The Justice Department and the SEC should be credited with promoting new compliance strategies and best practices. Whatever you may think about the DOJ/SEC FCPA enforcement program, they have pushed businesses to enhance their compliance programs and to develop new risk management techniques.
In recent years, DOJ and SEC have pushed the concept of proactive audits in high-risk areas. Internal audits are the first to identify weaknesses in a company’s internal controls and compliance is a critical player in remedying the weaknesses identified in an audit.
The audit team should include internal auditors, and a compliance and legal representative. Before conducting the audit, information should be gathered relating to the office to be audited, including issues which have been raised in prior audits, discussions with compliance and legal staff on relevant issues.
A high-risk audit should include, at a minimum, the following ten focus areas:
Anti-Corruption Compliance Program – An initial meeting with the head of the office should be conducted to confirm the organizational chart, responsibility for implementing local policies and procedures, and to identify changes in business operations. A review of local policies and procedures should be done to confirm consistency with any global or regional policies, and to make sure they are accessible to local employees in the local language.
Tone-At-The-Top – The site manager should describe the compliance tone in the office; and explain the most significant corruption risks and how they are addressed. If there have been any violations or potential violations, the site manager should explain the circumstances. The site manager should explain the office’s interactions with foreign government officials. If possible, a sampling of employees should be interviewed regarding the tone and the relevant risks, as well as their understanding of compliance requirements.
Employee and Third-Party Training and Certifications – The audit team should review the training program to make sure it is up-to-date, relevant and accessible to all employees. The audit should confirm that all required personnel are attending the program. If an employee has not been trained, the audit team should check for some consequence to the employee.
Third-Party Due Diligence – Prior to the audit, the team should obtain a list of third-party intermediaries have been approved through the due diligence procedures. At the local office, the audit team should focus on the third-party selection process to determine how candidates are being identified. With respect to all existing third parties, the audit team should confirm that they complied with due diligence procedures initially and at renewal. All of the contracts should be reviewed to make sure they have required contract provisions as required by compliance and legal staff.
Customers & Suppliers – The audit team should review the customer and supplier selection and contract bidding process. If there are any state-owned enterprises or government agency suppliers/contractors, the interactions should be carefully reviewed. A sample of contracts should be reviewed. All customers and suppliers should be screened against any prohibited lists or sanctions.
Accounting Policies, Fees & Payments – The audit team should focus on the accounting policies and procedures in the office. A sample of contracts should be reviewed to determine whether the payments are appropriate, including the amount, the manner and the structure (i.e. whether commissions). If there are any unusual payments, the transactions relating to that contract should be reviewed, and the payments should be traced through all relevant bank accounts (as far as possible). In addition to contracts, a sample of agency and consulting fees, as well as supporting paperwork, should be reviewed for any unusual payments or relationships. The payments should be reviewed and traced (as far as possible).
Disbursements, Cash & Petty Cash – the disbursement entries should be reviewed for any unusual expenses. Any cash payments should be closely scrutinized. The petty cash report should be reviewed for any unusual patterns or expenses. Any payments identified as “facilitation payments” should be reviewed carefully.
Gifts, Travel and Entertainment/Charitable Contributions – The audit team should pull a sample of claim forms and expenses for compliance with any policies and procedures, along with the supporting documentation. If there are any unusual expenses, relevant parties should be interviewed. For any charitable contributions, the payment should be reviewed and verified against corporate policies governing charitable contributions.
Employee Reporting and Escalation – The audit team should focus on the office’s reporting and escalation mechanism. Prior to the audit, the team should collect any complaints reported and determine how the matters were handled. Compliance with whistleblower policies should be confirmed. All reports of potential corruption violations should be reviewed and assessed. With respect to each complaint, the mechanism for escalating the complaint should be reviewed.