The Importance of Internal Policies and Procedures Within an Organization

Have you ever reviewed an expense transaction in a corporation’s books and wondered, “Is this expense allowed?” Or have you ever expensed a transaction and asked yourself the same question?

As a business owner, management or an employee of an organization, you are probably far too familiar with this “grey area.” There are those transactions that are not permitted, and often you can identify these by merely evaluating the vendor to whom the payment was made. On the flipside, you have those transactions that are undeniably business-related. Although it should be logical to decide whether or not to make that payment or swipe that corporate card, the question becomes, “will I get away with it?”

To narrow the “grey area,” the answer lies within a company’s established internal policies and procedures. A company’s policies and procedures, if developed, documented, and communicated correctly, become the foundation and roadmap to establish corporate values, principles and norms within an organization. Some ways in which policies and procedures provide value to the organization are through the following:

1. Establishing benchmarks. Policies and procedures set expectations, develop rules and guidance so that company management and employees understand behaviors and transactions that are permitted and prohibited and, define those in line with a company’s values and governing laws and regulations. Further to understanding the rules set out in the policies and procedures, documenting consequences resulting from non-compliance is also a key factor.

For example, one company’s Anti-Bribery and Anti-Corruption Policy may have language specifically prohibiting any contribution made to a political party. In contrast, another company’s policy may allow contributions to political parties under specific circumstances. Whether or not the employee abides by the policy or procedures will determine the consequences that they will bear.

2. Maintaining integrity and supporting the company’s mission. Management and employees must work to support the company’s mission while maintaining integrity to foster trust amongst staff and clients. Policies and procedures set out specific rules and norms that will educate the employee on the organization’s fundamental values and serve as a clear roadmap to abide by the same. Working in an organization that promotes integrity and respect will encourage a positive work environment for employees, resulting in content employees who will support the organization’s overall mission.

3. Promoting management accountability. Management is responsible for the overall corporate environment within an organization and setting the “tone at the top.” Policies and procedures stipulate the rules employees must follow, the same rules that also apply to the management team, creating expectations on all levels of the organization. Managers lead through example; therefore, managers that abide by internal policies and procedures will set a positive example for all employees. Holding the management team accountable also fosters a trusting environment where employees feel everyone plays by the same rules. Further, a lack of compliance with internal policies and procedures could result in liabilities to the corporation and its management personally, depending on the nature of the non-compliance.

4. Compliance with laws and regulations. Not only do internal policies and procedures set the expectations and rules on an internal level, but if developed correctly, they also stipulate

compliance with laws and regulations in general. A global company’s Anti-Bribery and Anti- Corruption Policy should contain specific language prohibiting the bribing of foreign public officials, as per the Foreign Corrupt Practices Act (United States) and the Corruption of Foreign Public Officials Act (Canada). Further, the language surrounding compliance with any other relevant local anti-bribery law or regulation is equally important. For example, a Canadian organization with a subsidiary in Mexico must ensure that employees in the Canadian entity and employees in the subsidiary follow all internal policies and procedures and all Mexican and Canadian laws and regulations stipulated therein. Proper policies and procedures should consider in which jurisdictions the Parent entity may have nexus.

5. Identifying where to seek guidance. Well-documented and communicated policies and procedures will also reference where to seek advice whenever necessary. For example, policies should include language surrounding a contact to reach out to when one is in a compromising situation. Internal policies and procedures should reference the anonymous whistleblower hotline, if available.

In the absence of policies and procedures, company management and employees may believe that rules that are not written do not exist and therefore, cannot be broken. For this reason, amongst others, it is imperative to maintain well-written and documented policies and procedures, supplemented with regular training and attestation, providing company employees with knowledge of expectations and consequences resulting from non-compliance.