In he latest chapter of a long-running government investigation of a Texas-based oil services and equipment provider, the U.S. Securities and Exchange Commission (SEC) brought civil charges last year against the former controller and head of internal audit in connection with alleged violations of the Foreign Corrupt Practices Act (FCPA). According to the SEC, the company's subsidiary in Nigeria participated in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.
While the SEC did not allege that the controller had any direct participation in or knowledge of the bribery scheme, the SEC filed charges against him nonetheless, citing the company's insufficient "FCPA procedures, training and internal controls to prevent the use of false paperwork and payments to Nigerian government officials." This is just one of several recent FCPA cases pursued by the SEC.
Finance and accounting professionals work in a world of intense scrutiny. In addition to the rigorous reviews of the financial information performed by senior management, the audit committee, the board and internal and external auditors, today's finance professional must deal with a host of government regulators. Additionally, the new SEC whistleblower rules, along with other company-sponsored hotlines, encourage and incentivize individuals to identify and report suspected malfeasance.
Recent SEC sanctions and investigations provide a reminder that the FCPA not only prohibits the payment of bribes to public officials, but also that it contains requirements that companies maintain both accurate books and records and an effective system of internal controls. Furthermore, these accounting requirements, in theory, have no materiality threshold, and compliance with this aspect of the law is as important as complying with the anti-bribery provisions.
In this environment, it is more important than ever that accounting and finance professionals exercise clue care in carrying out their responsibilities. In addition, they can take steps to ensure that the basis for their accounting judgments is clearly and contemporaneously documented. It is also important that the company continually update its risk assessments and periodically carry out a "fresh look" at its system of internal controls to identify where problems could occur and implement steps necessary to address potential problems.
There are actions that an entity can take to ensure that its books and records support its accounting and financial reporting and that it is maintaining an effective system of internal controls. To avoid falling into a complacency trap, the following actions could be considered:
1 Review Critical Accounting Policies and Supporting Processes
It is important to avoid falling into a sense of complacency around accounting policies and procedures and the effectiveness of the internal control system. There are always changes happening in a business, such as the way transactions are being entered into or turnover of personnel or outsourcing of certain functions. Accordingly, changes to the internal controls, systems and/or accounting may be...