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Do you account for the ‘uncontrollable’ costs of government enforcement?

Doyle Mullis (abraggjag@yahoo.com) is a consultant, trainer, and a retired special agent with the United States Department of Defense.

Controlling costs is important to maintaining a healthy company or nonprofit. Executives and managers frequently ask, “How much is this going to cost us, and what will we get for what we paid?” This concept is known in business management as return on investment (ROI).

The mathematical representation of ROI is to divide expected amounts of anticipated new revenues, cost savings expected to result from the original expenditure made, or cost-quantifiable improvements resulting from the expenditure by the amount of the future expense the decision-maker is considering spending now. ROI is one of the various metrics that management uses to determine if proposed action meets organizational goals by using a “what do we win for what we spend” analysis.[1]

Sometimes, however, the future revenues, costs savings, or empirical data on quantifiable improvements are not readily available when considering a proposed solution to implement compliance, which can cause management frustration.[2] Compliance professionals are often asked by a decision-maker to demonstrate ROI for money spent to implement a compliance solution and the projected money to be saved after adoption. Demonstrating this ROI may be difficult to do because data may not be available on the number of instances of noncompliance the proposed solution will potentially prevent or bring to the awareness of management.

Corporate and other organizational decision-makers regularly seek financial information on which to base a decision, but because this information may not be available due to a lack of data, consider this question: While not easily quantifiable, can the “uncontrollable” costs of a government enforcement action be considered when deciding to implement a policy or a compliance solution?

These out-of-control costs occur when noncompliance leads to a government investigation against the organization. Once a government investigation starts, even before it finds anything, the target of the inquiry will have investigation-related expenses that can be difficult to quantify. Yet, the expenses are necessary to avoid serious sanctions for not responding to the investigation; these sanctions include jail time for contempt for not complying with a federal grand jury and being charged with obstruction of a federal audit.[3] And if the investigation finds something, more uncontrollable costs will be incurred to respond to the findings and deal with the potential consequences.

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