Use HR Effectively To Ramp Up Effectiveness of Compliance & Risk Management Efforts

Updated: April 10, 2011

Human Resources Key Compliance & Internal Controls Player

While human resources' responsibilities clearly should include helping the company manage compliance with the core human resources, compensation and employee benefit regulations that businesses traditionally recognize as within the purview of human resources, management should not overlook the role that human resources plays in helping to manage other liability and operationally critical performances by its employees and other workforce members.

The ability of a business and its leaders to operate their organization in a defensible manner in light of applicable Federal Sentencing Guideline, Sarbanes-Oxley, industry specific regulaitons and other laws and regulations, as well as meet other mission critical contractual and operational performance largely depends on its ability to get its people and processes to perform reliably in the required manner and to capture relevant evidence that can help mitigate risks when something goes wrong. Effective human resources management is critical to these efforts.

Many members of management miss invaluable opportunities to strengthen their defenses and the effectiveness of their management efforts by inadequately leveraging human resources as a member of the management team. In addition to expecting human resources to manage compliance with applicable human resources laws, management also should expect human resources to play a key role in helping the company to monitor and manage the behaviors by employees and others in the workforce that are likely to be critical to the company's effort to demonstrate its policy, efforts and corporate culture of compliance as necessary to manage Federal Sentencing Guideline and compliance risks. In an all too often senario, documentation created by human resources or other managers possessing an inadequate awareness and understanding of the industry specific compliance requirements impacting their company often creates a record that damages the ability of a company or management official to defend charges brought by government prosecutors or agencies. Human resources or other managers that don't understand these requirements frequently don't understand the significants of actions they encounter in the course of carrying out their performance oversight and management responsibilities. This frequently can result in the creation of a record that reflects an inappropriate tolerance or even promotion of the prohibited conduct that can complicate the ability to defend the company or management against charges at a later date.

Because the performance of its people is the primary source of compliance exposures, human resources should be a well-informed and active member of the team. Management should expect members of the human resources team to understand and take a lead role in helping to educate and document efforts by the company to administer the internal controls required to administer the company's compliance efforts.

To fulfill these responsibilities, management should require human resources to:

  • Be fully informed of the relevant compliance responsibilities and compliance and ethics policies of the company,
  • To recognize behaviors by employees or contractors that may signal potential exposures for the company or its management,
  • To understand when and how to report and coordinate with the Compliance Officer, legal counsel and others in management to investigate and management,
  • To understand when and how to document appropriately efforts to manage these responsibilities in a manner that creates and preserves evidence of compliance efforts needed or helpful to promote the ability of the company and its management to defend against a potential a government investigation, whistleblower or other challenge, and
  • To administer these and other performance management activities in a manner that minimizes the exposure to employment discrimination or other labor and employment liability.

Documented Monitoring For New Developments Helps Present Problems

Because the applicable rules and guidance seem to constantly evolve, anticipating and staying on top of these requirements is critical, but often challenging. For this reason, management also should require or members of its management team responsible for helping the company to maintain compliance periodically to review regulatory developments on a quarterly or monthly basis and to retain documentation of these efforts.

Conducting periodic reviews of issued and impending guidance can help minimize the risk of potential problems and help companies and their management anticipate and meet critical compliance responsibilities as well as anticipate and plan for policy and operational changes and the budgetary, workforce and other resources needed to meet these responsibilities.

Of course, these and other documented efforts to promote compliance also often are invaluable when a compliance problem arises. Since no plan is foolproof, companies and their leaders also should plan for the possibility that members of their workforce may act inappropriately or other issues may result in a compliance concern. In an event of a problem, the ability of a company and its management to provide credible evidence of showing the diligent efforts to monitor and maintain compliance through these and other prudent activities often is critical to determining the liability and other consequences imposed in response to the problem by regulators, courts, customers and business partners and others with the power to hold the company accountable.

Managing Labor & Employment Exposures Arising In Connection With Management

Of course, the role of human resources in helping to manage performance does not supplant the responsibility of human resources to monitor and manage compliance with applicable labor and employment, compensation, employee benefit and other laws.

As with other members of the company management team, management also should expect human resources leaders to conduct their management of these responsibilities - in a manner that promotes the ability of the company to manage human resources risks as well as train and support others to do the same.

Management should expect, and hold members of human resources and other responsible for managing workforce performance to possess and adequate understanding and awareness of labor and employment and other laws that may create exposures in the course of the management process and to manage in a documented and defensible manner that minimizes the risk that management efforts will create unnecessary human resources liability risks.

With the human resources, employee benefits, tax, payroll and other related laws, regulations and enforcement constantly evolving, members of the human resources management team also should be expected to keep a close eye out for changes in rules or other responsibilities impacting the company's human resources, compensation and employee benefit plans.

Management should expect the human resources leadership team to monitor developments on a regular basis and to notify management of developments that may warrant or require changes in policies, practice, operations, costs or other relevant resources and risks.

In connection with these efforts, management also should ensure that special attention is paid to managing employee benefit related risks and should document the efforts by the Board or members of senior management showing the efforts by the company and these individuals to prudently select the internal and external parties charged with responsibility over these plans, and to prudently monitor their qualifications and performance as necessary to meet potentially applicable legal standards.

Companies and members of management responsible for making decisions about what employee benefit plans are maintained by the company, the staffing and funding of these arrangements and other matters impacting on the operations on the plan often fail to adequately anticipate the potential liabilities that the company or the executive or board member personally may face if the employee plans are not appropriately funded, maintained or administered. Companies and their management should ensure that they understand these exposures and the processes and documentation needed to mitigate these exposures. They also should take steps to investigate and confirm that those responsible for carrying out plan related responsibilities are appropriately qualified to serve in these positions, possess the knowledge, temperament and resources necessary to prudently carry out these responsibilities in accordance with applicable standards, are appropriately bonded as required by law. Management involved in these decisions also should take well documented steps to prudently monitor the appropriateness of the performance and the continued qualification of those individuals and organizations delegated responsibility for performing plan related functions on a periodic basis and at other times when prudently warranted by the circumstances.

With Labor, Internal Revenue Service, Health & Human Services and other federal and state regulators constantly evolving, management also should ensure that compliance responsibilities are carefully monitored on a periodic basis and that relevant information is reported to management as soon as possible to allow the company time to respond appropriately.

Under applicable employee benefit regulations and laws, the ability to produce evidence showing the diligent efforts by the company and management leaders to monitor and maintain compliance through these and other prudent activities also often helps a plan sponsor and its management, its plan and responsible plan fiduciaries or both to avoid or minimize liability under the Employee Retirement Income Security Act, the Code or other laws.

With the agencies responsible for implementing these rules busy issuing new regulations and other guidance required to implement the constant stream of changes enacted by Congress, this can be challenging. Management should consider appointing a member of human resources or other suitable member of its team to monitor these developments and report periodically to the management team at least quarterly to help ensure that the company has sufficient lead time to respond to these developments.

Those interested in developments affecting qualified retirement programs may find it helpful to share the Recap of IRS Employee Plans 2011 1st Quarter Guidance article and other resources recently published in Solutions Law Press HR & Benefits Update with their human resources leaders and others within their organization involved in these activities.

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