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SEC Enforcement: Accounting Fraud

In July 2013 the SEC announced the creation of a Financial Reporting and Audit Task Force. Chair White emphasized the significance of this initiative as part of the SEC’s goal of covering the whole market. The task force has the dual purpose of improving detection and increasing prosecution of accounting fraud. The SEC’s press release on the task force made clear that the task force’s principal goals are fraud detection and increased pursuit of violations involving false or misleading financial statements and disclosures, with a focus on identifying and exploring areas susceptible to fraudulent financial reporting. The agency plans to accomplish the task force’s goals with the assistance and use of technology-based tools.

The task force will address a variety of issues, including use of reserves, revenue recognition, audit committees, and the role of auditors (with particular attention paid to independence issues). According to the SEC, the task force will develop new ways to identify accounting fraud through leading-edge technology such as the new Accounting Quality Model (known informally as “RoboCop”). In addition, the task force will solicit whistleblowers in order to learn about misconduct that would otherwise be difficult or impossible to detect. Unlike similar initiatives in the past to assist the Division of Corporation Finance in advising clients during the comment letter process, the purpose of the Financial Reporting and Audit Task Force will be enforcement, rather than prevention. In other words, this effort is not about helping companies spot errors, but rather about playing “gotcha” when there is a corporate foot fault.

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Topics: ECA Risk Forecast Report 2014

Records and Information Management: The Way Forward

Records Management is essentially—and has historically been—about “governance.” The efficacy of records management programs has generally depended upon compliance, using the lens of a fear of running afoul of regulations, or suffering legal consequences for poorly managed records.

The United States Federal Office of Management and Budget (OMB) issued a memorandum in August 2012, which refers to records management in different terms:

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Topics: ECA Risk Forecast Report 2014

Records and Information Management: The Advance of Technology

Today’s businesses rely on technology for virtually everything. Business records are almost exclusively becoming electronic and are generated by a wide variety of devices, systems, and applications. Records managers who have employed Retention Schedules to detail appropriate retention periods and records disposition actions are faced with adjusting their thinking to accommodate new and different types of records.

Mobile devices are now the business appliance of choice. Smartphones, tablets, and other PDAs are generating and holding more records than ever before. Information Technology functions are now abandoning efforts to “control” which devices are used by employees in favor of a BYOD (Bring Your Own Device) approach. With this flexibility come numerous risks to the records manager:

  • Inability to access company records that are housed on mobile devices
  • Rapid sharing and proliferation of records from device to device and from one to many people
  • Difficult and expensive discovery efforts when records are needed for litigation, regulatory review, and other business purposes
  • Co-mingling of business and personal records
  • Difficulty in preserving and managing records through their lifecycle when located on mobile devices
  • Difficulty in gaining compliance with legal hold requirements
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Topics: ECA Risk Forecast Report 2014

The Effect of Cloud Computing on Data Protection and Privacy in the EU

The previous two years have seen the release of cloud computing guidance on both national and international levels—from the Article 29 Working Party (WP), the European Data Protection Supervisor (EDPS), the CNIL, and the UK Information Commissioner (ICO).

What is the general approach of these guidance notes, and what are the main points from these guides that organizations should consider when entering into and negotiating cloud computing contracts?

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Topics: ECA Risk Forecast Report 2014

Leaving LRN - The Path Not Taken

One of LRN’s most powerful metaphors is ‘journey.’  We agree that life is a journey because our experiences are not linear, they are up and down.  So it is with our careers.  Every time we learn something profound in our personal and professional relationships, it is usually the result of an up and down journey.  We think we understand ourselves, our jobs, our companies, then something happens that forces us to think again.  Through it all our behavior, our values and our commitment to a mission keep us grounded.  If we are open-minded and keep our ethical compass pointed in the right direction, we emerge out of this dark valley of confusion into a new consciousness of understanding. Recently, I went through my own personal journey at LRN, a crossroads of sorts, which taught me many things about myself, my colleagues, and our CEO.  It validated the premise that people are imperfect and that at times we each seem more virtuous from our own vantage point than from anybody else’s. As Kant put it: “Out of the crooked timber of humanity no straight thing was ever made”.

I joined LRN 13 years ago.  Like many before and after me, I was inspired to work for a company whose mission it is to help people around the world do the right thing and to help companies understand that trust, values and ethical behavior need to be at the heart of a sustainable business.  I vividly remember many moments of my personal journey at LRN – some stand out more than others and many were a direct result of real-time mentoring and candid feedback from our CEO, Dov Seidman.  They were little moments at the time, but in the end they profoundly shaped my perspective on how business should be conducted and how people should treat each other.

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Privacy Impact Assessments and Privacy by Design

In recent years there has been an increase in the promotion of Privacy Impact Assessments (PIAs) and Privacy by Design (PbD) by both data protection regulators as well as compliance officers as mechanisms to integrate data protection into systems.

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Topics: ECA Risk Forecast Report 2014

Data Privacy and Protection in the EU: Focus on Websites

In the past five years or so, the European Commission and regulators that focus on consumer protection have carried out regular “sweeps” of websites in order to assess levels of compliance. This trend will continue, and businesses that sell or license content to consumers need to review their online terms and conditions as well as their compliance with other e-commerce rules such as the E-Privacy Directive, E-Commerce Regulations, and Distance Selling Regulations.

For example an EU-wide screening of 330 websites that sell digital content (such as books, music, films, videos, and computer games) across the European Economic Area revealed some significant non-compliance.

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Topics: ECA Risk Forecast Report 2014

A Busy Regulatory Agenda—The Department of Labor

According to NERA Economic Consulting, in the first three quarters of 2013, 51 cases settled for a total of approximately $215 million. Each employer paid an average of $4.5 million to resolve its wage and hour case in 2013 (less than in 2012), and the average settlement value per person rose to $7,000. In 2013, more than half of the class action suits had fewer than 1,000 plaintiffs. Almost 50% of the wage and hour litigation arose out of California, with New York coming in second with 17.2% of the cases, down from 40.6% in 2012. Forty-five percent of cases related to allegations of unpaid overtime. It is possible that more proactive compliance audits and corrective actions led to lower settlement amounts.

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Topics: ECA Risk Forecast Report 2014

Labor & Employment Issues: Whistleblowers and Workplace Bullying

Whistle While You Work

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Topics: ECA Risk Forecast Report 2014

Labor & Employment: Supreme Court Rulings

Last term, the United States Supreme Court decided two cases in favor of employers. Under current precedent, if a supervisor who has sexually or racially harassed an employee takes an adverse action against that employee such as termination or demotion, the employer is held strictly liable for that action. For an employer to be held liable for co-worker harassment, however, the employer merely has to be negligent in failing to stop the behavior. In Vance v. Ball State, a case closely watched by the employer community last term, the Supreme Court rejected the Equal Employment Opportunity Commission’s position that co-workers could be deemed supervisors in harassment cases if they had the ability to direct the employee’s daily work activities. Instead, the Court found the EEOC’s standard too ambiguous and ruled that “the ability to direct another employee’s tasks is simply not sufficient” to deem someone a supervisor. Instead, the Court held that an employee is a “supervisor” under Title VII only if he is empowered by the employer to take tangible employment actions against the alleged victim. The dissent called for Congress to take action to remedy the perceived wrongs in the majority’s decision.

In another case, University of Texas Southwestern Medical Center v. Nassar, the Court made it clear that plaintiffs in retaliation cases have a higher burden than in traditional employment law cases, where employers can be held liable if wrongful discrimination is a motivating factor. Under Nassar, a plaintiff must now prove that retaliation was a determinative standard, not just a motivating factor in an adverse action. Justice Ginsburg, who wrote the dissent in Vance as well, also dissented in Nassar, arguing that the majority was “driven by a zeal to reduce the number of retaliation claims filed against employers.” She once again called for Congressional action similar to the Civil Rights Restoration Act of 1987, which overturned a number of controversial Supreme Court rulings from the 1980s. Compliance officers should watch these developments closely. If Congress does take up Justice Ginsburg’s challenge, employers may face an uptick in harassment and retaliation cases.

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Topics: ECA Risk Forecast Report 2014

About this blog

Tackling compliance and ethics issues from around the world.

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