The New World of Corporate Responsibility

Nancy Lanis Senior VP & General Counsel Curative Health Services Hauppauge, NY Michael L. Shaw Senior Manager PricewaterhouseCoopers LLP Washington, DC Jody Ann Noon RN, JD Partner Deloitte & Touche LLP Portland, OR

An Overview of the New Drivers of Corporate Responsibility: The Sarbanes-Oxley Act, NYSE Listing Requirements, and NASDAQ Proposal Discussion of Key Considerations and Intersection with Traditional Compliance Program and Internal Control Concepts

It‟s The Law!

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It‟s also expensive!
SEC Reporting and Disclosure Changes Summary of Estimated Impact (Incremental Costs) One Time / Initial Independent audit scope changes and fee increases Internal audit expansion Internal audit expansion External legal fees increases Legal resources expansion Outside consulting services Corporate governance changes (BOD, D&O premiums) Finance/accounting/reporting expansion $1,000,000 - $5,000,000 $250,000 - $500,000 $250,000 - $500,000 $800,000 - $1,500,000 $150,000 - $250,000 $400,000 - $600,000 $200,000 - $250,000 $250,000 - $500,000 Ongoing / Annual $1,000,000 - $5,000,000 $200,000 - $300,000 $200,000 - $300,000 $500,000 - $1,000,000 $100,000 - $200,000 $250,000 - $300,000 $200,000 - $400,000 $250,000 - $300,000

The added expenses as a result of increased regulatory requirements: (Assumes a "typical" Fortune 500 company with $3 billion in sales, global operations, an inhouse internal audit function, in-house legal counsel and significant disclosure requirements.)
Source: Financial Executive, January / February 2003 – “New Regulations: Preparing for the Unplanned Costs” By Johnsson and Wiechart
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Required process improvements
System enhancements Total Incremental Costs

$200,000 - $400,000
$250,000 - $500,000 $4,000,000 - $9,000,000

$100,000 - $200,000
$200,000 - $300,000 $3,000,000 - $8,000,000

Topics Overview •Sarbanes Oxley Act. Individual Directors – Board of Directors. Board Committees – Outside Auditor – Recommended Actions to Enhance Compliance Programs • Discussion 4 . NYSE and NASDQ Listing Requirements Overviews-Corporate Governance and Disclosures •Practical Impact on Compliance Standards and Corporate Governance – Integrity and Disclosure Requirements – Executives.

Topics Overview (cont‟d) •Additional Aspects of Sarbanes-Oxley – Document Retention and Destruction – Whistleblowers – Attorney Reporting Responsibilities – Enforcement Penalties • Intersection with Compliance Programs • Discussion of Internal Controls • Question & Answers 5 .

Sarbanes Oxley Act. NYSE and NASDAQ Listing Requirements AN OVERVIEW Nancy Lanis Curative Health Services .

Financial Reporting and the Public Accounting Profession •Also impacts legal community and investment banking analysts Curative Health Services 7 . 2002 •Corporate scandals (Enron. WorldCom) provided impetus for Congress to act quickly •SOA approved by near unanimous vote in Congress (vote of 99-0 in the Senate and 423-3 in the House) •Fast pace of approval likely to result in need for numerous interpretations and explanations •Potential for far reaching impact on Corporate Governance and Conduct.Sarbanes Oxley Act OverviewCorporate Governance and Disclosures • Sarbanes-Oxley Act of 2002 (“SOA”) enacted July 30.

Sarbanes Oxley Act OverviewCorporate Governance and Disclosures (cont.) •Several provisions of the SOA require detailed regulations by the SEC and other regulatory bodies •SOA aims to restore investor confidence in financial reporting and public capital markets •Broadly speaking the Act‟s provisions seem to be built around the following principles: – – – – – – – Integrity Independence Proper Oversight Accountability Strong Internal Controls Transparency Deterrence Curative Health Services 8 .

Bulletin/New rule proposals issued 1/6/03 – Heightened Corporate Governance standards through additional listing requirements – Some additional requirements beyond SOA requirements – SEC. Summary issued 10/10/02. 2002 •Board of Directors of NASDAQ approved new proposals in May and July.NYSE and NASDAQ Listing Requirements Overview. will vote to approve proposals – SEC voiced intent to combine NYSE and NASDQ requirements Curative Health Services 9 .Corporate Governance and Disclosures •Board of Directors of NYSE approved new proposals in August. 2002. after public comment period.

The Impact of New Standards on Compliance Programs and Corporate Governance Nancy Lanis Curative Health Services .

Practical Impact.Disclosures and the Integrity Chain •Intended to provide more reliable. Individual Directors •Requirements affecting the Board of Directors and Board Committees •Requirements affecting outside Auditors Curative Health Services 11 . reinforce accountability •Requirements affecting Senior Executives. timely and useful information to investors •Requirements span the reporting supply chain.

criminal certifications) (see appendix) •Establish and assess disclosure controls and procedures for collecting.Requirements Affecting Senior Executives. Senior Financial Officers (Disclose in 10K after 1/26/03) •Clawbacks for CEO/CFO bonus. Individual Directors •CEO/CFO Certifications to assure accuracy. stock sales profits if company‟s financial statements are restated due to misconduct (12 months from 1st disclosure) Curative Health Services 12 . processing and disclosing information required to be disclosed in periodic reports (10K. completeness and timeliness (separate civil. 10Q. 8-K) (current requirement). internal control reports in annual reports (fiscal years post 9/15/03) •Accelerated reporting by Executive Officers and Directors (2 days) •Code of Ethics.

contractual commitments.Requirements Affecting Senior Executives.benefit plan blackout periods Curative Health Services 13 . other material. and contingent liabilities ( Q1 „03) – Pro forma (non-GAAP) information. effective Q1 „03) •Trading restrictions for Executive Officers and Directors.Forms 10K and 10Q („04) •No improper influence of Auditors (SEC proposed 10/02. non-public information about annual/quarterly fiscal periods on Form 8-K (Q1 „03) – Additional (and accelerated) Form 8-K events (SEC proposed 6/02) – MD&A critical accounting policies (SEC proposed 5/02) – SHS approve equity-based compensation plans (NYSE/NASD 10/02 filings with SEC) – Company web-site address – New filings deadlines.quantitative reconciliation (Q1 „03) – Earnings releases. Individual Directors (cont‟d) •Additional disclosure issues – Off-balance sheet transactions.

timely. accurate. understandable disclosures – compliance with applicable laws. similar functions Exhibit to annual report SOA Disclosure obligation only. rules and regulations – prompt internal reporting of code violations – accountability for adherence – Form 8-K disclosure of modifications. CFO. (NYSE and NASD propose requirement) Content – honest and ethical conduct – avoidance of conflicts of interest – full. waivers (NYSE/NASD propose require disclose waivers) Curative Health Services 14 . Individual Directors (cont‟d) Code of Ethics (NASDAQ-6 months post SEC approval) – – – – CEO. principal accounting officer or Controller. fair.Requirements Affecting Senior Executives.

Board Committees •Corporate Governance requirements affecting full Board of Directors •Audit Committee oversight. pre-approvals – Audit Committee and independent Auditors seen as key to restoring faith in the process of financial reporting and oversight – Audit Committee will have enhanced role in Corporate Governance •Bans on loans to Executive Officers/Directors (Compensation Committee) Curative Health Services 15 .Requirements Affecting Board of Directors. reporting mechanism. composition/integrity.

within 24 months SEC approval) (NASDQ-1st annual meeting after 1/1/04) – Regularly convened executive sessions (independent Directors only) (NYSE/NASDAQ-6 months from SEC approval) Curative Health Services 16 .Requirements Affecting Board of Directors. Board Committees (cont‟d) •Corporate Governance Requirements Affecting Full Board: •Current NYSE/NASDAQ proposals (SEC may combine): – Majority of independent directors (NYSE.

Board Committees (cont‟d) •Corporate Governance (Proposed) Requirements Affecting Full Board: •Independent Director standards will be increased (for example): • NASDAQ – – – – – No family member employed as executive officer in past 3 years No former outside auditor partner/employee during last 3 years No interlocking compensation committee issue during past 3 years Not-for-profits covered if size tests met Director or family member may not receive any payments >$60.000 other than for board service • NYSE – Similar requirements.Requirements Affecting Board of Directors. but 5 year cooling off periods – Board must affirmatively determine no material relationship with company and disclose determination Curative Health Services 17 .

Requirements Affecting Board of Directors. Board Committees (cont‟d) •Additional Corporate Governance (Proposed) Requirements: – Independent Director approval of Director nominations – Adopt/disclose code of business conduct and ethics – SH approval for adoption/material modification of stock option plans – Independent Director approval of CEO and Executive Management compensation (NASDAQ) – Director Continuing Education to be mandated (NASDAQ) – Material misrepresentation/omission to NASDAQ may be basis for delisting (NASDAQ) – – – – Nominating/Governance Committee Charter (NYSE) Compensation Committee Charter (NYSE) Adopt/disclose Corporate Governance guidelines (NYSE) Annual CEO disclosure not aware of listing violation (NYSE) Curative Health Services 18 .

compensate and oversee outside Auditor (NASDAQ) • Approve. compensation and oversight” of independent Auditors (SOA). the provision by the Auditor of all permissible non-audit services • Authority to engage and determine funding for independent counsel and other advisors. in advance.) Have sole authority to appoint.Audit Committee Oversight Increased Audit Committee Oversight Responsibilities: – Directly responsible for “appointment.6 months post SEC approval) Curative Health Services 19 . company must provide funding • Have a written charter (NYSE)(NASDAQ.

any material issues raised by the most recent internal quality control review. discussing risk assessment and Curative Health Services risk management) 20 . obtain and review a report by the independent Auditor describing the firm‟s internal quality control procedures. peer review or any inquiry or investigation within the preceding five years and assess the Auditor‟s independence with respect to all relationships between the independent Auditor and the company (NYSE) • Discuss annual and quarterly financial statements with management and independent Auditor. including MD&A (NYSE) • Establish complaint reporting procedures/mechanism • Audit Committee must review and approve all related-party transactions (NASDAQ) • Additional NYSE requirements (e..g.Audit Committee Oversight (cont‟d) • At least annually.

disclosure requirements Curative Health Services 21 . Cannot be company employee/family member.Audit Committee Composition • Independence – Audit Committee member not to receive any compensation other than for board or committee service – Audit Committee member may not be affiliate of the company or its subsidiary (NASDAQ= own/control >20% voting stock ) – NASDAQ – Limit time non-independent Audit Committee members can serve to 2 years. affirmative board determination required that in best company interests. prohibited from serving as chair.

consider education and experience as public accountant or Auditor or public company CFO. Controller.”(SOAdisclosure requirement in 10K after 1/26/03)(NYSE/NASD require) • All Audit Committee members must be able to read and understand financial statements (NYSE/NASDAQ.Audit Committee Composition (cont‟d) • Financial Expertise – Audit Committee must include at least one “financial expert.at time of appointment) • At least one member of the Audit Committee must have accounting or related financial management expertise (NYSE). and sufficient financial expertise in the accounting and auditing areas specified in SOA (NASDAQ) Curative Health Services 22 .

retention and treatment of complaints regarding accounting. record-keeping and responsive actions – Provide mechanism for employees to submit concerns on a confidential.Audit Committee Reporting Mechanism •Complaint Procedures: – Must establish procedures for receipt. – Implies reporting mechanism. anonymous basis regarding questionable auditing or accounting matters. internal accounting controls and auditing issues. Curative Health Services 23 .

10Q) Curative Health Services 24 .see next slide) • Disclose such non-auditing approvals in periodic reports (10K.Audit Committee Pre-approvals • Must pre-approve any non-auditing service to be performed by outside auditors (but certain services prohibited.

investment adviser or investment banking services – Legal services and expert services unrelated to the audit – Any other service determined to be impermissible by the future Public Company Accounting Oversight Board Curative Health Services 25 .Requirements Affecting Outside Auditors •New Auditor Independence Requirements •Registered public accounting firms will be prohibited from providing eight types of non-audit services to audit clients: – Bookkeeping or other services related to company‟s accounting records or financial statements – Financial information systems design and implementation – Appraisal or valuation services. fairness opinions – Actuarial services – Internal audit outsourcing services – Management functions or human resources – Broker or dealer.

Requirements affecting Outside Auditors (cont‟d) •Public Company Accounting Oversight Board established – Oversight of audit of public companies. 2003 – 5 members (only 2 CPAs) Curative Health Services 26 . First meeting held January. protect investor interests – Responsibilities include: – Register and inspect public accounting firms – Set standards for outside Auditors – Enforce compliance with SOA – Not a government agency.

and treatment preferred by the Auditor – Other material written communications with management Curative Health Services 27 .Requirements Affecting Outside Auditors (cont‟d) •Mandatory Auditor rotation: Partner cannot be lead or review partner for more than 5 consecutive years •Outside Auditor must timely report to Audit Committee: – All critical accounting policies and practices to be used in financial reports – All alternative treatments of financial information within GAAP that have been discussed with management. ramifications of their use.

Provisions Affecting Board Compensation Committees •Prohibitions on loans to top management and Directors: – Public companies now prohibited from directly or indirectly making personal loans to Executive Officers – Elimination of other types of loan-related “sweetheart deals” for Executive Officers • Covers company and subsidiaries • Grandfathers loans outstanding prior to 7/30/02 (but no material modifications or extensions) Curative Health Services 28 .

determine gaps requiring new standards •Develop and implement new standards •Communicate to and train appropriate individuals – Board of Directors – Senior Management – Compliance Officer – Other Employees • Enhance reporting mechanism (ensure Audit Committee link) Curative Health Services 29 .Recommended Actions to Enhance Compliance.Specific Steps •Assess/document P&P. processes already in place.

Board and Board Committee Oversight •Consider/incorporate auditing.Recommended Actions to Enhance Compliance. Compliance Committee.Specific Steps (cont‟d) •Consider/clarify relationship of Internal Audit/Public Reporting Compliance Coordinator. Compliance Officer. monitoring approaches in compliance program •Opportunity to consider/incorporate overall risk assessment and risk management •Incorporate responsive actions in compliance program Curative Health Services 30 .

determine gaps requiring new P&P Curative Health Services 31 .Recommended Actions to Enhance Compliance.Specific Steps (cont‟d) •Financial and Disclosure controls: – Develop timeline/calendar for preparing annual/quarterly reports. Directors.competitor reports. processes already in place – Review/research disclosure rules to assure all covered in process. review industry information. analyst research reports (identify issues that be material to investing public). distribute to Management. Legal Counsel and Auditors – Prepare Disclosure Guidelines – Assess/document P&P.

Specific Steps (cont‟d) •Financial and Disclosure controls: – Prepare Disclosure Guidelines (continued) – Identify appropriate individuals to involve in process.Recommended Actions to Enhance Compliance. checklists. form Disclosure Committee Curative Health Services 32 . CEO/CFO review – Assign responsibility to appropriate specific individuals – Consider appropriate oversight and disclosure mechanismse.principal accounting officer/controller.g. subsidiary parallel positions. risk management. business unit heads. in-house counsel. investor relations.. compliance officer.

reviews.Recommended Actions to Enhance Compliance. including review – Document meetings.Specific Steps (cont‟d) •Financial and Disclosure controls: – Prepare Disclosure Guidelines (continued) – Back-up certifications by key individuals – Consider parallel clawbacks in event of material restatement – Legal Counsel review of reports – Outside Auditor/Audit Committee roles. approvals/pre-approvals – Review/revise Audit Committee charter Curative Health Services 33 .

how many already include accounting. internal accounting controls. Board Committees (Audit. Disclosure Committee. Compliance Committee. Governance. Internal Audit. Compliance). auditing issues? •Can Auditor also provide CIA IRO services? •Risk Assessment/risk management relationship with Compliance officer/compliance policies Curative Health Services 34 .Discussion •Compliance Officers‟ Brave New World? Familiarity with Financial and Disclosure Controls? •Respective roles of Compliance Officer. CFO. Legal Counsel – How many have Board Compliance Committees? •Hotlines/reporting mechanisms.

APPENDIX Reporting & Internal Controls .

the financial position. including any corrective actions with regard to significant deficiencies and material weaknesses Note: Individual certifications above and any corresponding disclosure requirements have various effective PricewaterhouseCoopers LLP dates beginning with filings made after August 29. established. 2002. 36 . in all material respects. and maintained Disclosure Controls & Procedures (“DC&P”). results of operations and cash flows • He/she is responsible for and has designed.Act Imposes Important Reporting Requirements on Management Section 302 (and related SEC rule) (Civil)– CEO/CFO Must Certify Quarterly and Annually that: • SEC report being filed has been reviewed • Report does not contain any untrue statements or omit any material facts necessary to make the statements made not misleading • Financial statements fairly present. as well as any fraud (material or not) involving anyone with a significant role in internal control • Significant changes in internal control affecting controls for periods beyond review have been reported in the certification. as well as evaluated and reported on the effectiveness of those controls and procedures within 90 days of the report filing date • Deficiencies and material weaknesses in internal control have been disclosed to Audit Committee and auditors.

2002) • Fully comply with 34 Act and information fairly presents financial condition and results of operations PricewaterhouseCoopers LLP 37 .Act Imposes Important Reporting Requirements on Management (continued) Section 404 – Management Must Assess Internal Controls Annually (Effective date pending) • Internal control report states management‟s responsibility for establishing and maintaining adequate internal control structure and procedures for financial reporting • Management must assess effectiveness of internal control structure and procedures for financial reporting as of the end of the most recent fiscal year • Attestation by external auditor (Section 404 and 103) Section 906 (Criminal) – CEO/CFO Must Certify that Periodic Financial Reports (Effective July 30.

Cautionary Note Recent CEO/CFO certifications filed with the SEC (either in respect of its “one time” Order or pursuant to Section 906) do not contain any explicit assertions about internal controls. PricewaterhouseCoopers LLP 38 . As Section 302 and 404 provisions require certification or assessment of specified controls. companies will need to assess the implications of these expanded reporting responsibilities. and determine the nature of any additional steps that should be taken in response thereto.

enhance controls and establish monitoring programs to enable CEOs and CFOs to make their evaluations and report their conclusions. • The SEC provides a definition of Disclosure Controls and Procedures and related objectives but does not outline specific requirements.General Rather Than Specific Requirements Have Been Established • Management must determine for themselves the structure. • In general. PricewaterhouseCoopers LLP 39 . the new certification requirements may require some companies to formalize control structures. other than recommending the establishment of a disclosure committee. The SEC expects that each company will develop a process that is consistent with its business and internal management and supervisory practices. approach and level of documentation and formalization that gives the CEO/CFO the requisite basis (and confidence) to provide Section 302 quarterly certifications.

without limitation. as appropriate to allow timely decisions regarding required disclosure.Understanding Requirements for Disclosure Controls and Procedures The SEC defines DC&P as follows: Controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Exchange Act is recorded. processed. PricewaterhouseCoopers LLP 40 . "Disclosure controls and procedures” include. controls and procedures designed to ensure that information required to be disclosed by an issuer in its Exchange Act reports is accumulated and communicated to the issuer's management. In this regard. analyzing and disclosing all information – BOTH financial and non-financial – that is required to be disclosed in specified and periodic filings. including its principal executive and financial officers. within the time periods specified in the Commission's rules and forms. summarized and reported. the SEC intends that companies maintain controls and procedures (commensurate with those already required with respect to financial reporting) for gathering.

Special Issues for Lawyers and Compliance Officials
Michael L. Shaw

PricewaterhouseCoopers LLP

Special Issues for Lawyers and Compliance Officials
•Document retention and destruction •Whistleblowers protection

•Attorney reporting responsibilities
•Increased enforcement penalties

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Documents (cont‟d)

• 18 U.S.C. § 1519: “Whoever knowingly alters, destroys . . . with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any [U.S.] department or agency . . . or in relation to or contemplation of any such matter or case . . .” • Highlighted language raises questions: – Could common document retention/destruction policies result in violations where they call for destruction of documents relevant to a matter that could arise in the future? – Potential problem if a document retention program is set up with the intent to avoid future Government liability.
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PricewaterhouseCoopers LLP 44 .Documents (cont‟d) •Need to develop a business justification for every element of the document destruction plan •Document destruction program should exempt from destruction all documents that could be used in future investigations •Company‟s e-mail policy and document retention policies should be reviewed and revised to accord with new statutory requirements.

lawyer must report directly to Board of Directors or designated Board committee PricewaterhouseCoopers LLP 45 . 307) •Two-tiered disclosure obligation: (1) Rules will require in-house and outside counsel to report securities law violations to company‟s CEO or chief legal officer.SEC Lawyers •New Lawyer Disclosure Obligation: SEC to issue rules within 180 days setting minimum standards for lawyers appearing/practicing before the SEC (Sec. (2) If they don‟t respond appropriately.

will probably include work on registration statements – What kind of “evidence” should an attorney have? PricewaterhouseCoopers LLP 46 .SEC Lawyers (cont‟d) •Materiality standard: SEC is to adopt rule “requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof ” •Good news – “Materiality” limitation – No reporting outside the company is required •Troublesome issues: – “Practicing before the Commission” is a broad standard.

SEC Lawyers (cont‟d) – What is a “similar violation?” – What is an “inappropriate” response on the part of the CEO or Chief Legal Officer. that would require the attorney to go to the Audit Committee or full Board? – What if the Audit Committee or Board are complicit in the wrongdoing. or refuse to take remedial action? •Legal department may want to articulate and disseminate standards to staff as to when they must come forward to the General Counsel PricewaterhouseCoopers LLP 47 .

S.S.Whistleblowers (cont‟d) • Sweeping new protections for whistleblowers-• Modeled after protections for airline employees reporting safety violations • Two new criminal provisions to protect whistleblowers • 18 U. § 1514A PricewaterhouseCoopers LLP 48 .C.C. § 1513 • 18 U.

. . with the intent to retaliate.S. . § 1513(e): – Knowing and intentional action to retaliate – Against any person (not just an employee) – Providing truthful information relating to commission or possible commission – A law enforcement official (not just a Federal agent) – Regarding any Federal offense PricewaterhouseCoopers LLP 49 .Whistleblowers (cont‟d) • 18 U. . takes any action harmful to any person .C. § 1513: “Whoever knowingly. for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense .C.” • Elements added to 18 U.S.

PricewaterhouseCoopers LLP 50 . attorneys‟ fees. § 1514A: – Prohibits a company from sanctioning an employee because of any lawful act to provide information about “fraud against shareholders” to (1) a Federal agency.C. or (3) employee‟s supervisor. – 90-day statute of limitations: employee must file claim within 90 days of retaliation.Whistleblowers (cont‟d) •Elements of 18 U. – Provision construed narrowly: applies only to information provided in connection with an ongoing proceeding. back pay. – Authorizes civil action for damages and equitable relief. etc. including reinstatement. (2) Congress.S.

§ 1348: Scheme or artifice to defraud – 18 U. criminal fraud.C.S.S.C. Sentencing Commission to boost penalties for obstruction of justice. § 1350: Knowing violations involving new CEO/CFO certifications •Enhanced Penalties: – Multiple directives to U. accounting and securities fraud.S.New Felonies and Increased Criminal Penalties •Substantive new offenses added by the Act: – 18 U. and the new “white collar” provisions in the Act related to document destruction or tampering PricewaterhouseCoopers LLP 51 .

New Felonies and Increased Criminal Penalties (cont‟d) – Enhanced penalties for conspiracies (from 5 years to same level as underlying offense) – Stiffer penalties for criminal ERISA violations – Doubles the penalties for criminal violations of Securities Act of 1934 PricewaterhouseCoopers LLP 52 .

Intersection with Compliance Programs and Internal Control Concepts Michael L. Shaw PricewaterhouseCoopers LLP .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Federal Sentencing Guidelines  Experience from other industry sectors  OIG Compliance Program Guidance Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention PricewaterhouseCoopers LLP 54 .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Code of Conduct  Commitment by senior management  Distribution to applicable employees and contractors  Updating to address new risks  Values approach Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention  Records retention PricewaterhouseCoopers LLP 55 .

and monitoring the compliance program Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention  Direct access to Board and/or CEO  Updates to Board and/or CEO  Operational Committee PricewaterhouseCoopers LLP 56 . operating.Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  High-level involvement  Responsibility for developing.

reinforce policies and procedures.Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  General and specific training sessions on a periodic basis  Cover commitment. and address risks  Conducted for applicable employees and contractors  Documentation of training efforts Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention PricewaterhouseCoopers LLP 57 .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Hotlines  Exit interviews  Periodic surveys  Supervisor accountability  Documentation of issues identified and resolved  Periodic reports on issues handled  Non-retaliation policy PricewaterhouseCoopers LLP 58 Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Internal or external evaluators to perform regular reviews  Focus on high-risk areas  Validation of policies and procedures  Qualifications of reviewers  Corrective action in response to audit results  Monitoring and reporting of audit efforts PricewaterhouseCoopers LLP 59 Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Consequences of violating the law. the Code of Conduct. or policies and procedures  Violations reviewed and resolved on a case-by-case basis  Consistent disciplinary action  Confidentiality  Periodic reports of action taken Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention PricewaterhouseCoopers LLP 60 .

Intersection with Elements of a Compliance Program Standards and Procedures Oversight Responsibility  Prompt investigations of reasonable allegations of suspected noncompliance  Decisive steps to correct problems identified  Reporting to Government when appropriate under the advice of legal counsel Education and Training Lines of Communication Monitoring and Auditing Enforcement and Discipline Response and Prevention PricewaterhouseCoopers LLP 61 .

Addressing DC&P Requirements LEGEND Disclosure Requirements Disclosure Controls and Procedures Operations Financial Reporting Internal Accounting Controls Compliance Other aspects of Compliance and Operations pertaining to DC&P Internal Controls Over Financial Reporting 62 .

Including the Certification Effort 63 .Operationalizing the Control Structure.

Management and other personnel.What are „Internal Controls‟? What are Internal Controls? •COSO defines internal controls as a process effected by an entity‟s Board of Directors. designed to provide reasonable assurance regarding achievement of the objectives in each of the following categories:  Effectiveness & Efficiency of Operations  Reliability of Financial Reporting  Compliance with Applicable Laws and Regulations PricewaterhouseCoopers LLP 64 5 .

verifications. authority. Control Activities • Policies/procedures that ensure management directives are carried out. • Foundation for all other components of control. • Range of activities including approvals. • Internal audit activities. ethical values.The Five Components under the COSO the COSO Framework Framework Monitoring • Assessment of a control system‟s performance over time. competence. • Combination of ongoing and separate evaluation. • Access to internally and externally generated information. Control Environment Information and Communication • Pertinent information identified. All five components must be in place for a control to be effective. recommendations. • Factors include integrity. authorizations. PricewaterhouseCoopers LLP 65 6 . • Flow of information that allows for successful control actions from instructions on responsibilities to summary of findings for management action. responsibility. Risk Assessment • Risk assessment is the identification and analysis of relevant risks to achieving the entity‟s objectives-forming the basis for determining control activities. performance reviews. • Sets tone of organization-influencing control consciousness of its people. captured and communicated in a timely manner. asset security and segregation of duties. • Management and supervisory activities.

Benefits of the New Law • • • • Increased confidence of CEO/CFO in meeting reporting requirements Improved coordination of Company Management Team Improved and clarified Corporate Governance process Systematized process for early identification of business risks/ whistle blowing issues/incident management • Systematized approach to dealing with change (i. accounting principles.. internal controls and operating procedures) • Increased operational effectiveness PricewaterhouseCoopers LLP 66 . transactions.e. personnel.

transparency. while those of others have been made more explicit. Good internal controls are not just a best practice……the Act reinforces them in the Law! PricewaterhouseCoopers LLP 67 .Final Observation The Sarbanes-Oxley legislation has established a new paradigm for corporate responsibility. Responsibilities of some parties have increased. accountability. and behavior. And the Act has established a new standard for companies regarding the reporting of internal control effectiveness.

JD . RN.Compliance Programs – The Missing Link Jody Ann Noon.

Complex Processes and Organizational Models The Health Care & Life Sciences Industry faces an everchanging spectrum of risks: • Who is responsible for managing risks related to each activity? What should be done to plug any gaps? • What are the mechanisms for escalating emerging risks? • Who monitors risk management activities to ensure they are effective? 69 .

Revenue Recognition) Health & Safety • Complex. rapidly changing.g..Scope of Compliance Corporate Governance • • • • • • Fraud (Sarbanes-Oxley) Foreign Corrupt Practices Act RICO Anti-Trust Federal Sentencing Guidelines Financial Reporting (e. global industry • Increasing regulatory oversight • Complex and inconsistent regulations around the world • Heightened awareness of compliance as a result of corporate scandals • Compliance risks impact almost everyone in the global enterprise • • • • • Medicare Medicaid Environmental Protection (EPA) Occupational Health (OSHA) Food & Drug (FDA) Consumer Protection • HIPAA • Gramm Leach Blilely • EU Directive The Compliance challenge – to leverage and integrate the full resources of the enterprise to manage key risk and product quality 70 .

quality and management strategies – Compliance well placed to “connect the dots” across the enterprise 71 . frank communication of emerging issues may not always occur • Inconsistent approaches to managing risks between “silos” – Quality.g. Sarbanes-Oxley. OIG compliance guidelines. FDA) – Compliance impacts almost all functions and employees – Processes to monitor compliance can be used to monitor other risks and quality – Compliance can serve as a focal point for debating emerging risk issues.Point of View • Organizations tend to manage risks in “silos” – Limited ability to aggregate risk exposures – Difficult to identify interrelationships between risks – Timely. Compliance and Risk Management not well integrated – IT often an issue – opportunity for Compliance to take a broader view in assessing IT controls across the silos – Few internal audit functions have a true enterprise-wide view of risk • Opportunity for Compliance to play a more strategic role: – New compliance requirements demand that companies take a broader view of risk (e..

compliance and quality activities. clinical trials. 72 .g.The Role of Compliance The effectiveness of Senior Management’s oversight is typically limited because: • Limited linkage between governance and control activities • Existing internal control structures do not address the full range of risks • Key risks are managed by separate groups (e. FDA compliance.. manufacturing quality) Compliance The “missing link” is a compliance program and infrastructure to measure and monitor the effectiveness and alignment between corporate governance and business unit / functional risk management.

Sarbanes) Service Delivery FDA Privacy False Claims CoPs Sales & Marketing Kickbacks Privacy Accounts Receivable False Claims SEC Quality. compliance and business risks managed by silo difficult to track all of the moving parts 73 .Traditional Model Compliance Finance SEC (e..g.

Emerging Model Board Chief Compliance Officer • Financial Risk • Regulatory Risk • Systems/IT Risks • Operational Risks Day-to-Day Operations Quality. compliance and business risks managed in a coordinated manner easier to see key interrelationships and interdependencies 74 .

Organizational Approaches • Board Oversight – Committee of Directors • Senior Management Involvement – Compliance Committee • Centralized vs. Decentralized Strategy – Strong central function – Pockets of expertise in the business units • Teaming with Other Risk Management Functions – Internal Audit – IT – Manufacturing – Sales and Marketing – Etc. 75 .

communicated and understood throughout the organization •Mutual agreement on respective roles of compliance and other risk management groups •Realistic and manageable short-term objectives •Effective communication mechanisms •Effective strategy for identifying and monitoring key risks •Robust methodologies and tools that are consistent with the corporate culture 76 .Some Critical Success Factors •Senior Management/Board commitment •Clearly defined mission.

C.Y. – Suite 800 Washington. JD Partner Deloitte & Touche LLP Health Care Regulatory Practice jodynoon@deloitte. 20005 (202) 414-1552 michael. 11788 (631) 232-7016 nlanis@curativehealth. N. D.shaw@us.W.com Nancy Lanis Senior Vice President & General Counsel Curative Health Services 150 Motor Parkway Hauppauge. N.l. Shaw Senior Manager PricewaterhouseCoopers 1300 K Street.For More Information Contact: Michael L.pwcglobal.com (503) 727-5207 77 .com Jody Ann Noon RN.

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