FCPA Compliance: Tyco and Record-Keeping Entries

In terms of global anti-bribery compliance, one of the many “takeaways” of the recentTyco settlement, for attorneys, international lawyers, in-house counsel, accountants, auditors, or others providing advice relative to the FCPA, UK Bribery Act, CFPOA, and similar anti-bribery legal regimes, is the degree to which accounting records were falsified to cover up improper inducements. From a global anti-bribery compliance standpoint, it demonstrates the importance of the audit function and the need to monitor and verify the basis and underlying documentation supporting payments to third parties.

As the SEC’s complaint points out, and as is further demonstrated in theinformation filed by the Justice Department and the statement of facts attached to the deferred prosecution agreement, a number of accounting categories were employed to conceal what was taking place.  Among these, the categories included “commissions,” “promotional expenses,” “sales development” expenses, “consulting fees,” “consultancy costs,” “commissions,” “service charges,” “equipment costs,” “unanticipated costs for equipment,” “technical consultation and marketing promotion expenses,” and “costs of goods sold.”

In many instances, an entry, such as a “commission,” failed to refer to the ultimate recipient of the funds. Alternatively, there was a failure to accurately describe or record what services were actually provided.  In other instances, there was an absence of supporting documentation, such as written contracts or invoices, or false or inflated invoices, fictitious receipts, or false travel itineraries were submitted.

Each new case brought by law enforcement officials can be useful in identifying areas of inquiry for corporate compliance officials, including auditors, as well as pointing to prudent steps that might be taken to deter and more readily detect conduct suggestive of improper conduct. The recent resolutions relative to Tyco International and its subsidiaries point to the need to more closely monitor certain categories of accounting entries, particularly as they relate to third parties; to the need for more complete descriptions of the basis for the payments and the ultimate recipients; and to the need for requiring supporting documentation that can be adequately verified.

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