BDO Consulting ANTI-CORRUPTION SERVICES Proactive Compliance Measures to Prevent and Detect Failures in your Anticorruption Compliance Program September 17, 2014 Julia Bailey, Managing Director Nidhi Rao, Director BDO US A, LLP, a Delaware limit ed liabilit y part nership, is t he U.S . member of BDO Int ernat ional Limit ed, a UK company limit ed by guarant ee, and forms part of t he int ernat ional BDO net work of independent member firms.
Agenda I. Introduction: A. Need for proactive anticorruption compliance measures B. Proactive vs Reactive Compliance C. Overview of the Compliance Cycle II.Proactive Compliance Measures: A. Risk-based Policies, Procedures, Internal Controls B. Oversight & Accountability 3 rd Parties: Vendors, Agents, M / A targets & JV Partners C. D. Ongoing Monitoring: BDO Forensic Technology Services Page 2
Introduction Why Important? Definitions: Proactive vs. Reactive Anticorruption Compliance Cycle BDO Forensic Technology Services Page 3
Need for Proactive Anti-corruption Compliance Measures Example: The U.S. DOJ’s and SEC’s FCPA Guidance (2012) • In November 2012, the U.S . DOJ and S EC j ointly issued A Resource Guide t o t he U.S . Foreign Corrupt Pract ices Act • Identifies ten “ Hallmarks of Effective Compliance Programs” • U.S regulators give meaningful credit to companies that implement a comprehensive risk-based compliance program • US authorities are increasingly amenable to companies self-monitoring their own compliance through proactive compliance measures • Following global trend of giving credit for good faith efforts to comply BDO Forensic Technology Services Page 4
Definitions Compliance (Overview): Reactive compliance: Proactive and reactive measures consisting of internal Measures include investigations (with or without forensic technology), controls, policies, procedures and other tools (collectively, reporting (could include expert testimony), policy & process “ controls” ) for preventing, detecting, investigating or improvements, due diligence of existing 3 rd parties & reactive training. remediating ethical, regulatory or legal failures. Proactive Compliance: • Investigations (forensic Structure and proactive compliance measures: accounting & technology) Structure consists of the organizational • Reporting (internal or Reactive infrastructure, governance, and resources for government) Measures managing compliance, including the code of • Policy & Process conduct, other policies & procedures, and internal improvements controls; mandatory training; and oversight & • Reactive training accountability. Proactive Measures include gap analysis; risk assessments; controls testing; ongoing due diligence Proactive of third parties, M & A targets or JV partners; and Measures technology-enabled monitoring systems; mandatory compliance training. • Risk Assessments • Gap Analysis Structure • Mandatory Training • 3 rd party Due Diligence & Audits • Policies & Procedures • Internal controls • Ongoing monitoring – Compliance Audits • Accountability & Oversight • Controls mapping BDO Forensic Technology Services Page 5
Overview of the Anti-Corruption Compliance Cycle Policies, Procedures, Int ernal Cont rols • Compliance Risk assessment s Cont rols mapping • Due Diligence of 3 rd part ies & M/ A t arget s Oversight & Account ability • Vendor / 3 rd Part y audit s Mandat ory Training • Compliance Gap Analysis Ongoing monit oring Detection Prevention • Forensic Invest igations Report ing (int ernal or Investigations & government) Remediation Forensic reviews Litigation Awareness & S kills Training Cyber Invest igat ions Monit oring (audit s, periodic Invest igative due diligence cont rols t est ing) E-Discovery Policy, process, cont rols Dat a analyt ics improvement s Expert t est imony Remedial t raining Mitigating Compliance Failures Throughout the Cycle of Compliance BDO Forensic Technology Services Page 6
Proactive Compliance Measures Risk-based Policies, Procedures, Internal Controls Oversight & Accountability Reactive Measures 3 rd Parties: Vendors, Agents, M /A targets & JV Partners Ongoing Monitoring Proactive Measures Structure BDO Forensic Technology Services Page 7
Risk-Based Anti-Corruption Compliance Program Consider Best Practices: Consider Anticorruption Risks: • Develop policies, procedures and controls (or • Compliance program should be developed improve existing controls) around and evaluated by actual risk exposure - for preventing/ detecting anticorruption • Identify anticorruption risks taking into consideration - conforming to best practices , given company - corporate culture / employee awareness size, industry – including - industry o Gifts, entertainment, meals and travel expenses - countries of operation o Charitable contributions - interactions with government officials o Facilitation payments vs small bribes - sales network o Due diligence of third parties - internal pressures/ market forces (“ fraud o Mandatory contract clauses triangle” ) • Rank risks considering likelihood, severity & o Mandatory training frequency of possible failures • Anticorruption “ Gap Analysis ” • Mapping - Map controls to rules and regulations where they are derived so if changes in laws, relevant controls can be quickly identified and adapted. Policies and Controls Should be Continuously Review ed & Improved BDO Forensic Technology Services Page 8
Oversight & Accountability Structure: Communication & Culture: • Resources: Must be resources to effectively • From top down – not j ust statement but develop and monitor program frequent mention • Responsible Party - One qualified person with • When & how – authority to make decisions must answer for Not j ust a statement on website - o compliance failures affirmative efforts required. Insert into business discussions o Enforcement: - statement during CEO town halls • Processes in place to take action & resolve - “ compliance minute” quickly Reward good behavior o • Reporting - Multiple avenues, anonymous - recognition during evaluations, • Penalties - awards for outstanding ethical efforts relatively uniform for similar offences & o • Message circumstances It is the right thing to do o S ignificant for severe or repeat behavior o It is a competitive advantage o • Track violations – number, types, geographical hot spots, trends The Company enforces policies o • Mandatory Training BDO Forensic Technology Services Page 9
3 rd Parties – Proactive Measures Includes : Audits: Periodic or incident related • Contract clauses are key Vendors, Agents, M & A Targets and JV Partners • Books & records relevant to relationship Risk-Based Due Diligence: - Periodic reports of business activities • Government involvement - T & E expenses • Customer – owned or controlled - Payments for services • Conflicts of interest - Vendors related to services • Industry • Geographic location • Relationship • Bank accounts Contract Clauses: • Certification of compliance • Reporting of business activities • Rights to audit relevant books & records BDO Forensic Technology Services Page 10
Ongoing Monitoring – Anticorruption Compliance Audits (aka Risk Assessments) • Don’ t rely on annual financial audits to monitor compliance– only designed to examine material transactions, which do not include most transactions where bribery is hidden • Consider Anticorruption compliance audits periodically or based on “ hot spots” Interviews with business managers & key personnel o Look at HR incident reports for bullying, harassment, theft, etc. o Periodic self-assessment questionnaires o Look to compliance incidents reported – number, types, geographical areas, businesses, trends o High risk countries of operation o - Anticorruption risk - Volume of business - Nature & extent of government interactions - Local business regulation & enforcement • Plan to continuously update and improve policies, procedures and internal controls to mitigate risks BDO Forensic Technology Services Page 11
Compliance Audits Exercise of Audit Right s wit h High Risk Third Part ies Gift s, Travel and Payroll - New Ent ert ainment Employees (Expense Report s) Compliance Audits Charit able Travel and Polit ical Company Cont ribut ions Invoices High Risk Pet t y Cash Vendor Transact ions Payment s BDO Forensic Technology Services Page 12
Compliance Audits – Charitable and Political Contributions • Obtain listing of charitable contributions processed since the last audit • Identify trends • Determine the selection process for the charitable organizations • Determine if adequate level of due diligence was conducted to ensure that the organization is not affiliated with a foreign government official • Determine if the political and charitable contributions are in line with the Company policy and procedures and if appropriate approval was obtained prior to making the payments BDO Forensic Technology Services Page 13
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