The Bribery Act And Employee Expenses

By Michael Sheehan – CEO systems@work

It’s hard to argue with the intentions of the UK’s 2010 Bribery, namely to facilitate ‘free and fair competition”.

However, unlike a lot of legislation which does not impact on our day to day lives, the offences introduced under the Bribery Act place very real obligations on Directors and Senior Management, particularly in the area of what might loosely be called “hospitality and entertainment expenses”. The Act is undoubtedly forcing businesses to consider their expenses policies and the actions they need to take to ensure compliance.

Expense Management Compliance

The great difficulty for organisations is that whilst the Bribery Act itself creates a number of serious bribery offences, the practical advise available to companies to help them avoid falling foul of the law is rather thin on the ground.

The Act introduces 3 specific crimes and recommends 6 Principles which organisations should adopt in order to avoid risk of prosecution. More on those principles later but lets start with the crimes themselves.

Bribery Crimes

The crimes which have been identified under the Act are:

1. Offering a bribe.

2. Receiving a bribe.

3. Failing to prevent a bribe being paid on an organisations behalf.

As you will immediately have spotted, it is this 3rd category which causes potential headaches for organisations and careful consideration of potential pitfalls needs to be undertaken when it comes to business operations in general and the management of employee expenses in particular.

 

“if one of your employees commits the crime of bribery it is not a defence to claim that you did not know about it.”

 

Specifically, the Act creates an offence (under Section 7) which can be committed by commercial organisations “which fail to prevent persons associated with them from committing bribery on their behalf”.

For the avoidance of doubt, if one of your employees commits the crime of bribery it is not a defence to claim that you did not know about it.

Crucially however, it is deemed to be a full defence for an organisation if they can prove that they had adequate procedures in place designed to prevent bribery by associated individuals (even if those procedures ultimately proved to be unsuccessful).

Expenses By Client Compliance

The implementation of these procedures should be based around 6 principles which the ministry of justice has documented in their guidance notes. Lets take a look at these next.

The Six Principles

The Governments Guidance highlights Six Principles which should be at the heart of bribery prevention policies and procedures and it expects organisation who wish to avoid falling foul of The Bribery Act to be aware of, and where necessary implement, some or all of them.

Full details on the six principles can be found in the guidance notes and we have summarised them below. It has to be said that the principles as defined could be considered rather vague, lacking practical application and even repetitive.

Principle 1 – Proportionate Procedures

Put simply, this means that an organisation needs to consider the bribery risks that it faces and put in place procedures that reflect this risk. Risks are likely to be dependent (but not necessarily so) on the size of the organisation, the nature of its business and the nature of the discussions which persons associated with it carry out with representatives from other organisations.

Principle 2 – Top Level Commitment

This principle basically requires an organisations senior management to be able to demonstrate that they have communicated the organisations anti-bribery policy (see previous point) and (ideally) that they have been involved in developing the procedures that have been put in place.

Principle 3 – Risk Assessment

Senior Management should undertake regular reviews of the risks that the organisation faces with regard to bribery. These risks might change as the organisation grows or enters new markets. So for example entering new markets (either geographical or sectoral) or tendering for new business in a particular sensitive market (for example defence or government) would be triggers to reassess risk.

Principle 4 – Due Diligence

Again, this is one is less than specific. In summary it recommends that you carry out appropriate checks and debriefings on all individuals that are likely to be involved in high risk situations. Many smaller companies may not feel that this is necessary and its relevance is likely to be limited to larger organisations involved in particularly sensitive or risky business transactions involving external contractors and other 3rd parties.

Principle 5 – Communication & Training

As the title suggests this is about advising and reminding all employees and associated individuals about the organisations procedures. From a practical perspective, for most organisations, this is very similar to Principle 1.

Principle 6 – Monitoring & Review

This principle is concerned with ensuring that procedures and policies regarding bribery prevention are regularly reviewed. In practical terms this is the most relevant to the management of employee expenses because it is through defining the rules and enforcement policies that your expense management system operates under, that you can most effectively deter, detect and if necessary investigate potential bribery.

So we now know the 3 potential crimes and understand the 6 principles. What can an organisation do in practice?

Additional Information Required On Expenses Form

Practical Steps

As the Act states “the commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing.”

Therefore, the objective is to ensure that you can demonstrate that you have the procedures and policies in place and avoid any possibility of charges being brought for failure to prevent bribery.

Most actions or expenditure likely to lead to charges of bribery will inevitably have a touchpoint in some part of an organisations Expense Management Policy and the Expenses System which governs it.

It is for this reason that we recommend implementing the practical steps as part of the day to day operation of your Expenses Management system. Some of the points below reference functionality in our own Expense Management System – expense@work, however the guidance is intended to be generic and independent of any particular software system.

Recommendations:

Implement a specialist software based expense management system to ensure compliance and visibility. The system should not be spreadsheet based but should have policy controls and expenditure limits built in to enable public and private sector businesses to demonstrate a consistent approach throughout the organisation. A properly implemented expense management system should enable finance and compliance officers to monitor the ethical quality of all expense transactions.

Ensure that employees are aware of their obligations under Section 1 of the Act (offence of bribing another person) and where relevant, their obligations under Section 6 of the Act (bribery of a foreign public official). This can be done by inserting an Anti Bribery clause into all employee contracts and requiring all employees to review the Anti Bribery Policies documented by the organisation and signing a statement to that effect.

Document the commitment to bribery prevention explicitly in your expenses policy and on the confirmation declaration which all employees should acknowledge when they submit there expenses. Additionally include a statement from the Directors/Senior Management in the organisational expenses policy which clearly states their commitment to anti bribery procedures. Additionally the anti bribery policies and procedures should be explicitly detailed in your expenses policy document and specific reference should be made to expenditure limits, authorisation and sign off limits and pre authorisation policies.

Ensure that “Bribery Risk” is a memo’d topic at all board meetings or sales meetings where related topics such as new business strategies or new client opportunities are discussed.

Expense forms should be created which require precise details and justifications for certain expense transactions (over and above the normal justification requirements). In particular there should be specific fields on the form which require completion when client entertainment or other similar expense types are selected. These fields should require the employee to submit additional details of the expense including justification, information about the people(s) receiving the benefit and any likely impact or business benefit due to the expenditure taking place.

Configure your expenses software with a “Client Entertainment Approval Form” which is completed by Employees in advance so that you can demonstrate that appropriate review procedures are in place.

A broad range of expense types should be available for employees to select from. Rather than a single category called “Client Entertainment” we would recommend separate items such as Gifts, Hospitality – Dinner, Hospitality – Events etc.

Consider noting in the small print of all hospitality invitations that the recipient is not under any obligation to confer any business advantage.

Configure your expenses software so that for expenditure over certain limits, the forms are routed to Senior Management or Compliance Officers for secondary approval. Remember that your forms may need to be configured differently for each jurisdiction that your employees operate in to reflect local legislation.

Expense related reports should be available in the system which detail all “entertainment” or “gift” related expenses above a a certain value (we would recommend £50). Expense categories likely to fall foul of the Bribery Act should be “tagged” in the system and then reported on by finance or compliance staff.

Where appropriate, integrate your expenses system with your corporate credit card provider. This will ensure that all expense claims (cash and card) are routed through a single unified set of processes and procedures.

Enable the digitisation and attachment of receipts and other documentation to expense claims. This ensures that internal authorisers or external bodies can see the details of the expenditure on screen immediately.

Require claims to be submitted promptly after being incurred so that any potential problems can be identified quickly. As stated earlier, if possible we would recommend that an entertainment justification form is used in advance for all high value hospitality expenditure.

My Client Entertainment Expenses Compliance

expense@work

At the heart of our expense@work offering is a system which manages all expense claims and expenditure requests through a single technology platform. This provides senior management with complete visibility of employee and organisational expenditure. Policies and procedures can be embedded in the system so that an organisation can demonstrate its compliance with the provisions of the 2010 Bribery Act.

To learn more about expense@work visit our expenses software home page or contact us to discuss how systems@work can assist organisations with their obligations under the Bribery Act.
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Michael Sheehan is CEO of systems@work and specialises in advising clients on the effective implementation of expense management software solutions.