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Travel and Entertainment Expenses: Complying With Regulatory Policy on a Global Scale

Corporate executives, especially CFOs, are aware of the importance of travel and entertainment expenses, particularly within industries that require at least some level of spending in order to generate business leads. Taking a prospective client to a golf outing or hosting a dinner isn’t out of the ordinary. In fact, these costs are often crucial to signing new business.

But when it comes to corporations that operate globally, a new level of scrutiny is necessary to ensure that your company is aligning its spending and expense practices with regulatory requirements.

Although savvy executives always have an eye on the bottom line, the question must be raised; are all of the organization’s internal departments effectively monitoring each and every expense and would they catch something that may on the surface appear to be valid, but in reality is an error, or even worse, a violation of the Foreign Corrupt Practices Act?

In the U.S., regulatory compliance with FCPA has been highlighted in the Justice Department’s guidelines and Dodd-Frank legislation. Governments around the world — most recently highlighted in the news is China and its accusations of bribery in the pharmaceutical industry — have increased scrutiny of corporate practices abroad and management must be made aware of any potential suspicious activities that indicate possible violations at an early stage so that a direct focus can be placed on high-risk targets for regulatory enforcement.

One violation, no matter how minor it may seem, can carry significant fines and damage an organization’s reputation. The Securities and Exchange Commission is now settling with companies that self-report violations in a timely fashion under non-prosecution agreements, which creates even more incentive for senior management to ensure that all T&E expenses are valid and spent within regulatory guidelines.

Unfortunately, errors and fraudulent acts are a reality and if left unchecked, can add up quickly, especially in industries that encourage spending among senior management and employees around the world.

Even if an organization has established manual controls and policies, along with a clearly defined document that everyone must sign off on, when the actual transactions come through, it’s extremely difficult to match the expenses with the descriptions (cash transactions vs. corporate credit card purchases vs. out of pocket expenses, etc.), which are usually vague and don’t always map directly to the policy.

In industries that consider travel and corporate expenditures to be crucial aspects of employees’ jobs, this immediately rises to the top as an area of risk for the organization.In addition, because this facet of the business is highly subject to manual controls, it speaks volumes about corporate behavior, employee values, and overall culture. If there is a high level of non-compliance in T&E as witnessed in the transactions, what does this say about the culture that you, as an executive, have cultivated? So how can you make sure that your risk, compliance, and audit departments are mitigating risk?

In the second article of this two-part series, we will examine the necessary steps to take in implementing a continuous transaction monitoring system that will flag potential violations before they can become damaging, in terms of both.


Christopher Stewart-Smith is a data analytics consultant for ACL, a Vancouver-based company delivering technology solutions and consulting services that are transforming audit and risk management to give organizations unprecedented control over their business.

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