Compliance on a Budget: How Small Companies Can Have Effective Compliance Programs

Smaller companies may not think they need a compliance and ethics program, but the fact remains that small companies can be just as susceptible to the risks posed by inappropriate or illegal conduct as huge corporations. The Federal Sentencing Guidelines for Organizations make no distinction in size of company when it comes to financial or even criminal penalties due to a lack of compliance. According to The Network, Inc., government compliance policies clearly state that “small organizations shall demonstrate the same degree of commitment to ethical conduct and compliance with the law as large organizations.”

Cost doesn’t have to be a deterrent

Many smaller organizations cite cost as a primary factor in their decision not to develop and implement a compliance program. However, an effective compliance program does not have to be cost-prohibitive. According to a Society of Corporate Compliance and Ethics (SCCE) publication entitled “A Compliance and Ethics Program on a Dollar a Day,” the most important ingredient of any successful compliance program is a sincere commitment by management to operate an ethical business, which doesn’t cost a dime.

Implementing a compliance program can actually be viewed as a cost-saving measure. The Association of Certified Fraud Examiners estimates that businesses lose 5 to 6 percent of their annual revenues to fraud. By helping to detect and prevent fraud, a compliance program can stop the revenue drain that negatively impacts a company’s bottom line. Additionally, a company that has a compliance program in place and self-reports any serious incidents of misconduct it uncovers can receive as much as a 95 percent reduction in any subsequent fines.

How to establish a cost-effective compliance program

So how does a small business actually go about creating a cost-effective compliance program? The following checklist developed by the Service Corps of Retired Executives can help you get started. The checklist is based on the seven elements of a successful compliance program as stipulated in the Federal Sentencing Guidelines. Most of these steps will only require an investment of time, and possibly some nominal administrative costs.

  1. Designate a compliance official or committee. While a small company may not have the resources to hire a dedicated compliance officer, designating one person who has ultimate accountability for compliance can serve the purpose. Another option is instituting a committee to oversee compliance within the organization.
  2. Identify areas of risk. Management and the designated compliance officials should work together to identify the areas of risk that are most relevant to the business so that they can be closely monitored, audited, and evaluated on an ongoing basis.
  3. Establish standards and procedures. Every successful compliance program should include fundamental standards and procedures, such as creating a written Code of Conduct, performing thorough background screening on job candidates, developing and adhering to a record retention policy, and developing procedures to address commonly recurring issues of misconduct or unethical behavior.
  4. Implement reporting procedures. Companies should create an environment where employees feel free to report incidents without fear of retaliation. Establishing a third-party reporting hotline will enable employees to report incidents of misconduct anonymously.
  5. Conduct training and education. Small companies should provide compliance education and training, both at program implementation and on an ongoing basis. Top management should introduce the compliance program to all employees, and explain its purpose and substance. Periodic refresher meetings can be used to reinforce elements of the program and to provide compliance updates.
  6. Respond swiftly and decisively when an offense occurs. It is imperative to have procedures in place that allow for prompt action when an incident of misconduct is reported. Allegations must be investigated thoroughly, and any corrective actions should be documented.
  7. Enforce disciplinary standards through well-publicized guidelines. In addition to making your employees aware of your compliance program and its various elements, they also should have a clear understanding of the potential consequences of misconduct. Additionally, employees should be made aware of the benefits derived from adhering to your compliance policies.

Free resources for assistance

A number of no-cost resources are available that can help you develop, implement, and maintain a successful compliance program:

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