Reasons to Outsource a Chief Compliance Officer.

Author:Hanson, John
Position:Ethics Corner

The outsourcing of high-level management functions is nothing new. It has been done with chief financial officers, general counsels, internal audit, IT, and even CEOs and chief operating officers for decades.

Similarly, some small- to mid-sized government contractors are finding that outsourcing the chief compliance and ethics officer (CCEO) role is more effective, both as to cost and effectiveness, than hiring one internally. One estimate states that nearly a quarter of firms outsource some or all of their compliance functions.

A contractor may be required by Federal Acquisition Regulation 52.203-13 to have a corporate compliance and ethics program. According to a 2017 survey, the average annual total compensation of a CCEO in the aerospace and defense industry is $198,000, a hefty price for a small- to mid-sized company. Moreover, finding an experienced person to fill that role who really understands what constitutes an effective program, and who has some degree of credibility with government agencies, can be very difficult.

There are several reasons why outsourcing the role may be the better solution. One is immediate confidence in the compliance expert and the expert's advice by stakeholders. Stakeholders may be aware of the current lack of in-house skills and want better assurance regarding the company's compliance measures and program.

Another is trust among the regulators. An independent, objective, third-party compliance professional may give government officials more confidence in a company's program and demonstrate its commitment to invest in ethics and compliance. This is one of the primary reasons government agencies may require a company to engage an independent corporate monitor when resolving issues involving misconduct.

It might also save time and money. Because the outsourcing of the function may be done using flat monthly rates, the company benefits from more accurate costs for budgeting, as well as on-demand expertise for: compliance policy drafting/revising; training and guidance; hotline investigations; compliance and ethics risk assessments; auditing and monitoring; and reporting--all without the added costs of recruiting, training, orientating, supporting and managing internal compliance staff.

The monthly cost of outsourcing the chief compliance and ethics officer role to an expert can be significantly less than hiring an experienced professional in-house.

Companies should also appreciate that having just a code of...

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