Tag: Internal Controls

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Day 21 of One Month to More Effective Internal Controls-Revenue Recognition, Internal Controls and Compliance

Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) for public business entities, certain not-for-profit entities, and certain employee benefit plans. The amendments become effective for public entities for annual reporting periods beginning after December 15, 2017. In other words, we are now less than six months away from a new Revenue Recognition (“new rev rec”) standard, which may significantly impact the compliance profession, compliance programs, and compliance practitioners. I visited with Joe Howell, Executive Vice President (EVP) at Workiva Inc., and asked him if he could walk me through some key changes and how they might impact compliance. FASB recognized that its revenue recognition requirements around the U.S. generally accepted accounting principles (GAAP) differed from those in the International Financial Reporting Standards (IFRS) and that both sets of requirements needed improvement. This led to a project by FASB and the International Accounting Standards Board (IASB) to jointly clarify the principles for recognizing revenue and to develop a common converged revenue standard for GAAP and IFRS. Hence the new rev rec standard. The implementation will be a massive undertaking. According to Howell, “The accounting standard is 700 pages long, and in the US accounting literature, it replaces over 200 other pieces of accounting guidance on revenue.” The official name is “Revenue from Contracts with Customers,” and Howell noted there are a “lot of surprises, and the thing that is true for almost everybody is that they are going to be facing some level of change in the way they account and report revenue. They will most certainly have to change how they disclose their revenue-related things. Included in the revenue standards are over six pages worth of new disclosure requirements.” One of the key differences in this new rev rec standard is that it requires companies to disclose new information beyond data a company might have been required to release in the past. Howell thinks this will pressure auditors “to get comfortable with what the company provided them and which they incorporated into their decision-making process in forming an opinion. This is quite different for disclosure control because the auditor’s typically not relying on those.” This will create risks for auditors adjusting to the new rev rec standard because as they learn more about it and apply it going forward into 2018, they may have to revisit prior reporting and revise some of it. This is important to the compliance profession and the compliance practitioner because internal controls over financial reporting involved in implementing this new standard are critical to the effective use of implementation and how you implement it. The Securities and Exchange Commission (SEC) has said explicitly in several public statements and through their early comment letters on disclosures made in advance of implementation that companies must inform the SEC about the accounting policies that they are changing and how this new standard will affect a company’s accounting processes, and finally how those effects are going to be managed. Howell believes “The SEC is making it clear that this is a real compliance issue.” Moreover, the SEC has indicated that these disclosures are central to the new rev rec standard. Howell said, “typically, if a company has some sort of failure in their disclosures for an accounting standard, they’re treated under section Sarbanes-Oxley (SOX) Section 302 of the SEC rules, and that has a level of significance or liability, which is much lower than the liability that a company might face under SOX Section 404, which has to do with the actual internal controls over financial reporting.” While disclosure of internal controls might not typically bring Section 404 scrutiny, they may now do so under the new rev rec standard. Howell articulated that when performing a financial audit, an auditor would usually not rely on a disclosure control in the past. However, under the new rev rec standard, if there is a change during the year in how an auditor views a disclosure control, it could require them “to go back and either figure out if the audit work that they did is tainted and they need to go back and do that work in the form of substantive testing, or they need to go back to see if there were mitigating controls that were in place that still allowed them to rely on the internal control processes to get comfortable with what the company provided them and which they incorporated into their decision-making process in forming an opinion. This is quite different for disclosure control because the auditor’s typically not relying on those.” Of course, this is overlaid with the requirements of effective internal controls under the Foreign Corrupt Practices Act (FCPA) and the lack of materiality standards. One only need to consider the Wells Fargo fraudulent accounts scandal to see how a lack of materiality does not prevent the types of risk from moving forward to become huge public relations disasters, hundreds of millions of dollars in fines and costs estimated at over $1bn for failures of internal controls. Yet there are other tie-ins into compliance that the compliance practitioner needs to understand and prepare for going forward. The prior rev rec standard was rules-based. As a lawyer, that was an approach I was quite comfortable with both from a learning standpoint and communicating with business folks. But now, the standard is much more judgment-based, and when a standard is more judgment based, there can be more room for manipulation. Howell explained the response by compliance is “making sure that you have changes in the business processes necessary to gather the information that has not previously been required to continue to monitor; how that information is factoring into the judgments that managers must make as they report their revenue under the new standard; and that those judgments themselves are properly documented.” This final point demonstrates the convergence and overlap between the compliance profession, compliance programs, and compliance practitioners going forward. Compliance internal controls are in place to both detect and prevent. They can also be used to gather the information that will be presented to auditors under the new rev rec standard. Many professionals are focused on the new rev rec from the auditing and implementation perspective. However, suppose you are a Chief Compliance Officer (CCO). In that case, you might want to go down the hall and have a cup of coffee with your Chief Financial Officer (CFO) and find out what internal controls might be changing or that they might be adding and consider how that will impact compliance in your organization.

Three Key Takeaways

  1. An effective internal controls system provides reasonable assurance of the entity’s objectives relating to operations, reporting, and compliance.
  2. There are two over-arching requirements for effective internal controls. First, each of the five components is present and functional. Second are the five components operating together in an integrated approach.
  3. You can use the Tem Hallmarks of an Effective Compliance Program for an anti-corruption compliance program as your guide to testing against.

For more information on improving your internal controls management process, visit this month’s sponsor Workiva at workiva.com. The new FASB rev rec standard has significant implications for the compliance practitioner going forward.]]>

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Day 20 of One Month to More Effective Internal Controls- Assessing Compliance Internal Controls Under COSO

Internal Controls – Integrated Framework, Illustrative Tools for Assessing Effectiveness of a System of Internal Controls” (herein ‘the Illustrative Guide’), COSO laid out its views on “how to assess the effectiveness of its internal controls”. It went on to note, “An effective system of internal controls provides reasonable assurance of achievement of the entity’s objectives, relating to operations, reporting and compliance.” Moreover, there are two over-arching requirements that can only be met through such a structured post. First, each of the five components are present and function. Second, are the five components “operating together in an integrated approach”. One of the most critical components of the COSO Framework is that it sets internal control standards against which you can audit to assess the strength of your compliance internal control. As the COSO 2013 Framework is designed to apply to a wider variety of corporate entities, your audit should be designed to test your internal controls. This means that if you have a multi-country or business unit organization, you need to determine how your compliance internal controls are inter-related up and down the organization. The Illustrative Guide also realizes that smaller companies may have less formal structures in place throughout the organization. Your auditing can and should reflect this business reality. Finally, if your company relies heavily on technology for your compliance function, you can leverage that technology to “support the ongoing assessment and evaluation” program going forward. The Illustrative Guide suggests using a four-pronged approach in your assessment.

(1) Make an overall assessment of your company’s system of internal controls. This should include an analysis of “whether each of the components and relevant principles is present and functioning and the components are operating together in an integrated manner.”

(2) There should be a component evaluation. Here you need to more deeply evaluate any deficiencies that you may turn up and whether or not there are any compensating internal controls.

(3) Assess whether each principle is present and functioning. As the COSO 2013 Framework does not prescribe “specific controls that must be selected, developed and deployed” your task here is to look at the main characteristics of each principle, as further defined in the points of focus, and then determine if a deficiency exists and it so what is the severity of the deficiency.

(4) Finally, you should summarize all your internal control deficiencies in a log so they are addressed on a structured basis. Another way to think through the approach could be to consider “the controls to effect the principle” and would allow internal control deficiencies to be “identified along with an initial severity determination.” A Component Evaluation would “roll up the results of the component’s principle evaluations” and would allow a re-evaluation of the severity of any deficiency in the context of compensating controls.

Lastly, an overall Effectiveness Assessment that would look at whether the controls were “operating together in an integrated manner by evaluating any internal control deficiencies aggregate to a major deficiency.” This type of process would then lend itself to an ongoing evaluation so that if business models, laws, regulations or other situations changed, you could assess if your internal controls were up to the new situations or needed adjustment. The Illustrative Guide spent a fair amount of time discussing deficiencies. Initially it defined ‘internal control deficiency’ as a “shortcoming in a component or components and relevant principle(s) that reduces the likelihood of an entity achieving its objectives.” It went onto define ‘major deficiency’ as an “internal control deficiency or combination of deficiencies that severely reduces the likelihood that an entity can achieve its objectives.” Having a major deficiency is a significant issue because “When a major deficiency exists, the organization cannot conclude that it has met the requirements for an effective system of internal control.” Moreover, unlike deficiencies, “a major deficiency in one component cannot be mitigated to an acceptable level by the presence and functioning of another component.” Under a compliance regime, you may be faced with known or relevant criteria to classify any deficiency. For example, if written policies do not have at a minimum the categories of policies laid out in the FCPA 2012 Guidance, which states “the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments”, also formulated in the Illustrative Guide, such a finding would preclude management from “concluding that the entity has met the requirements for effective internal controls in accordance with the Framework.”  However, if there are no objective criteria, as laid out in the FCPA 2012 Guidance, to evaluate your company’s compliance internal controls, what steps should you take? The Illustrative Guide says that a business’ senior management, with appropriate board oversight, “may establish objective criteria for evaluating internal control deficiencies and for how deficiencies should be reported to those responsible for achieving those objectives.” Together with appropriate auditing boundaries set by either established law, regulation or standard, or through management exercising its judgment, you can then make a full determination of “whether each of the components and relevant principles is present and functioning and components are operating together, and ultimately in concluding on the effectiveness of the entity’s system of internal control.” The Illustrative Guide has a useful set of templates that can serve as the basis for your reporting results. They are specifically designed to “support an assessment of the effectiveness of a system of internal control and help document such an assessment.” The Document, Document, and Document feature is critical in any best practices anti-corruption or anti-bribery compliance program whether based upon the FCPA, UK Bribery Act or some other regulation. With the Illustrative Guide COSO has given the compliance practitioner a very useful road map to begin an analysis into your company’s internal compliance controls. When the SEC comes knocking this is precisely the type of evidence they will be looking for to evaluate if your company has met its obligations under the FCPA’s internal controls provisions. First are some general definitions that you need to consider in your evaluation. A compliance internal control must be both present and functioning. A control is present if the “components and relevant principles exist in the design and implementation of the system of [compliance] internal control to achieve the specified objective.”  A compliance internal control is functioning if the “components and relevant principles continue to exist in the conduct of the system of [compliance] internal controls to achieve specified objectives.”

Three Key Takeaways

  1. An effective system of internal controls provides reasonable assurance of achievement of the entity’s objectives, relating to operations, reporting and compliance.
  2. There are two over-arching requirements for effective internal controls. First, each of the five components are present and function. Second, are the five components operating together in an integrated approach.
  3. For an anti-corruption compliance program you can use the Tem Hallmarks of an Effective Compliance Program as your guide to test against.

For more information on how to improve your internal controls management process, visit this month’s sponsor Workiva at workiva.com.]]>

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The Compliance Handbook

The Compliance Handbook – The Evolution of Controls with Eric Young


Effective controls are the lifeblood of what makes a compliance program work. In today’s episode of The Compliance Podcast, Thomas Fox sits down with for Global Chief Compliance Officer Eric Young and talks about internal controls, how human conscience overrides technology, and emphasizing the long-term benefits of running clean organizations in the compliance space.
Major takeaways discussed in the episode:

  • From financial institutions to public corporations — understand that compliance & ethics bridges enterprise risk management and a system of internal controls, including internal accounting controls. It also is the fabric that cuts across the E-S-G, which is not yet viewed enough this way.
  • Know that an effective system of internal controls is about people, processes, and technology. People are the most important of the three because, without people, functions won’t be clearly defined and assigned. Technology accelerates the flawed processes, gaps, and weaknesses leading to loss of data integrity and controls.
  •  The COVID-19 pandemic has created a shift and has become an important opportunity for compliance to be the drivers of ethics and to stand as owners of the code to shape the behavior of corporations, not just focusing on maximizing profits but responsibly safeguarding employees
  • Be constantly reminded that a robust set of controls can be the backbone for financial management, but compliance and ethics can help a company build more efficient business process systems.

Connect with Eric Young
A compliance practitioner for 40 years, Eric re-engineers & advises firms on how Compliance, Ethics, Conduct, and RegTech programs can enable safe, healthy, sustainable growth.
LinkedIn: linkedin.com/in/youngerict
The Compliance Handbook 
Thomas Fox, the Compliance Evangelist®, is one of the leading writers, thinkers, and commentators on anti-bribery and anti-corruption compliance. In this latest edition of The Compliance Handbook, he continues to arm seasoned compliance professionals and those new to the realm with the practical, actionable guidance and tools needed to design, create, implement and continually enhance a best practices compliance program.
The “Nuts and Bolts” for Creating a Comprehensive Compliance Plan
This chapter of this unique work lays out a succinct yet thorough one-month approach to operationalizing a company’s compliance regimen. Beginning with a section on what 2020 brought to the compliance landscape, each chapter methodically outlines best practices for everything from establishing policies, procedures, and internal controls, to assessing risk, training, handling investigations, and more. Each day ends with three key takeaways you can implement at little or no cost.
Understanding Compliance Responsibility Across the Organization
The Compliance Handbook also takes a close look at all professionals’ roles with compliance responsibility, from Compliance Officers and Boards of Directors to Human Resources, to Internal Audit and Internal Controls and Communications and Training professionals.
In-Depth Treatment of Hot Topics and Trends
The Handbook provides an in-depth look at the latest thinking and trends for the full range of critical compliance topics, including:

  • Compliance and business ventures
  • Third-party risk management
  • The Board’s Role in Compliance
  • Continuous improvement
  • Compliance innovation
  • And much more

Incorporating Current Government Pronouncements
The Second Edition incorporates the most current government pronouncements governing best practices compliance programs, including the 2019 Evaluation of Corporate Compliance Programs released by the Fraud Section of the Department of Justice, and its 2020 Update; the updated FCPA Resource Guide 2nd edition; the Framework for OFAC Compliance Commitments; and the 2019 DOJ Antitrust Division’s Evaluation of Corporate Compliance Programs in Criminal Antitrust.
eBooks, CDs, downloadable content, and software purchases are non-cancellable, non-refundable, and non-returnable. Click here for more information about LexisNexis eBooks. The eBook versions of this title may feature links to Lexis + for further legal research options. A valid subscription to Lexis + is required to access this content.
Order your copy OR copies of The Compliance Handbook: A Guide to Operationalizing Your Compliance Program. Save 25% off.
http://www.lexisnexis.com/fox25

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The Compliance Handbook

The Compliance Handbook – Karen Woody on Internal Controls


Internal Controls
Internal controls are an organization’s processes, regulations, and practices for maintaining corporate governance’s accuracy in fostering transparency and avoiding fraud. Internal controls may help enhance operating performance by improving the accuracy and reliability of financial statements, in addition to compliance with laws and legislation and discouraging workers from embezzling assets or committing fraud.
In another uber-treat episode of The Compliance Handbook, I’ve invited Karen Woody to talk about internal controls’ role in compliance.
Key takeaways discussed in the chapter:

  • Understand how internal controls are compared to smoke alarms that go off if there’s some wrongdoing happening.
  • Dive deeper into the four keys of internal controls for compliance. Learn how to use each key in your goal to have an ethical company.
  • Get the point that Internal controls can change, evolve, and grow as the bad guys get more sophisticated. Find the solution on how your organization can implement a dynamic policy.
  • Wade through the COSO 2013 Internal Controls Framework and see if the same policies will work for your organization.
  • Have knowledge of how the SEC views internal controls and why we have non-bribery SEC internal control enforcement actions.
  • Make sense of some lessons in failures of internal controls.

The “Nuts and Bolts” for Creating a Comprehensive Compliance Plan
The first chapter of this unique work lays out a succinct yet thorough 31-day approach to operationalizing a company’s compliance regimen. Beginning with a section on what 2020 brought to the compliance landscape, the chapter methodically outlines best practices for everything from establishing policies, procedures, and internal controls, to assessing risk, training, handling investigations, and more. Each day ends with three key takeaways you can implement at little or no cost.
Order your copy OR copies of The Compliance Handbook: A Guide to Operationalizing Your Compliance Program. Save 25% off.
 http://www.lexisnexis.com/fox25

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31 Days to More Effective Compliance Programs

Day 8 | Internal Controls and Compliance


What are internal controls? The best definition I have come across is from Jonathan Marks who defined internal controls as:
An internal control is an action or process of interlocking activities designed to support the policies and procedures detailing the specific preventative, detective, corrective, directive and corroborative actions required to achieve the desired process outcomes or the objectives(s). This, along with continuous auditing, continuous monitoring and training reasonably assures: 

  • The achievement of the process objectives linked to the organization’s objectives;
  • Operational effectiveness and efficiency;
  • Reliable (complete and accurate) books and records (financial reporting);
  • Compliance with laws, regulations and policies; and
  • The reduction of risk-fraud, waste and abuse, which,

   Aids in the decline of process and policy variation, leading to more predictive outcomes.
The DOJ and SEC, in the 2020 FCPA Resource Guide, stated:
Internal controls over financial reporting are the processes used by compa­nies to provide reasonable assurances regarding the reliabil­ity of financial reporting and the preparation of financial statements. They include various components, such as: a control environment that covers the tone set by the organi­zation regarding integrity and ethics; risk assessments; con­trol activities that cover policies and procedures designed to ensure that management directives are carried out (e.g., approvals, authorizations, reconciliations, and segregation of duties); information and communication; and monitoring. … The design of a company’s internal controls must take into account the operational realities and risks attendant to the company’s business, such as: the nature of its products or services; how the products or services get to market; the nature of its work force; the degree of regulation; the extent of its government interaction; and the degree to which it has operations in countries with a high risk of corruption.
This was supplemented in the 2020 Update, with a pair of pointed questions: whether a company has made significant investigation into its internal controls and have they been tested, then remediated based upon the testing?
The bottom line is that internal controls are just good financial controls. The internal controls that detail requirements for third-party representatives in the compliance context will help to detect fraud, which could well lead to bribery and corruption. As an exercise, map your existing internal controls to the Ten Hallmarks of an Effective Compliance Program or some other well-known anti-corruption regime to see where gaps may exist. This will help you to determine whether adequate compliance internal controls are present in your company. From there you can move to see if they are working in practice.
Three key takeaways:

  1. Effective internal controls are required under the FCPA
  2. Internal controls are a critical part of any best practices compliance program
  3. There are four significant controls for the compliance practitioner to implement initially. (a) Delegation of authority (DOA); (b) Maintenance of the vendor master file; (c) Contracts with third parties; and (d) Movement of cash/currency
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31 Days to More Effective Compliance Programs

Assessing compliance internal controls under COSO


Next, consider what COSO says about assessing compliance internal controls. In its Illustrative Guide, COSO laid out its views on “how to assess the effectiveness of its internal controls.” It went on to note, “An effective system of internal controls provides reasonable assurance of achievement of the entity’s objectives, relating to operations, reporting and compliance.” Moreover, there are two over-arching requirements that can only be met through such a structured post. First, each of the five components are present and functioning. Second, are the five components “operating together in an integrated approach.” One of the most critical components of the COSO 2013 Internal Controls Framework is that it sets internal control standards against those which you can audit to assess the strength of your compliance internal controls.
Under a compliance regime, you may be faced with known or relevant criteria to classify any deficiency. For example, if written policies do not have at a minimum the categories of policies laid out in the 2020 FCPA Resource Guide, which states “the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments”, also formulated in the Illustrative Guide, such a finding would preclude management from “concluding that the entity has met the requirements for effective internal controls in accordance with the Framework.”
Three key takeaways:

  1. A new revenue recognition standard has become effective. What have you done from the compliance perspective?
  2. This new revenue recognition standard is much more judgment based and when a standard is more judgment based, there can be more room for manipulation.
  3. Compliance internal controls now can also be used to gather the information which will be presented to auditors under the new rev rec standard.
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31 Days to More Effective Compliance Programs

Internal controls for gifts, travel and entertainment


It is reasonable to expect that internal controls over gifts, travel and entertainment be designed to ensure that they satisfy the criteria as defined in company policies. These are narrow, including a definition of the dollar limit, which must not be exceeded for gifts to be permissible, coupled with some subjective criteria such as the legality of the gifts for the recipient and whether the practice is customary within the country where the gift is delivered. The question I focus on is how to enforce the policies so that employees are not free to disregard them at will?The key analysis is whether there are controls in place to enforce the policies and whether those controls are documented. There are four issues to evaluate:

  1. Is the correct level of person approving the payment/reimbursement for the gift?
  2. Are there specific controls, including signoffs, to demonstrate that the gift had a proper business purpose?
  3. Are the controls regarding gifts sufficiently preventative, rather than relying on detect controls?
  4. If controls are not followed, is that failure detected by other internal controls or the compliance protocols?

Internal controls around gifts can be used in a variety of ways in your best practices compliance program. They can certainly be used to detect an issue and perhaps even prevent an issue from becoming a full-blown FCPA violation, however, by using some of the techniques suggested you can move your compliance program to a proscriptive phase where you not only stop an issue from becoming a violation but through identification, you can move towards remediation as a part of your ongoing compliance efforts. The bottom line is good internal controls make for good business processes; if you can move your compliance program’s internal controls forward, you can help make them a part of your financial controls and thereby have a better run company. 
Three key takeaways:

  1. Gifts, travel and entertainment compliance internal controls are low hanging fruit, pick them.
  2. Compliance internal controls can be both detect and prevent controls.
  3. Good compliance internal controls are good for business.
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Internal controls in international locations


Next, I want to consider some of the issues around internal controls outside the U.S. and why your company’s internal controls might require changes for different countries across the globe. However, this provides an opportunity to further operationalize your compliance program through internal controls more narrowly tailored to mirror your business practices. Every CCO should consider entity-wide internal controls for a company. Under the FCPA accounting provisions, issuers can be held liable for the conduct of their foreign subsidiaries, even though the improper conduct occurred outside of the U.S. The scope of liability is based on the issuer’s incorporation of the subsidiary’s financial statements in its own records and SEC filings. So, as with the use of third-party distributors to sell product, FCPA enforcement looks past the structure of the transaction and makes enforcement decisions based upon the substance.
While a CCO should expect (or at least hope) that internal controls at locations outside the U.S. are of the same effectiveness as internal controls within U.S. business units and at the U.S. corporate office; unfortunately, that might not always be the case. It is often the case that corporate level internal controls are stronger than those in foreign business units. There may well be several reasons for this. First, the CFO may be paying closer attention to the corporate level internal controls, with the idea that the corporate level internal controls are the final “filter” to detect issues. This follows partly from the focus in most companies on the controls over financial reporting, which does not include all controls needed for compliance. A second reason is that many companies were built through acquisitions, resulting in many business units (both in and outside the U.S.) having completely different accounting, ERP and internal control systems than the corporate office. There is often a tendency to leave acquired companies in the state in which they were acquired, rather than trying to integrate their controls and conform them to those of current business units. After all, the reason for the acquisition was the profitability of the acquired company and nobody wants to be accused of negatively impacting profitability.
Three key takeaways:

  1. Modifying your internal controls can work to more fully operationalize your compliance program.
  2. Check the effectiveness of your internal controls for your international locations.
  3. Revisit your internal controls when a country or region experience large growth or other disruption.
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The four key internal controls for compliance

 
There are four significant controls that I would suggest the compliance practitioner implement initially. They are: 1) DOA; 2) maintenance of the vendor master file; 3) contracts with third parties; and 4) movement of cash/currency.
Your DOA should reflect the impact of compliance risk including both transactions and geographic location so that a higher level of approval for matters involving third parties, for fund transfers and invoice payments to countries outside the U.S. would be required inside your company. The vendor master file, can be one of the most powerful preventative control tools largely because payments to fictitious vendors are one of the most common occupational frauds. Near and dear to my heart as a lawyer are contracts with third parties. These can be a very effective internal control which works to prevent nefarious conduct rather than simply as a detect control. The Hewlett-Packard (HP) FCPA enforcement action was an excellent example of the lack of internal control over the disbursements of funds and movement of currency because you had the country manager delivering bags of cash to a Polish government official to obtain or retain business. All situations where funds can be sent outside the U.S., including such methods accounts payable computer checks, manual checks, wire transfers, replenishment of petty cash, loans or advances, should all be reviewed from the compliance risk standpoint. This means you need to identify the ways in which a country manager or a sales manager could cause funds to be transferred to their control and to conceal the true nature of the use of the funds within the accounting system.
To prevent these types of activities internal controls, need to be in place. This means all wire transfers outside the U.S. should have defined approvals in the DOA, and the persons who execute the wire transfers should be required to evidence agreement of the approvals to the DOA and wire transfer requests going out of the U.S. should always require dual approvals. Lastly, wire transfer requests going outside the U.S. should be required to include a description of proper business purpose.
The bottom line is that internal controls are just good financial controls. The internal controls that detail requirements for third party representatives in the compliance context will help to detect fraud, which could well lead to bribery and corruption.
 Three key takeaways:

  1. Remember the top four internal controls for an effective compliance program.
  2. Effective internal controls should do more than protect but also prevent internal program violations.
  3. Effective internal compliance controls are good financial controls.
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Discipline and rigor in your internal controls


New York Times columnist David Brooks’ thoughts on building and maintaining order inform the discussion on rigor in your internal controls. In internal controls, I believe it is incumbent to consider not only the most obvious risk areas for your internal controls but also the universe of potential transactions within the operations of a company. There is a clear need for rigor in your internal controls protocols and adherence to that rigor can increase operationalization around the internal controls a company should consider including gifts, travel and entertainment expenses.
Brooks said, “Building and maintaining order…requires toughness of mind and rigid discipline to properly serve your own work.” By having the rigor to institute and enforce the types of internal controls Howell has identified, you can go a long way towards detecting and, more importantly, preventing a FCPA violation from occurring.
Three key takeaways:

  1. You must maintain rigor around your internal controls.
  2. Controls against fraud can also help to prevent corruption.
  3. Building and maintaining good internal controls requires rigor.