Monitoring Regulatory Agreements

Companies that operate in highly regulated industries sometimes need to enter into a settlement agreement that includes a remediation process and subjects them to examination by an independent monitor. The settlement typically requires restitution to consumers and operational reforms to ensure that the non-compliant behavior does not occur again. The independent monitor (typically a public accounting firm) assesses compliance with the agreement. While execution of these commitments is the responsibility of senior management, the oversight lies with the company’s in-house counsel.

Organizations subject to monitoring usually have access to a wide variety of resources, such as personnel and technology. They may seem well equipped for a remediation effort, but sometimes it doesn’t work. Broadly speaking, difficulties can be attributed to functionality and culture. To build remediation teams, employees may need to be pulled from their normal activities.

The nature of the monitor’s examination is often referred to as an “audit” in the settlement agreement, although this use of the term is a misnomer in the eyes of public accountants, whose professional standards define audit in a very precise way. Other professional accounting standards relating to attestation or consulting will be relevant here. An engagement performed under consulting standards allowing the monitor the greatest flexibility with respect to defining the scope and testing approaches must be used. A “standard” under which to perform the examination must be clearly defined in order to determine the effectiveness of the subject company’s remediation efforts.