transaction monitoring for bribery act compliance v2.0 12jan 11

8/7/2019 Transaction Monitoring for Bribery Act compliance v2.0 12Jan 11

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January 2011

Bribery Act 2010:Transaction MonitoringSolution Overview
http://www.bmradvisors.com/


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Contents

Background

Solution Overview

Implementation

Next Steps


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Background


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The Bribery Act 2010

The Bribery Act passed into law in the UK in April 2010

and will apply from April 2011

As well as defining both active and passive bribery

offences, the Act introduces a corporate offence of

failure to prevent bribery

Unlike the FCPA, the Bribery Act is not limited to

bribery of public officials and facilitation payments

are within its scope

If the individual committing the offence is a UK citizen,or is located in the UK, the Act may be triggered

even if the offence took place overseas

Penalties for the corporate offence are severe and may

include unlimited fines and / ordisbarment from

public contracts

Revenue earned by a company as a result of a bribe

may be subject to Proceeds of Crime Act 2002


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Adequate procedures

Transaction Monitoring can provide an effective solution to these challenges

The Bribery Act introduces a corporate offence offailure to prevent

bribery

Companies must be able to demonstrate adequate procedures if

they are to defend against prosecution

Ongoing monitoring is certain to be a key component of

adequate procedures

Companies need not just design strong anti-bribery policies but also to

be able to demonstrate that they are operating effectively:

How can hard evidence be gathered to substantiate effectiveoperation?

How can tone at the top be demonstrated to a court?

How can monitoring be carried out on a sustainable, reliable and

enterprise-wide basis?


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Six key principles of adequate procedures

As part of its draft guidanceon adequate procedures,

the Ministry of Justicespecifies six principles thatshould be addressed in abribery preventionprogramme

Transaction Monitoringprincipally addressesPrinciple 6 Monitoring &

ReviewHowever, it also helps with

implementing the other fiveprinciples, as shown inslide 11

Adequate Procedures

Clear, practical, accessible and enforceable, reflecting roles of workforce and others over which firm has control

. &4 PoliciesProceduresPolicies and procedures are embedded and reflect practical business issues

.5 EffectiveImplementation

Covering all business relationships, including supply chain, agents & inte

.3 DueDiligence

Ensure compliance and identify issues as they arise to allow improvements to be implemented

.6 Monitoring& Review

Management is committed to preventing bribery and creates culture in whic

. -2 Top LevelCommitmentRegular and comprehensive assessments of nature and extent of bribery risk exposures

.1 Ris kAssessment


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Transaction Monitoring:Solution Overview


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Typical focus areas

Transaction monitoring focuses on business activities where the risk of bribery is highest. For

example:


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Key benefits of Transaction Monitoring

High coverageon the companys ERP system can be examined in every country, in every business unit to detect corrupt activity

Evidenceeports and audit trail produced by the system are invaluable in creating an adequate procedures defence

Holistic viewnon-financial data are examined to create a genuinely enterprise wide monitoring solution that is based on intelligence

No manual interventions are detected objectively, subject to pre-defined characteristics - removing the reliance on humans to report corrupt activity

Easy to implementThe system leverages existing data and does not require specialised software so inf

Tone at the topTransaction Monitoring provides ready-made opportunities to demonstrate that tone at the to

Flexibility and adaptabilityRules and scenarios can be defined on a country-by-country or business unit-by-business unit basis to take ac

Refinement of policyThe intelligence generated by Transaction Monitoring can be used for ongoing refinement of the anti


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Transaction Monitoring supports all six principles

Although the primary goal ofTransaction Monitoring is

active detection ofevidence of bribery, it alsoenhances the programmeby:

Providing evidenceof operationaleffectiveness

Engaging senior-

levelcommitment

Enhancing duediligence

Facilitating a risk-based approach

Identifying trainingneeds

Providing data points

for ongoingimprovement ofpolicies andprocedures


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Implementation


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Review of existing business policies

Draw a bribery assessment plan

Discussions with legal advisors and stake holders

Design a internal review questionnaire

Circulate project plan and sign-offs with timelines

Conduct a pre-implementation validation of design stage

Collate Data sources

Construct anti-bribery and fraud scripts with red flags

Run pilot tests and reduce false positives

Expand the scenarios to sensitive business areas and locations

Refine and review scenarios and alerts

Continuous monitoring and refinement

Exception monitoring and disambiguation

Weekly/Fortnightly meetings with compliance and legal te

Present areas of progress / status tracker

Periodic reporting and audits

Approach to implementation

Design Implement On-going monitoring


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Three-step methodology

mpany stands in terms of anti-bribery compliance

e filled in order to achieve compliance

ption Indices

ann, Heritage Foundation, Global Integrity databases to assess country risks

ministered on site

ed into the system for analysis

.1 DiagnosticsKey tasks:

Develop analytic queries focusing on sources of bribery risk

Have scenarios validated by legal advisors

Data sources:

Country Risk Ratings

Stock Exchange databases and other sources (D&B, Edgar, One Source, Accurint etc.)

Country PEP databases

Approach:

Data gathered through questionnaires analysed off site

Analytics leverage existing software wherever possible

. &2 Data Capture AnalysisKey tasks:

Exceptions disambiguated for false positives through Level 1 and Level 2 rev

Cases sent to Legal / Compliance for further investigation

Data sources:

Negative news databases (World-Check, OFAC, Factiva, Complinet, Dow Jo

Legal databases

Approach:Transactions monitored by automated system

Alerts generated and suspicious transactions identified

. &3 Disambiguation Review


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The first step in the implementation of a transaction monitoring solution uses an exhaustive

questionnaire administered to senior management and process heads

1. Diagnostics

Approach Scope Typical questionslicies and procedures documents

r analytics tests questionnaire

cts and other data and perform analytics

ponses to the questionnaires

reports

e findings to senior management / project management group

Questions broadly in the following areas:

Cash

PaymentsPurchase / Procurement

Vendor Management

Internal Controls

Sales

Questionnaire administered to senior management, compliance personnel and process heads

Do you have a data analytics team to aid in audit and compliance?

Have you conducted diligence of your business and processes for anti bribe

Do you have defined and documented steps to be taken in case an incidenDo you operate in high risk industries and / or countries?


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The second implementation step involvesthe development, validation and implementation of analytics

queries designed to throw up indicators of suspicious transactions. For instance:

2. Analytics 1/3

Example One: Vendor Payments

Scenario Ensure vendors not being unduly favouredby key personnel

Red flags

Suspicious invoice sequenceInvoices falling below approval limitsRepeat payment to same vendor with sameinvoice numberRepeat payment with same invoice numberto different vendorsPayment made on holidays

Example Two: Sales

Scenario Ensure kickbacks not being offered in orderto close sales

Red flags

Sales price lower than list price Preferential pricing for onecustomer Credit analysis and trend


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The second implementation step involves the development, validation and implementation of analytics


2. Analytics 2/3

Example Three: Payments to govt officials

Scenario Ensure funds form the firm not being used tobribe public officials for acquiring licencesand other matters

Red flags Repeat gifts to single person or organisationGifts and entertainment expenses nearing orcrossing the threshold per firm policyPayments without referenced invoices

Example Four: Cash Payments

Scenario Ensure cash not being used to acquire

business or sales targetsRed flags Sudden rise in cash expenses

Amounts of cash payments higher thanaverageCash payment without authorizationPayments made just below thresholdUnrecorded cash payments


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The second implementation step involvesthe development, validation and implementation of analytics


2. Analytics 3/3

Example Five: Internal control lapses

Scenario Ensure bribery controls and policies areeffectively implemented

Red flags

Sudden rise in amount and frequencyof bonus payments Expenses not pertaining to a person

,but claimed such as MarketingExpenses claimed by Execution

Officer &Recalculation of E O analysis Excessive inventory write offs Fictitious employees

Example Six: Accounts Payable

Scenario Payments made to maintain business

relationshipsRed flags Payments made in countries other

than the country of operation Payments made through bank accounts

outside the country of operationPayments to Vendor done before timeDummy / suspense payable accounts


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3. Disambiguation & Review

of hits that exceed pre-defined rules and thresholds yet

ns / scenarios are further investigated for true match or negative match

y conducting background screening (name, negative news etc.)

ns to the identified suspicious transactions are then analysed for their volume and behaviour, based on such factors as:

of the transactionndor

ducts or services for which the payment has been made

High / Medium / Low category

All identified high risk transactions, mismatches or close hits are escalated during the review exercise

In many instances, specific cases may be sent to Legal / Compliance team for further investigation

Summary report of results of hits and false positives is periodically presented to the Management / Stee

The review process involves close coordination between the analytics team, Business Units and Legal /

Review Report

Finally, disambiguation of false positives takes place to isolate cases that require further review and

provide management with the intelligence needed to determine how to respond:


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Programme management

Team Leader(Analytics Team)

Team Leader(Diagnostic Team)

Team Leader(Review Team)

Project Coordinator

Senior Management Team /Steering Committee

Conduct interviews,

questionnaire assessments

with key stakeholders

Assess

Key control gapsScope of workProcess efficiency

issuesTraining needs

Capture data from internal

and external sources

Conduct data cleansing,

massaging to perform

analyticsReport suspicious

transactions based on set

thresholds

Review alerts / red flag

transactions received fromAnalytics Team

Conduct further review of

false positives and classify

suspicious transactions into

H/M/L

Report summary /

MIS to Management

Onshore Location

Offshore Location


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Technology

Using a base of existing CCM tools, an entire module of

bribery diagnostics and analytics has been developed

The tools / analytics have been designed to integrateseamlessly with existing ERP systems and are compatible

with most standard software

Able to extract required data from the following modules:

FI Accounts Receivable, Accounts Payable etcCO Cost Elements, Internal Orders etcHR Employment History, Payroll etcMM Accounts Payable, Inventory Management

etcPP - Master Production Scheduling etcSD Sales Orders, Pricing etc

Program flexible enough to run on:

Data sources

Through a remote connection (web based)

Or through a data dump extracted by the

company and provided to us

Most scripts and algorithms are derived from standard AML

and CCM implementations so have been tested and proven

Vend

ors

Purchases

Sales

Cash

Paym

ents

Procurement

Continuous Monitoring of Transactions Analytics

For a pilot implementation, the data dump method will be the most practic


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Challenge Us

All information contained in this presentation is the intellectual property of BMR Advisors. This presentation is meant only forCLIENT. No part of thisdocument may be reproduced / shared / divulged or referred to in part or in full without the prior written consent of BMR Advisors. The ideas / viewspresented in this document are those of BMR Advisors and may not be replicated or used without the written consent of BMR Advisors. While considerablecare has been taken in gathering the thoughts/ information included in this document, BMR Advisors has not validated such information and hence doesnot confirm accuracy of such information. This document is preliminary in nature and is purely indicative of the approach recommended by BMR Advisors.
http://www.bmradvisors.com/http://www.bmradvisors.com/

transaction monitoring for bribery act compliance v2.0 12jan 11

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