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It’s not just the thought that counts: Why technology can help with gifts and hospitality compliance

The case for integrity and transparency in business has never been stronger. Consumers, employees, and employers demand evidence of high ethical standards in the businesses they buy from and work for. Reputations that take years to build can be lost in minutes as a result of ethical failures and, once lost, consumer and employee trust can be hard to rebuild. It’s vitally important to create the right ethical culture and to build an effective compliance infrastructure in organizations to manage and mitigate compliance risk.

This is particularly true in the area of bribery and corruption where, in addition to the reputational risks, laws are complex and far reaching; penalties for non-compliance are often breathtakingly severe.

Show, Don’t Tell

The management of bribery risk related to gifts, hospitality and inducements is a cultural rather than a technical or procedural issue. The best way to manage this risk is to ensure that organizations have in place and currently practice an effective and sustained communication and awareness program that helps employees to recognize bribery risks, understand ‘what good looks like,’ and have the right values and attitudes to drive compliance in practice.

And while this concept may be hard to argue, many organizations are still using manual processes to manage gifts, hospitality and inducements. This approach is high risk leading to inconsistencies and inefficiency and has been found wanting by regulators and professional bodies.

However, driving a cultural shift is challenging, particularly when the policies concerned are detailed and not always intuitive. To be appropriate, proportionate, and effective, many policies around gifts and hospitality are necessarily complex. Unless an organization takes a ‘zero tolerance’ stance (often neither practical nor desirable), gifts and hospitality polices need to take account of a number of variables, only some of which are listed below:

  • type and value of the gift or hospitality
  • roles of the parties involved
  • location in which they are given or received
  • currency
  • time of year
  • cumulative value of all gifts given to an individual or team over time

In addition, some gifts or hospitality may be acceptable if approval from a manager is given while others can be offered or accepted on the spot. In short, it’s a minefield for employees to understand and for resource-poor compliance departments to monitor and enforce. It’s worth underscoring that many organizations attempt to track this using manual processes, often with tools not purpose-built for the task (for example, spreadsheets).

In the current business climate, demonstrable proof of integrity speaks loudest. Organizations are better suited to ditch the spreadsheets and manual tracking of gifts received, and instead move to a purpose-built software solution that helps organizations codify best practice, drive appropriate workplace behavior, and demonstrate compliance. Done correctly, this impacts culture and mitigates bribery risks.

Bribery: The Gift That Keeps on Giving

In recent years, we have seen significant penalties in terms of fines and deferred prosecution agreements. And it’s not just the big fish like Rolls Royce and Tesco, who are in the line of sight for law enforcement – smaller organizations are routinely investigated and prosecuted. The 2015 case of Edinburgh Council and Edinburgh Action Building Contracts Ltd. resulted in hefty jail sentences meted out to directors and public officials.

Globally, prosecutors are coordinating their activities on an unprecedented level. Rolls Royce made payments totaling £671M / $948.8M USD to UK, US and Brazilian authorities while Vimpelcom paid one of the biggest penalties in the history of the FCPA to the DoJ, the SEC, and the Dutch authorities.

Bribery Isn’t Always Readily Apparent

The inappropriate use of gifts, hospitality and inducements is a recurring feature of most of these cases. Whether it’s the ‘gift’ of a Rolls Royce Silver Spirit or tickets to football matches, meals out and visits to lap dancing bars prior to awarding public sector contracts, this is clearly a key area of exposure to bribery risk for organizations and individuals alike.

Regulatory and professional bodies are responding with new, stronger, guidance and are highlighting inadequacies in current systems.

  • MiFiD II includes stricter rules on inducements that are having a widespread impact on the financial services industry. The new regulation is informed, in part, by the FCA’s 2015 thematic review of inducements and conflicts of interest where inadequacies in hospitality logs were a key finding.
  • The National Audit Office’s investigation into the acceptance of gifts and hospitality in central government found that rules and processes on gifts and hospitality could be more stringent.
  • Accounting and professional services organizations have not been immune to issues relating to gifts, hospitality and inducements (see, for example, recent reports involving McKinsey and KPMG). The International Ethics Standards Board for Accountants has a project underway to strengthen the provisions in the Code of Ethics for Professional Accountants  regarding the accepting and offering of inducements


Show Me The Money?

With an increase in oversight from regulatory and professional bodies (and for good reason), simple spreadsheets simply won’t cut it to accurately and appropriately track gifts and hospitality engagements within your organization to any meaningful – or defensible – degree.

Creating easy and more innovative ways for all employees to comply with internal policies is key to embedding and sustaining a culture of compliance. And actions speak louder than words. Show, don’t tell. Organizations need to demonstrate a strong compliance process. For gifts and hospitality, embedding the underlying rules in a software solution to enable automation of employee requests and approvals is the simplest way to ensure this compliance.

SAI Global can help. We make gifts and hospitality management easy and effective for you. Simply contact us to request a demonstration.