Internal Controls Prevent Foreign Corrupt Practices Act Issues

Posted by Bill Bockwoldt on February 17, 2011

<img border="0" style="" _mce_src="/Portals/92953/images/red_but-resized-600.gif" src="/Portals/92953/images/red_but-resized-600.gif" alt="Internal Controls related to FCPA">When considering the acquisition of a Foreign entity, it is prudent to review their internal controls for any issues that could be cited under the Foreign Corrupt Practices Act (FCPA). Large fines and increasing enforcement are causing companies to think twice before jumping in to new deals.

A thorough review of an organization’s internal controls can provide insight into how they identify and manage financial risk, reflect local or cultural behaviors that could conflict with U.S. legislation, and provide valuable information on management’s views of the importance of documented procedures and compliance.

A risk assessment can be used to quickly identify the areas of focus based on their financial impact which could include A/R, inventory, fixed assets, etc., while a segregation of duties analysis can identify if certain personnel or positions have an inappropriate amount of control over the flow of money through the company. A high-level review of existing internal controls in the highest-risk areas can deliver unique insights that can influence valuations and support a thorough due diligence effort.

An interesting article on the subject of FCPA, entitled “Deal-Breaker: Fear of the FCPA” can be found here

We would love to hear any stories you have about your own FCPA experiences.

Tags: Internal Controls, segregation of duties, FCPA, risk assessment, Acquisition, Sarbanes-Oxley