The Definitive Guide to Gifts & Entertainment Compliance

Why Gifts & Entertainment Compliance Matters

In many instances, business relationships naturally lead to the exchange of gifts to further good working relations. However, in certain situations, gifts and entertainment (G&E) requests can create organizational risk by influencing employees to act in breach of his or her duties. Proper gifts and entertainment disclosure management is the key to not only mitigating these risks but also promoting compliance within your organization.

Gifting-Related Enforcement Actions

Enforcement actions have reminded the compliance community that there is no such thing as a “safe zone” for gifting. Although it might feel like tickets to a sporting event or a concert are generally approvable requests, that is not always true. For example, an enforcement by the U.S. Securities and Exchange Commission (SEC) fined Telefonica Brasil $4.13M over World Cup tickets purchased for government officials. 

More recently, Deere & Company agreed to pay about $10 million to settle SEC charges after its Thai subsidiary, Wirtgen Thailand, bribed Thai officials and private company employees with cash, travel, and entertainment to secure contracts, recording the bribes as legitimate expenses; the misconduct was enabled by Deere’s failure to quickly integrate the subsidiary into its compliance systems after a 2017 acquisition, resulting in $5.4 million in disgorgement and interest and a $4.5 million penalty.

Evolution of Disclosure Compliance Software

Many G&E processes are not properly enabled through compliance technology, leaving room for much-needed improvements. If you don’t already have a central repository to store all requests, a workflow to automate the approval process, or access to reports on gifting trends, it might be worth assessing disclosure management software options. 

Alternatively, many gifts and entertainment disclosure programs are supported by manual processes, including spreadsheets and/or email approvals. While these methods might “get the job done,” they are ultimately limited. Compliance and disclosure management technology is constantly evolving to better fit the needs of global compliance teams, so adapting to integrate the latest solutions available and leverage them properly to increase the output and efficiency is important. When you are considering revamping your gifting process, technology is often a great place to start in order to see major changes.

Impact on Overall Ethics and Compliance Strategy

Gifts and entertainment disclosures should play an important role in your overall compliance and ethics strategy. It’s an opportunity to both educate the workforce and learn more about the way your organization functions. A G&E compliance program should give you insights into which third parties and employees could pose the biggest risks, which can be early warning signs. 

Managing this process is proactive and insightful, which is why G&E processes matter not only to the compliance function but to the overall health of an organization. 

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Current Challenges with Gifts and Entertainment Programs

Here are the most common challenges large, global organizations face with their G&E processes:

Lack of Gifts and Entertainment Compliance Tools to Support Processes

Oftentimes, gifts and entertainment compliance is not supported by the right technology. Many gifts and entertainment disclosure programs are rooted in manual processes or leverage solutions that were not designed with the G&E use case and the intricacies that come with it in mind. Taking advantage of automation has the potential to transform your approach to G&E. 

When vetting technology vendors, ensure you select a flexible solution that makes it easy for you to make the critical changes you will need to. Having a robust G&E software solution is an accomplishment, but if you want to take it one step further, select a solution that truly integrates with your other compliance processes (third-party due diligence, conflicts of interest, risk management, training, etc.).

Bring all these critical compliance pieces together “under one roof” through a centralized compliance platform. A focused, holistic approach to compliance and ethics allows you to get all of your compliance data in one place so you can better see risks in aggregate and optimize existing controls to more easily accommodate change.

No Insights Into Gifting Trends

Some technology providers will be able to automate the process of collecting G&E disclosures, but an important question to ask is: what happens with that data next? Using this information to better understand your organization and where the largest risks lie is critical to the success of your program.

Unfortunately, within many programs, data is static and reporting isn’t real-time. As a compliance officer, you want to know who your employee base is spending gifts and entertainment dollars on, and you also want to be able to easily see your data in the aggregate. 

Other valuable insights might include which teams or individuals submit the most requests, geographical trends, and average approved/denied gifting spends. These kinds of insights can help you decide where the thresholds should be, what local customs you should be considering, and where the biggest risks lie. Without good technology, acting on trend data to further refine your program can be difficult to manage.

Employee Adoption and Communications

Employee adoption with any compliance process can be a challenge. You can build a perfect G&E process (or any other compliance process for that matter), but if you are not making it crystal clear how to follow this new system, then no one is going to use it. User adoption is essential to the launch of any new compliance process. Much of this effort will include engaging stakeholders around the business as you deploy your new G&E process and using a wide variety of communication methods.

Email should be an essential part of that strategy, but email alone won’t cut it. Even in someone’s inbox, you are fighting noise. An effective communications strategy might include internal memos, posters, or in-person or virtual training sessions.

You’ll also want to ensure you spend extra time educating groups of power users. For a G&E process, this will likely be the commercial side of the business, including sales teams. 

Gifts & Entertainment Compliance Best Practices

Below is an overview of examples of requests that should be allowed and examples of some that are not appropriate (regardless of enforcement agency).

Generally permitted

• Legitimate business
• Appropriate and reasonable
• Adequate timing and frequency
• Legal for all parties
• Open and transparent

Not appropriate

• Cash (or equivalent)
• Valuable information
• Illegal items
• Employment position
• Personal favors
• Paid by the employee personally

At the end of the day, gifts and entertainment spend should be justified by a rational and reasonable business purpose and should be appropriate and reasonable. However, like many areas where ethics are involved, there are grey areas when it comes to these sorts of approvals.

With that said, the importance lies in how you apply these principles systematically in your organization on a global scale. Doing this properly is complex and has become increasingly so due to the way that enforcement agencies are tracking potential violations. Today, a robust gifts and entertainment compliance program involves looking at local customs, language issues, and currency conversions. Every G&E program is going to look a little bit different, but the goal is to have your process make sense for your employee base and your organization.

Creating a Robust Gifts and Entertainment Compliance Program

Include Documentation in Strategy

In all things compliance, the audit trail is critical. It’s important to document what the compliance team is doing and be able to access this data at a later time.

For gifts and entertainment, tracking exceptions is also a big issue. Knowing how many exceptions you have and what those look like can be very telling. Following best practices is a good start, but documentation needs to be taken every step of the way.

Advantages of proper disclosure documentation include:

• Streamlining G&E approvals
• Creating a request repository
• Tracking exceptions
• Paying attention to aggregates

Effective documentation can help provide your team with more meaningful data to report on. Trends could include exceptions by region, title, role, or if requests are timed around certain events, such as big sports games. Having this sort of data gives you the opportunity to explain upwards what is going on within the program and could even help explain why this matters. Data points can help tell the compliance story and can help bring the issues to life.

Approval Process for Gifts and Entertainment Disclosures

Typically, the compliance function reviews any gift or entertainment disclosure over a certain named amount. Below that, the request can be automatically approved and documented, or a line manager needs to give their approval.

As you create your own thresholds, remember that there is no one-size-fits-all rule for what these amounts should be. This is something that your team will want to customize based on what regions you operate in, what those local currencies are, local customs, and conversion rates. 

Another critical point to mention is the importance of your user interface (UI). Your process needs to be easy for employees to complete and should not feel old, outdated, or external but rather modern, intuitive, and on-brand. Being able to customize your compliance solution so it looks and feels like part of your brand (as opposed to an external vendor) can significantly help adoption and make employees feel comfortable through familiarity with the process.

Considerations When Building a Gifts and Entertainment Compliance Program

When building out your new and improved gifts and entertainment compliance program, there are many factors that can influence exactly how you set up the program. Examples include:

• Which languages and currencies does your process need to operate in?
• What are the thresholds for automatic approval, manager review, and compliance review?
• What questions need to be on your G&E questionnaire?
• What special forms or conditional questions will need to be answered?
• Should you establish thresholds per person, per department, or per company, and what time period should this be measured? (Monthly, quarterly, annually?)
• How long should the process take?
• How will this connect to other E&C initiatives?
• What kind of reporting and trend data is important?

Successfully Deploying Your G&E Program

As mentioned, a good communication strategy is essential to the sustainable success of your G&E process and overall E&C objectives, as it notably allows you to ensure stakeholder engagement, raise awareness and visibility, and ensure adoption over time.

The role of management is to lead by example and to make sure each team adheres to the process. You need to think about who is actually going to be using this system. A large number of your employees are likely to be in roles where gifts and entertainment don’t really occur, yet they still need to be aware of the policy and process.

The commercial side of the business will naturally encounter situations where they will need to make G&E requests because they are the ones typically building relationships with third parties. In your communication strategy, be sure to have general communications but also specific ones to the cohorts who will use this solution the most. By tailoring the messaging for a specific group, you are able to increase their resonance with the new policy.

How to Effectively Deploy a New G&E Process in Your Organization

Tease the topic: It’s essential to gain buy-in and inform stakeholders that changes are coming. You can do this by presenting to your organization’s leadership team and requesting their assistance with establishing a strong tone at the top. For the rest of the organization, let them know that a new G&E process is on its way, so as not to catch anyone off guard with the changes. Communications to the employee base might include posters, emails, handouts, or other forms of internal messaging.

Train the workforce: Launch the new gifts and entertainment policy and associated training. Leverage a trusted technology partner to make this step seamless. Ensure signatures are collected to ensure accountability for all employees. Since some groups will use the G&E process more than others, it might make sense for you to also host in-person training with power users, such as the sales teams, to make sure they adopt the new process seamlessly.

Listen to feedback: Although it might feel like your work is done once you launch the new process, that is far from the truth. Getting honest reactions from outside the compliance team and iterating when necessary is an essential step. Listen to reactions and try to solicit honest feedback about how people are experiencing the new process in real life. Remember, compliance initiatives are iterative processes, and your program should always be evolving to become the best it can be.

Conclusion

An effective gifts and entertainment compliance program ultimately comes down to three things: keeping the process simple enough for employees to follow, choosing technology that can evolve with your needs, and clearly communicating the purpose behind it all. By streamlining policies, leveraging flexible tools, and sharing the “why” with stakeholders, you’ll not only boost adoption but also build a program that prepares your organization for risks, strengthens decision-making, and sets a strong foundation for long-term compliance success.