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Internal Audit to Comply with FCPA Regulations

Conducting an Internal Audit to Verify a Subsidiary’s Compliance with a Parent Company’s “Zero Tolerance” Policy Against Facilitation Payments to Government Officials

Our client is a privately held company headquartered in Houston, providing services for the general aviation industry in the U.S. and 19 countries around the world.

  • Internal audit support
  • Translation services
  • Process training
  • Solution & Benefits
  • Needs
  • Obstacles

The PKF Texas team reviewed the general ledger account balances and expense reports to identify any anomalies which might indicate improper payments were being made to government authorities. Meetings were also held with operations and accounting personnel to determine whether the expenses for commissions, gifts, travel/entertainment and tips were reasonable and did not reflect improper payments. The audit report identified opportunities for internal controls and process improvements, and also recommended that current and new employees be reminded of the zero tolerance policy on a periodic basis through training sessions. PKF Texas assisted in designing the training presentation and supported the Company in training its employees.

Background - The U.S. Department of Justice has increasingly taken a very narrow interpretation of the Foreign Corrupt Practices Act (FCPA) exemption for facilitating payments (defined as a payment to a government official to expedite the routine processing of paperwork and issuing permits). Accordingly, there is a growing risk of liability to parent companies of violating the FCPA as the significance of the exemption has eroded. Though legal, facilitating payments are still considered to be questionable from a business ethics point of view.

Because of the increasing focus on the exemption, our client recognized the need for an audit of their processes and assistance with the implementation of policies to ensure compliance with FCPA. The scope of the internal audit was to validate whether or not its subsidiary was adhering to the client’s zero tolerance policy against “facilitation payments” to foreign government officials. The policy is an expansion of an earlier zero tolerance policy against “bribes” to foreign government officials—which the Company adopted to comply with the Foreign Corrupt Practices Act (FCPA), that the US Congress passed in 1977. Both of the client’s policies are in keeping with its Code of Ethics and Business Practices. 

A major obstacle for the client was getting “buy in” for the policy from its local joint venture partner (management and employees) in a country where facilitating payments are considered customary and accepted as a normal cost of doing business. PKF Texas embedded a member of our team who is multi-lingual and multi-cultural and who, alongside Company management, contributed in overcoming these obstacles.

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