Gifts, Travel, and Entertainment (GT&E) Disclosures: Going on the Offensive to Mitigate Risk

Surveys indicate that about 80% of companies maintain some form of Gifts, Travel, and Entertainment (GT&E) policy.

However, a policy that ‘stays on the shelf’ and is never read, followed or enforced is like not having one at all. Moreover, GT&E policies and disclosures are notoriously difficult to enforce and maintain.

Related: How & Why to Manage Gift and Entertainment Disclosures

As the examples in this post demonstrate, ignoring GT&E policies can result in major consequences. In particular, companies in regulated sectors doing business in developing regions can easily expose themselves to significant risk.

This post also explores how companies can use technology to proactively capture GTE disclosures and mitigate and manage risk.

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Examples of GT&E Disasters

It’s not uncommon while establishing and building relationships with partners, clients and others to demonstrate goodwill in the form of gifts, travel or entertainment (GT&E). While it’s often permissible for employees to offer or accept these forms of goodwill, companies need to make sure these actions don’t create a conflict of interest or give the appearance of improperly influencing business decisions.

Let’s start with examples of companies failing to properly address and manage GT&E disclosures. 

Diageo

The British spirits company, Diageo, spent approximately $64,184 on rice cakes and other gifts for the South Korean military over four years. The SEC concluded that the company incorrectly recorded the expenses.

As a result, it was ordered to pay more than $16 million to settle Foreign Corrupt Practices Act (FCPA) charges.

AON

AON, one of the largest insurance firms in the world, administered training funds purportedly used to educate Costa Rican and other insurance officials on industry issues by paying for travel to seminars and conferences. However, many of the invoices and records didn’t show that the trips were related to legitimate business activities.

The company was fined $16.2 million in SEC and criminal penalties, disgorgement, and other costs.

Lucent

Lucent spent more than $10 million over three years on 315 trips to transport hundreds of Chinese officials to the US to ‘inspect’ facilities. The officials visited Hawaii, Las Vegas, New York, Disney World, and the Grand Canyon, even though no Lucent facilities existed in those places.

The company improperly booked the expenses as business trips and, ultimately, entered into a non-prosecution agreement with the Department of Justice, and a cease-and-desist order with the SEC.

ABB

According to the SEC, technology leader ABB made cash payments to Angolan officials during various training trips in addition to paying for their travel, meals, lodging and entertainment. The spend of $120 to $200 per diem was made at a time when Angola’s gross annual per capita income was just $710. On another trip, the cash payments totaled $4,320 per official. To fund these payments, the company devised ‘elaborate, circuitous schemes’ of concealment.

As part of their US settlement, ABB paid almost $16 million in fines and disgorgement.


The Shortcomings of the Traditional GT&E Process

Without the right measures in place, conflict of interest examples such as the above become incredibly hard to identify and prevent. Yet, a traditional—and essentially passive—GT&E process usually fails because of one or more of the following factors:

  • Reliance on spreadsheets of variable quality
  • Relatively manual processes
  • Includes little or no manager/management follow-up
  • Is vertically authorized and doesn’t robustly address lateral risks
  • Doesn’t deliver near real-time GT&E insights by importing relevant data

These shortcomings are often compounded by the following realities:

  • Companies often struggle to implement and operate both an outbound (GT&E given) and inbound (GT&E received) process.
  • There isn’t a wider GT&E infrastructure to support valid GT&E such as the auctioning or donating gifts received for charitable purposes.

Such process failures can lead to huge consequences in terms of risk, reputation, investigational exposure, legal costs, fines and remediation, as outlined in some of the examples above and below.


A Deeper Dive into Why GT&E Goes Wrong

Let’s further explore the impact of these process shortcomings and what can go wrong.

Poor Visibility into GT&E

A large company authorized the gift of a bottle of scotch to a government minister, deeming it an acceptable gift. At face value, the authorization process had worked as required. However, the process lacked the necessary infrastructure to consider other bottles of scotch and gifts that might be given to that same government minister and his department.

An audit showed that over an 18-month period, 48 bottles of scotch had been given to the minister and his department. While all had been properly authorized vertically, no lateral consideration was applied. One bottle of scotch might be acceptable, but 48 were clearly not, and reeked of organized bribery.

Disparate GT&E Data

Here’s an example of the exposure that occurs when companies don’t directly link their expense system and GT&E register. One company decided to reconcile its outbound GT&E register (i.e., the record of GT&E given) with the amounts claimed back via its expense system. The reconciliation revealed a 90% discrepancy. While employees were keen to get their reimbursement, they hadn’t completed the necessary records.

An audit revealed that over three years, one department accepted hospitality 718 times, or an average of 5 times per week. However, over the same period, another comparably sized department only reported accepting hospitality 20 times. The inescapable conclusion was that that the latter department had significantly and consistently underreported hospitality. Why had the underreporting gone on for so long?


The Benefits of Applying Advanced Analytics for GT&E

The solution to these process flaws and gross oversights is to use advanced analytics for broad GT&E insight and effective management. Doing so makes it possible to aggregate data from disparate sources so companies can genuinely understand its full range of GT&E, both outbound and inbound. Companies can also use this data to enable new controls and processes.

Related: The Case for a Better Gifts & Entertainment Compliance Program

Advanced analytics can be used, for example, to produce:

  • GT&E reports by individual, team, function, country, and company
  • GT&E policies by individual, team, function, country, and company
  • GT&E comparisons by individual, team, function, country, and company
  • Active annual aggregated GT&E level warnings

Moreover, an advanced GT&E platform with advanced analytics facilitates the integration of procurement data and GT&E data. As a result, companies can directly manage and control ‘closed periods’ where GT&E is barred in, say, a tendering phase. Some of the data from an advanced GT&E platform can also enable analysis of GT&E levels by supplier, for example, which then facilitates a range of anti-bribery actions.

This type of data and analytics offers ethics and compliance leaders the deep insight needed to run a proactive GT&E program.


The Wider Benefits of GT&E and Technology

As highlighted in the ‘48 bottles of scotch’ example, keeping a record of how much someone has given or received is vital. Indeed, in some organizations such as government programs, that recordkeeping goes further, with an explicit or implicit requirement to record (and publish) the GT&E declined.

A hard fact of ethics and compliance is that it is unusual to find an isolated GT&E issue or failure. Yet GT&E policies and disclosures are difficult to enforce and maintain.

Consider the scenario of five different employees giving a gift to the same senior client during the holiday season. Each gift in of itself might be acceptable, but five taken together would clearly not be. In fact, they would not only break company policy, but in the court of public opinion, would be seen as excessive and breaking an allowable tolerance.

GT&E technology and the associated workflow is critical to demonstrably preventing this type of issue.

A best practices approach to GT&E moves beyond siloed data that’s based on a ‘tick-the-box’ standalone disclosure requirement. A proactive ethics and compliance program with the right GT&E technology can ensure that employees have the policy information they need at the right time. It can also help with root cause analysis to identify underlying issues.

Just as important, program leaders have visibility into aggregated, comprehensive GT&E data to effectively mitigate and manage risk.

For more on how to develop and maintain an extensive disclosure program, check out Convercent Disclosures.