How to establish a reporting and recording system?

For issuers, recording of all business courtesies is essential. As burdensome as it may be, the FCPA's books-and-records provision demands it. Even U.S. companies whose securities do not trade on U.S. exchanges should maintain accurate accounting systems to sustain effective institutional control. The company can employ a standard business expense form that shows the essential facts surrounding the expenditure: date, recipient, nature of expenditure, and value. Employees should also attach to expense forms the receipts documenting the expenditures.In addition to satisfying the FCPA's requirements, the recordation process can aid in the company's efforts to mitigate the risks associated with business courtesies in China. It can do this in two ways. First, by adding some additional detail to the expense form, the company can establish an auditable record of gifts and entertainment. Having such a record will permit internal audit to examine practices in this area and allow the company to reform its practices as needed, after future self-evaluations and risk assessments. The auditable record can also dissuade employees from pushing the envelope on such expenditures and, when necessary, aid internal investigations into compliance failures. For real-time compliance efforts, the record will show if a significant number of benefits are going to the same recipient, and allow compliance officers and controllers to prevent additional authorized benefits. Second, the form can also serve as an approval form, providing compliance officers with the information they need to determine whether to allow a particular expenditure. In addition to the details of the actual expenditure, an augmented expense form could, for instance, include some of the following information:

  A description of the purpose of the expenditure and how it is anticipated that it will aid the business.

  The identity of the recipient's supervisor and whether he or she is aware of the expense.

  A full description of any pending or anticipated business with, or decisions coming before, the recipient.

  A statement of whether the recipient has the power to assist or hinder the company's business and how he or she would do so.

  An accounting for any other gifts or benefits provided to this individual within a recent time period (e.g., six or twelve months).

  A statement of whether any cash or cash equivalent (gift card, per diem, reimbursement, etc.) is provided to the recipient.

  An attestation of the requestor that the information provided on the form is, to the best of his or her knowledge, accurate and complete.

  The necessary approvals from supervisors and legal/compliance officers.

RSS Feeds