Prevent Bad Things from Happening to People and Organizations

In late spring, four banks reported losses totaling $62M to the SEC as a result of fraud by one or more executives of borrower Worley and Obetz. After 72 years the Lancaster County Pennsylvania oil and services provider closed, filed for bankruptcy, laid off 150 employees and left its customers and suppliers in turmoil.

 

What hasn’t been reported is that Worley and Obetz was not in compliance with a law, administered by the SEC, specifically created and well-crafted to prevent and detect such debacles.

 

The law is a provision of Sarbanes Oxley and applies to virtually all nonpublic entities. The associated U.S. Sentencing Commission Guidelines are very compelling and require virtually all nonpublic entities to have an effective compliance and ethics program, including a reporting system, to prevent and detect unlawful acts.

 

The American Bar Association notes that in addition to avoiding liability, programs to raise and address problems are a good business practice and regardless of governance or size, every organization should voluntarily implement them. “Should the benefits of compliance not be significant, avoiding liability should be.”

 

Public companies and officers face penalties if they do not have an effective compliance and ethics program. Nonpublic entities and officers only face penalties if a crime occurs and they did not have an effective compliance and ethics program.

 

The owners of Worley and Obetz can’t avoid liability. Even if they had nothing to do with the fraud, they could face jail because they did not have an effective compliance and ethics program to prevent and detect the fraud.

 

Although largely culture and policy driven, an effective compliance and ethics program is likely to have detected the Worley and Obetz fraud in the early stages. There are thousands of other illegal acts that would have been detected by an effective compliance and ethics program before harming people and the organization.

 

The requirements for nonpublic entities are little known and not enforced. Accordingly, although the benefits of compliance are significant, we estimate that less than 5% of nonpublic organizations have an effective compliance and ethics program.

 

1st Notice has been studying the reporting of serious issues since the Penn State child sex abuse became public knowledge. This includes extensive and seminal research on why people do not report serious issues and what it would take for them to do so, to optimize reporting.

 

Based on ongoing research, 1st Notice developed, tested and refined applications which increase serious issue reports by 1,300% over current processes. Although there are no comparison benchmarks, the timeliness, quantity and quality of notifications appear to far exceed those of all other solutions. Based on the significant and continual input from populations that may have something to report, the Optimum Connect applications set a high standard for effectiveness.

 

And, effective notifications systems don’t just prevent and detect crime, they can also provide a critical conduit for positive communication.

 

If you’d like a complimentary and confidential assessment of any organization’s compliance and ethics program and systems, Tell Us.