Advanced Operating Models
Sep 23, 2019

Waking up to the transformative impact of behavioral science-driven compliance

Companies need to look beyond policies and procedures to data and behavioral science

Behavioral science can transform enterprise compliance – and yet it simply isn't getting senior leaders' attention or being used as a transformational tool. At least that's what recent research and expert insight suggests: A larger Genpact survey showed that only 4% of them use behavioral science-enabled analytics. A whopping 87% still rely on manual audits, while 45% rely on Excel-based analysis, and 37% rely on rule-based analytics.

The compliance toolbox is ready for a new addition

Part of the reason so many of them are on the sidelines is that they don't have a good understanding of what behavioral science-driven compliance is or how it can drive value. Used in compliance, behavioral science is an extension of traditional data analytics that uses artificial intelligence (AI) to identify worrisome behavioral patterns within the data underlying a situation or process.

The analysis flags potentially non-compliant behavior such as frequent meetings with a specific client or facilitation payments to government officials disguised as gifts and claimed as an allowable official expense. By spotting trends and patterns, compliance teams can focus on preventing this behavior in the future.

The takeaway: There's ample opportunity to use advanced analytic tools to pinpoint pattern outliers that hint at non-compliance. These digital tools can even be used to spot behavioral traits that are currently compliant, but where the individual is on course to do something potentially out of bounds. This capability is important because – as one conference panelist put it – most employees don't come to work planning to commit a crime. Most start out doing something minor and work their way toward far worse infractions.

To catch problems early, see things holistically

Although travel and expenses, accounts payable, and sales may be traditional problem areas, you shouldn't exclude other areas of the business. The starting point for behavioral science-driven compliance must be to conduct a holistic review of what's happening in the company. Then, you drill down.

Compliance experts must also be cautious about bias and the importance of using bias-free data. Interpreting data correctly at the outset is key. Which is why the panel agreed that it is important to use a variety of data sets, and combine technology's insights with people's context and judgment.

Behavioral science and data analytics are two parts of a whole

To develop a forward-looking compliance team, build capabilities that wed analytics with industry or risk expertise. In some cases, however, the challenge can be to get data scientists to understand how you want to use the insights from the analysis.

Those who understand the end objective often fail to grasp the power of behavioral science, and those who do don't understand the compliance team's goal. Getting these groups on the same page is critical. It helps them jointly uncover more actionable insights to drive informed decision-making.

Tap into psychology, but address privacy concerns

Bringing behavioral science to compliance can raise concerns about privacy when collecting and presenting data. People are more open to having their data analyzed if it's clear it's being taken for the right reasons and in the right way. Also, if you're using data analytics to analyze information, you need to ensure proper data governance. Introducing a data ethics oversight committee helps maintain transparency and make people comfortable that you're not crossing any moral or legal lines.

Behavioral science helps check all the boxes

Behavioral science can impact an array of business processes, such as travel and expense management, accounts payable, sales, and financial reporting.

Embedding behavioral science into compliance programs has additional benefits. The latest Department of Justice (DOJ) guidance for evaluating corporate compliance programs during an investigation asks prosecutors to give credit to the effectiveness of a company's program for monitoring high-risk transactions – such as questionable payments to third-party consultants or suspicious trading activity.

About the author

Subhashis Nath

Subhashis Nath

Enterprise Risk and Compliance Leader

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