Strengthening Discipline and Strictness in Your Internal Management Systems
In a recent article, Henry Mixon, an internal controls expert, was consulted about various internal controls a company should consider around gifts, travel, business courtesies, and entertainment. The discussion centres on the importance of robust internal controls, especially in the context of the Foreign Corrupt Practices Act (FCPA) compliance program.
Mixon emphasised the significance of Delegation of Authority (DOA) as a critical internal control for corporate checks and wire transfers. The DOA should specify who must give the final approval for such expenses, with different approval requirements for domestic and international wire transfers. Moreover, it should address replenishment of petty cash funds in countries outside the U.S., as well as approval of expense reports for employees who work outside the U.S., including those who travel from the U.S. to work outside the U.S.
A control objective should be put in place for check request forms instead of including gifts and travel in expense reports, as these would be subject to stringent controls. This approach aims to prevent potential misuse and ensure transparency.
Companies must ensure that policies are enforced when travel for non-employees can be purchased through a corporate travel department or through independent travel agencies like Expedia or Travelocity. Procedures should be implemented to ensure compliance with company policies regarding payment of travel and related expenses for third parties. A checklist should be completed and attached to the check request form for gifts and travel expenses, including questions and disclosures designed to flush out details of the expense.
Internal audits of expense reports are often only detect controls, providing comfort for a historical period but not necessarily preventing future violations. Relying on internal audits of expense reports for compliance with gift policies can give a false sense of security. Therefore, it is crucial to have written policies and procedures for the acceptable and unacceptable use of company procurement cards, including required forms, approvals, documentation, and review requirements.
The use of procurement cards (p-cards) in companies is considered a high-risk area for fraud, corruption, and corporate abuse. There is a risk of abuse of power internally and collusion with independent travel agencies, as demonstrated by the case of GlaxoSmithKline PLC (GSK) in China.
Mixon further noted that misbehavior, like water, seeks its own level. If strong controls over expense reports prevent misbehavior, employees may seek other ways to misbehave where controls are not so strong. Building and maintaining order, as discussed by David Brooks, requires toughness of mind and rigid discipline to properly serve your own work, including instituting and enforcing internal controls to prevent FCPA violations.
This publication is meant for general information purposes only and should not be used as a substitute for legal advice or services. Consult a qualified legal advisor before making any business decisions or taking any action. The article was republished with permission from Tom Fox's FCPA Compliance and Ethics Blog.
Inspiration for maintaining discipline and order was drawn from various literary figures. Henry Miller once said, "I know that to sustain these true moments of insight, one has to be highly disciplined, lead a disciplined life." Maya Angelou had a daily writing routine of waking up at 5:30, having coffee at 6, and writing until 12:30 or 2:00. John Cheever's writing routine involved getting up, putting on his only suit, and writing in a basement storage room until noon. Anthony Trollope had a routine of writing 250 words every 15 minutes for two and a half hours every day.
David Brooks wrote an Op-Ed in the New York Times titled "The Good Order." The article discusses the importance of internal controls around an FCPA compliance program, emphasising the need for discipline and order in corporate practices.
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