture of compliance starting at the top of the organization:
- The compliance officer has limited authority.
- The compliance officer has limited autonomy.
- The compliance officer has limited access to the board.
- The compliance officer is not given a seat at the “business” table.
- Having a board unreceptive to the need for funding the compliance program or establishing a budget line for compliance issues that is sufficient to operate an effective program.
- The compliance officer is not embraced as a top member of the management team.
- Not having top executives committed to compliance which can result in more difficulty getting on the agenda of board meetings.
Finding ways to communicate the importance of compliance can be challenging. The appropriate means of communicating compliance can vary from organization to organization and can be a moving target in an organization with board members who serve relatively short terms. The best way to communicate the importance of compliance can be different depending on the nature of the specific organization and make-up of the board. Some boards may be receptive to thorough and in-depth discussions of compliance and others may need to receive the compliance message in smaller doses to embrace the need for “tone from the top.” The compliance officer cannot be a “one trick pony”; they need to see the possibility of various ways to communicate to the board in order to enhance program effectiveness.
It can be difficult to draw an appropriate balance between getting enough information to the board on compliance issues and creating information overload thereby overwhelming the board to the point of numbness. Particularly in larger organizations, it can be difficult to prioritize the many applicable compliance issues and determine what to cover with the board.
Let’s face it–being a compliance officer is a very challenging job. It requires engagement, creativity, and flexibility to gain commitment in creating a compliance culture. It is often hard to sell the resources necessary to operate compliance. Some may see compliance as cutting into profitability. Ironically this can occur during times of heightened compliance concern when the compliance officer fully understands the urgency of the matter and may not have the same view from directors and/or management. Many compliance issues have as their root cause a lack of staffing or resources. This puts the compliance officer in the position of having to advocate for resources to support compliance program operations when the board is already concerned with financial limitations. This can result in a great deal of frustration; particularly when it is known by the compliance officer that they are oftentimes the first place to which the eyes turn when problems come to the surface.
These problems can be accentuated in public organizations. Upper management and board members may feel they are immune from these types of issues. Some may have been appointed to the board by government oversight organizations and/or funding sources. Some may have been appointed for the purpose of cutting costs or fulfilling a political agenda. These situations present special challenges to a compliance officer.
First, and foremost, a compliance officer needs to have direct access to the board and the board must be receptive to the compliance message the compliance officer is offering. After all, the board has ultimate oversight of compliance within an organization. In public organizations, open meetings and record access laws can also create impediments to an open dialogue with board members regarding compliance issues facing the organizations. Additionally, senior leadership may try to resist compliance issues going to the board. They may feel that bringing compliance issues before the board reflects poorly on their management. The reality is the opposite. Interference by management at getting compliance matters in front of the board can come back to bite management in the “you know what” when issues go without the board’s knowledge, involvement, and input for resolution. Even small issues allowed to fester can become big issues. In compliance, it is almost always the best course to detect and address compliance issues on the front end to avoid them turning into major problems to the organization.
Whatever the challenge the organization facing the compliance officer, regulatory agencies all emphasize the importance of board oversight and the need for open communication between the compliance officer and the board. The defining standard of a compliance program is “effectiveness.” A program that has hurdles between the compliance officer and the board, whatever their source, cannot be an effective compliance program. An ineffective compliance program does little or no good to an organization when it eventually faces a compliance issue.
Special issues arise when a compliance officer is faced with a board lacking existing sophistication about compliance. Surveys on board sophistication about compliance have consistently indicated the typical board has a very low level of sophistication when it comes to the importance of proactive compliance. Often, a compliance officer may be starting at ground level with the board. Sometimes as soon as some progress is made educating the board on compliance and gaining a level of buy-in there is turnover on the board, putting the compliance officer back to square one.
A number of problems arise when a board has a low level of compliance acumen. The compliance officer may have a difficult time establishing a compliance budget or retaining the authority needed within the organization. Board members who are not educated on compliance issues may have no awareness of the various compliance risks organizations often face and have therefore no sensitivity to the potential exposure their lack of knowledge may present to the organization. In the healthcare segment, all that one needs to do is illustrate the application of potential False Claims Act penalties. With triple damages plus civil fines between $11,000 and $22,000 per claim, the potential exposure to a simple billing deficiency where the organization submits claims nearly every day can create devastating financial exposure to the organization. In fact, the potential exposure can be so significant it can put the entire future of the organization at risk.
Yes, being a compliance officer can be very challenging and frustrating indeed. However, with a clear vision and some creativity on how to present these issues to the board and upper management, a compliance officer can make headway toward a truly effective compliance program. Stay persistent my friends in compliance positions! Do your best to sleep at night. If an organization is simply not embracing compliance in spite of your efforts, consider moving on. You may be riding aboard a sinking ship.
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