The Case For A Better Gifts & Entertainment Compliance Program

Part One: Setting the Foundation

As explored in last month’s blog “What Compliance Teams Need To Know About G&E Management“, being able to proactively manage gifts and entertainment is crucial to a successful compliance program. Today, we’ll take the concept further and set the foundation for the construction and foundation of an outcome oriented G&E program. The following is taken from our two-part eBook – Give & Take: The Case For A Better G&E Compliance Program

Why Does G&E Matter?

Tony Robbins once said, “Every problem is a gift—without problems we would not grow.” In the compliance arena, the reverse also applies, as many gifts can pose problems. And while we can argue that some of the most staggering compliance growth and maturation has happened as a result of problems (looking at you, Pfizer and Weatherford), there’s a pretty strong case to be made for avoiding problems—and thereby scrutiny—in the first place.

Gifts and Entertainment

Seven Ways “Gifts That Keep on Giving” Can Cripple Your Organization:

  1. The Long Arm of the Law
  2. Stock Performance
  3. Shareholder Lawsuits
  4. Standing on Stock Listings
  5. Legal, Accounting, and Consulting Fees
  6. Reputation
  7. Company Culture

Click Here To Go Deeper Into How These Can Cripple Your Organization

Actions Speak Louder Than Words

Exhibit: Flir Systems

The Violation: $40,000 in excessive, “non-essential” travel and $7,000 worth of lavish watches provided to the Saudi Arabia Ministry of Interior officials

The Damage: $9.5 million settlement and a .9% drop in stock price

Worth Noting: Though the company profited to the tune of $7 million as a result of the travel and gifts in question, the SEC levied a relatively low civil penalty in the case—$1 million

The Takeaway: Credit is given to companies who are able to proactively identify possible FCPA violations and voluntarily disclose to officials as a result.

The Status Quo Falls Short

A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA. –Antonia Chion, Associate Director, Division of Enforcement Securities and Exchange Commission

Today, organizations that are making an effort to monitor gifts and entertainment are primarily relying on two methods:

  1. Forms
  2. Accounts Payable Reports

While a start, these methods present a number of challenges that both reduce a company’s ability to effectively collect and manage G&E disclosures—thereby exposing them to greater corruption risk.

One example includes not having a summary and context for the gift: One gift might not appear to break the law or violate company G&E policies, but what about a series of gifts made over the course of a few weeks, months or years? A single system of record should reconcile, connect and add these disclosures so you fully understand the total value of gifts being given and received on behalf of the company.

Click Here to Read All Seven Corruption Risks

As the expectations, scrutiny and stakes rise exponentially for G&E compliance, organizations can and should look for a more reliable, effective and efficient way to monitor and address the risks posed by these expenses. Particularly as the SEC has demonstrated a willingness to prosecute solely based on an ineffective G&E program, companies no longer have the luxury (if you can call it that) of waiting for a bribery event to occur for the regulators to come knocking.

Which begs the question, Now What? Stop by next week for Part Two: How to Build An Effective G&E Program