Mention the Foreign Corrupt Practices Act to an executive at Nortek Inc. and you may well hear the sigh of someone who feels they’ve dodged a bullet.
The Rhode Island based buildings product manufacturer recently had to pay over half a million dollars to the government after uncovering violations of FCPA compliance relating to improper payments to Chinese officials. The investigation discovered that cash payments, meals, travel, and entertainment were provided by a Nortek subsidiary to officials to secure preferential treatment in their dealings within China.
Nortek is one of the lucky ones. They were able to detect the oversight themselves, reporting it to the SEC and co-operating fully with the investigation to bring the matter to a satisfactory conclusion. They escaped prosecution, but were required to pay excess profits plus interest on their gains. The price of not discovering the breach could have been far worse.
Other companies have not been so lucky, with multi-million dollar fines and criminal proceedings being brought against those who are found and convicted. In many cases these companies have been guilty, not of a deliberate attempt to corrupt, but of a failure to implement adequate controls over what their employees are doing.
The Foreign Corrupt Practices Act has been in force for a number of years and has the primary objective of ensuring that illegal payments and bribes to foreign officials to curry favor in business dealings does not occur. The act calls for greater transparency, particularly around areas of cash payments and travel and entertainment (T&E) expenses.
The larger the organization the harder it becomes to monitor and manage compliance to the FCPA and other regulatory requirements. Fortunately, thanks to the development of artificial intelligence and tools such as AppZen, the manual process of keeping track of thousands of submitted expense claims has become considerably easier - reducing staff time, expense and the horrors of failing to manage compliance risk.
Where artificial intelligence (AI) can provide a substantial advantage is its ability to cross-check all submitted expenses, something an audit department can only dream of doing. A manual system can, at best, select a small percentage of random expenses to audit and then hope it catches any issues from the checks that are made. In reality, a good 90% or more of expenses go unchecked.
Artificial intelligence has the ability to perform speedy analyses of all submitted expenses, cross-checking them against external and social data sources to highlight and flag anomalies. The result is a significant increase in the ability of a company to identify fraudulent and suspect expenses.
Understanding your potential vulnerability is just the starting point to reducing your compliance risk. Download our report to discover how you can avoid accidentally violating compliance regulations, including what red flags the SEC looks for and which areas represent the greatest threat to your FCPA compliance.