10/3/2013 MAPPING YOUR PROGRAM TO THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS (FSGO) AGENDA HOW MUCH DO YOU KNOW ABOUT THE FSGO?

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1 MAPPING YOUR PROGRAM TO THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS (FSGO) Shelley Aul, CCEP Vernon Speshock, CCEP Apollo Group, Inc. AGENDA Overview of the FSGO Participant Activity Resources/Templates Closing HOW MUCH DO YOU KNOW ABOUT THE FSGO? 1

2 FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FSGO Enacted by the U.S. Sentencing Commission in November 1991 Designed to help federal judges impose fair/consistent sentences when corps violate U.S. law. Previously was largely discretionary. No affirmative duty to create compliance programs Encourage the establishment of compliance/ ethics programs to help prevent and detect organizational wrongdoing A metaphorical carrot to induce good corporate behavior Not limited to sentencing but rather to evaluating compliance efforts to determine whether or not to charge/prosecute, incl. the nature and size of fines or other remedies Have achieved significant success in reducing misconduct; Nurturing a vast compliance and ethics movement; Enlisting a self-policing effort ELEMENTS OF THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FSGO Develop/implement standards and procedures Designate high-level individuals for oversight of the program; provide resources and responsibility Provide due diligence by excluding anyone in positions of substantial authority who engaged in illegal behavior Communicate the program standards; training and awareness Monitor and audit the program, incl. a reporting system to detect and report misconduct Enforce and promote the program with consistent disciplinary measures and incentives for proper performance Respond to violations by making modifications to the program as necessary to prevent similar violations in the future Periodically assess the risk of misconduct and take appropriate steps to reduce this risk FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FSGO Guideline Elements Due Diligence and Ethical Culture Standards and Procedures Governing Oversight Someone In Charge Day-to-Day Responsibility Requirement Exercise due diligence to prevent and detect criminal conduct and promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. The organization shall establish standards and procedures to prevent and detect criminal conduct. The organization's governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program. High-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program, as described in this guideline. Specific individual(s) within high-level personnel shall be assigned overall responsibility for the compliance and ethics program. Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. 2

3 Guideline Elements Due Diligence- Authority Education and Awareness Monitoring and Auditing Measuring Effectiveness Anonymous Reporting FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FSGO Guideline Controls The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program. Investigate all issues/concerns and apply appropriate and consistent discipline. The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program. The organization shall take reasonable steps (A)to ensure that the organization's compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct. Evaluate periodically the effectiveness of the organization's compliance and ethics program. Have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization's employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation. FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FSGO Guideline Elements Incentives Discipline Modify the Program Assess Risk Guideline Controls The organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program. The organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct. After criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program. The organization shall periodically assess the risk of criminal conduct and shall take appropriate steps to design, implement, or modify each requirement set forth in subsection (b) to reduce the risk of criminal conduct identified through this process. GENERAL BENEFITS OF AN EFFECTIVE COMPLIANCE PROGRAM Demonstrates strong commitment to stakeholders, including employees and the public, of the company s commitment to ethical conduct and behavior Identifies unethical and criminal behavior so problems are addressed and adverse consequences are minimized Serves as a mitigating factor in possible indictments if criminal behavior occurs May diminish exposure of the company if sentenced for criminal behavior The Ethics Resource Center s 2011 National Business Ethics Survey (NBES) shows that employees in companies with effective meaningful codes of conduct and programs based on the FSGO witness fewer incidents of misconduct and are far more likely to report misconduct when observed 3

4 THE POSITIVE BOTTOM LINE Simply put, workplaces with programs based on the FSGO are better places to work. Our economy and our society are better off when corporations and their employees obey the law and operate within ethical frameworks that direct them to do the right thing. The FSGO contribute mightily to this objective by establishing standards to guide company management in the development and implementation of effective compliance and ethics programs and ethical cultures. The Federal Sentencing Guidelines for Organizations at Twenty Years, A Call to Action for More Effective Promotion and Recognition of Effective Compliance and Ethics Programs, Report of the Ethics Resource Center s Independent Advisory Group on the 20 th Anniversary of FSGO, Ethics Resource Center, 2012 EXAMPLE OF BENEFIT TO HAVING A FSGO COMPLIANCE PROGRAM SEC Announces Non-Prosecution Agreement with Ralph Lauren Corporation Involving FCPA Misconduct (April 22, 2013) SEC announced a non-prosecution agreement (NPA) with Ralph Lauren Corporation in which the company will disgorge more than $700,000 in illicit profits and interest obtained in connection with bribes paid by a subsidiary to government officials in Argentina from 2005 to The misconduct was uncovered in an internal review undertaken by the company and promptly reported to the SEC. Took into account the significant remedial measures undertaken by Ralph Lauren Corporation, including a comprehensive new compliance program throughout its operations. Among Ralph Lauren Corporation s remedial measures have been new compliance training, termination of employment and business arrangements with all individuals involved in the wrongdoing, and strengthening its internal controls and its procedures for third party due diligence. PARTICIPANT ACTIVITY 4

5 DUE DILIGENCE Exercise due diligence to prevent and detect criminal conduct Background checks Reference checks Detailed/accurate job descriptions Schedule of Executive Authority ETHICAL CULTURE Otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. Code of Business Ethics Helpline education and awareness Ethics education and awareness Internal compliance conference Ethics & Compliance Week Ethics and Compliance Liaison Program Tone from the top STANDARDS AND PROCEDURES The organization shall establish standards and procedures to prevent and detect criminal conduct. Code of Business Ethics Corporate policies & procedures 5

6 GOVERNING OVERSIGHT The organization's governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program. Documented Board oversight/responsibility Regular CECO reports to the Board & executive management Board approved Code Board training SOMEONE IN CHARGE High-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program, as described in this guideline. Specific individual(s) within high-level personnel shall be assigned overall responsibility for the compliance and ethics program. Board appointed CECO DAY TO DAY RESPONSIBILITY Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. CECO heads the Ethics and Compliance Department 6

7 DUE DILIGENCE- AUTHORITY The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program. Background checks (hire/transfer/periodic) EDUCATION AND AWARENESS The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subparagraph (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals' respective roles and responsibilities. Annual required trainings New hire training Ongoing/targeted training Regular compliance notices/alerts Ethics and Compliance Week Internal compliance conferences Newsletters Intranet articles Intranet compliance site Posters MONITORING/AUDITING The organization shall take reasonable steps (A)to ensure that the organization's compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct; Quality assurance teams Internal Audit External audit firms Internal monitoring teams Program specific monitoring 7

8 MEASURE EFFECTIVENESS Evaluate periodically the effectiveness of the organization's compliance and ethics program; Third party review Review QA/ monitoring/ audit/ investigation trends Internal audit reviews Review Programs periodically Ethics survey trends Risk assessment trends ANONYMOUS REPORTING Have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization's employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation. Anonymous 24/7 Helpline (preferably 3 rd party) Other reporting options (web, , HR, etc.) Test the Helpline INCENTIVES The organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; Included in performance reviews & bonus goals Internal recognition by peers and management Ethical leadership awards 8

9 DISCIPLINE The organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through(b) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct. Trained Investigations team Documented procedures Investigate all received concerns Law enforcement referrals Apply consistent discipline MODIFY THE PROGRAM After criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program. Law enforcement referrals Modify policies, procedures, training, etc. ASSESS RISK The organization shall periodically assess the risk of criminal conduct and shall take appropriate steps to design, implement, or modify each requirement set forth in subsection (b) to reduce the risk of criminal conduct identified through this process. Annual compliance/fraud/internal audit/erm risk assessments Regularly review trends and make needed program adjustments 9

10 CONTROL MATRIX TEMPLATE Control Internal Control Owner Program Legal or Regulatory (What You Citation (Day to Element Requirement Should Do/Ideal Day State) Owner) Training (4)(A)The organization 8B2.1 and shall take reasonable (4A) Awarenes steps to communicate s periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subparagraph (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals' respective roles and responsibilities. Process Owner (Control Owner's Manager) Remediation Activities ( to Do for the Internal Control to Be True) AND NOW YOU HAVE MAPPED YOUR PROGRAM! Control Process Internal Control Remediation Activities Owner Owner Program Legal or Regulatory (What You ( to Do for Citation (Day to (Control Element Requirement Should Do/Ideal the Internal Control to Be Day Owner's State) True) Owner) Manager) Training (4)(A)The organization 8B2.1 All employees John Jane Rogers Confirm with business and shall take reasonable (4A) complete Code Smith owner Code training is Awarenes steps to communicate of Business scheduled every other year. s periodically and in a Ethics training Determine if a master practical manner its on at least a calendar exists as evidence. standards and procedures, biennial basis, if and other aspects of the not more compliance and ethics frequently. program, to the individuals referred to in subparagraph (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals' respective roles and responsibilities. CLOSING Slides and templates will be available in the SCCE portal Shelley Aul, shelley.aul@apollogrp.edu Vernon Speshock, vernon.speshock@apollogrp.edu 10