PwC and Compliance Week Release State of Compliance: 2011; Study Finds Companies Struggle to Measure Effectiveness of the Compliance Function

Benchmark report reveals effectiveness is key; almost half of respondents predict they will experience a compliance risk within the next 18 months

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May 24, 2011, 01:24 ET

NEW YORK, May 23, 2011 /PRNewswire/ -- The results of The State of Compliance: 2011, an inaugural study conducted by PwC US and Compliance Week, will be released today at the Compliance Week 2011 6th Annual Conference for corporate financial, legal, risk, audit and compliance officers in Washington, D.C. The report – the first of its kind – identifies a wide range of compliance issues confronting organizations today and will stay current as new companies participate, accurately reflecting the changing compliance landscape.

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Senior compliance officers at more than 100 leading U.S. companies responded to 28 questions in four key areas critical for the compliance function: leadership, reporting relationships and structure; compliance function scope, focus and risk; metrics to gauge program effectiveness; and budget, staffing and resources. A major finding of the study: One of the biggest obstacles facing Chief Compliance Officers (CCOs) is measuring the effectiveness of their compliance functions - almost 40 percent of the companies surveyed said they make no attempt to measure the effectiveness of their compliance program.

"An effective compliance program is the cornerstone of cooperation credit allowed under the U.S. Sentencing Guidelines and stakeholders are demanding much higher transparency in how compliance risk is effectively managed," said Miles Everson, PwC principal and global and U.S. risk and compliance leader. "Without a clear measure of the compliance department's effectiveness, much else is in jeopardy. Lacking this, how does the board know that compliance risks are effectively addressed? Let alone that the compliance function itself is effective? What we learned is that many of the metrics are really measures of activity - as opposed to actual effectiveness."

According to the study, a critical element to the compliance department's success is the perceived stature of the CCO and his or her influence among other top leadership.

"It's essential that the compliance function have visibility and direct access both to senior executives in the organization and to the board or one of its committees," added Everson. "This access helps keep risk and compliance issues on the company's agenda and lets key ethics and compliance issues surface in a timely fashion."

The State of Compliance survey also provided another interesting glimpse into corporate compliance when it asked about reporting structures. Regulators have long preferred that a company's top compliance officer report directly to the board, and just last year the U.S. Sentencing Guidelines were revised to state more clearly that CCOs should not be, nor report to, the general counsel. Still, a solid plurality of survey respondents (43 percent) said they do report to the general counsel; another 32 percent said they report to the CEO. Only eight percent said they report directly to the audit committee of the board.

"The government oversight burden and pressure for transparency is increasing at a rate much faster than in other areas," said Erik Skramstad, PwC partner and U.S. forensic services practice leader. "Every one of my clients is enormously concerned about regulatory oversight and expectations around effective compliance."

PwC and Compliance Week also found that, over the next 18 months, CCOs anticipate significant challenges when it comes to risk - and that when issues arise, they expect the consequences to be severe. When asked about several high-level categories of risk, such as compliance risk, security risk, reputational risk and others, 48 percent believed the likelihood of a compliance failure was high or very high. What's more, 65 percent of respondents felt the impact of a compliance risk event, should it occur, would be high or very high.

The study also found that compliance functions are highly "matrixed," depending on cooperation with many other corporate functions to fulfill the overall compliance mission. Effective compliance programs need input and guidance from many different voices in the company (IT, internal audit, finance, security). It is in the company's benefit for the compliance department to borrow resources from those teams to achieve its goals, rather than build its own expertise in each department.

"Compliance is a complex collaboration, not a single event or function," said Matt Kelly, Compliance Week's editor-in-chief. "It takes place across the organization and involves coordination across the enterprise. Compliance begins with a state of mind at the top, but we can also see that it extends through the enterprise, across its people, processes and systems."

To participate in the study or for more information, please visit: http://Ez.com/CompliancePwC. All companies participating in the study will be provided a comprehensive benchmarking report that includes a comparison of their survey responses to the population. By working with PwC, further analysis of the data is possible.

For more information on PwC's Risk and Compliance practice please visit: www.pwc.com/us/risk.

About the State of Compliance: 2011 Study

The study, titled The State of Compliance: 2011, is based on a survey developed by PwC, Compliance Week and an advisory committee comprised of senior compliance executives representing a cross-section of leading U.S. companies. The study will provide a "snapshot" of how leading U.S. companies organize, administer, scope and staff the compliance function.

About Compliance Week

Compliance Week, published by Haymarket Media Inc., is an information service on corporate governance, risk and compliance that features a weekly electronic newsletter, a monthly print magazine, proprietary databases, industry-leading events, and a variety of interactive features and forums. It reaches more than 26,000 financial, legal, audit, risk and compliance executives, and is based in Boston, Mass.

About PwC's Advisory Practice

PwC's Advisory professionals help organizations improve business performance, respond quickly and effectively to crisis, and extract value from transactions. We understand our clients' industries and unique business challenges, and look across the entire organization -- focusing on strategy, structure, people, process and technology -- to help clients build their next competitive advantage. See www.pwc.com/us/advisory for more information.

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

SOURCE PwC