The alphabet soup of federal agencies is coming after American businesses like never before. More and more companies are getting fined, sued, cited or even shut down for failing to comply with the likes of a number of agencies, such as the Securities & Exchange Commission (SEC), the Department of Justice and the Federal Trade Commission.
The Internal Revenue Service, the Office of Inspector General, the Centers for Medicare & Medicaid Services, the Department of Labor and the Federal Bureau of Investigation have also stepped up enforcement. It typically is quite costly for a company when any of these agencies come knocking at the door regarding mistakes.
While government scrutiny has always been present, it has been making major headlines lately with the downturn in the economy and a new presidential administration. For instance, the IRS previously focused on taxpayer education and training. Now, a good portion of its budget is dedicated to enforcement, especially examining cross-border transactions and underreporting of income. Even nonprofit organizations have been hit hard with more IRS audits, and municipalities have also faced IRS audits of their tax-exempt bonds.
No industry is immune to the ramped-up efforts of government crackdown, but lately the financial and health care industry groups have been hit the hardest, along with big businesses that set up operations overseas.
In the financial markets, questionable mortgage practices and the mismanagement of retirement plans have sparked greater scrutiny in almost every financial endeavor from getting approval for a business loan to applying for a simple car loan. Recently, the SEC adopted new measures to curtail “pay to play” practices by investment advisers. Under the new rule, an investment adviser who makes a political contribution to an elected official who is in a position to influence the selection of an adviser would be barred for two years from providing advisory services for compensation. Of course, sweeping financial regulatory legislation is supposed to be passed in the near future.
When it comes to health care, a number of issues can cause regulatory agencies to closely examine a company from improper billings and inappropriate payments to physicians and faulty equipment. The government estimates it makes more than $60 billion a year in improper payments to health care partners. Also, the Food & Drug Administration said it was investigating CT scan overdoses after it found a well-respected hospital inadvertently gave eight times the regular dosage of radiation during brain scans.
The globalization of companies has also sparked new federal scrutiny in American businesses. It’s common now for many medium and large businesses to look for opportunities overseas, but the wrong move could attract the SEC’s extra attention. For instance, the SEC came down hard on a California telecommunications firm for violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act. The SEC said the company made improper payments to foreign officials in China and Vietnam after the company went public.
While the red flags are too many to be named when it comes to the alphabet soup of federal agencies, the key to doing business is to take seriously any regulatory agency your business will have to deal with. The best solution for any business with a few hundred employees is to have a compliance program with legal and financial experts who understand the ramifications of possible missteps. The potential adverse effects can include costly fines, legal proceedings or criminal prosecution.
George W. Scofield is the partner-in-charge at Fulbright & Jaworski LLP, specializing in tax, health care and general business issues in the firm’s San Antonio office. His e-mail address is gscofield@fulbright.com.
