Let's explore transparency and risks in Latin America. I want to look at the topic of the Foreign Corrupt Practices Act and how it is related to the electronic invoicing issues we discuss all the time in Latin America. The audit exposure is not solely a local issue, the FCPA accounting legislation is very clear on the documentation and book keeping requirements. With the governments in Mexico and Brazil having visibility into virtually all of your invoice transactions (whether for goods, services, imports, intra/inter-state transfers, and travel & expenses) – are you sure that your organization has the same visibility at the corporate level.
Yes, you spent millions on implementing a common ERP system and accounting package to achieve visibility – however – many leave the invoicing in both Mexico and Brazil in local 3rd party external systems. Are you sure that you have visibility into all the invoices, are all the invoices synced to the ERP system – do travel and expense invoices get validated and where are they stored? How are you analyzing your invoices in these local solutions – Remember, the requirement under the FCPA to properly record all transactions fairly and accurately extends to all original documents, including invoices, receipts and expense reports – and not just general ledgers. Almost all FCPA violations involve books and records violations.
You may be very surprised what you find. When I talk with multinationals using e-invoice validation services that are outside the SAP system, I often see two versions of an invoice - the accounting invoice which is the invoice generated inside SAP and part of the SAP system of record, and the "fiscal invoice" which is the invoice version registered with the government tax authority. These versions are NOT the same. This occurs because the invoice validation process is external to SAP and does not bring the "fiscal" invoice back into SAP. This is NOT GOOD. This means the documents you are registering with the government - the "official legal invoice" are different than the invoice documents inside your SAP system.
Accounting, Record-Keeping and Internal Controls
In addition to prohibiting bribery, the FCPA requires proper accounting, record-keeping and the establishment and maintenance of appropriate internal controls. The FCPA specifically requires that every publicly traded company in the U.S:
Make and keep books, records and accounts that accurately and fairly reflect the transactions and dispositions of the assets of the company in reasonable detail. Documentation must not only record financial facts related to any transaction, but they must include any other information alerting the reviewer to illegality.
Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions have been executed in accordance with management’s specific authorization and recorded in accordance with generally accepted accounting principles (“GAAP”).”
So what do you do next, where do you go.
Speak with vendors that specialize in Latin America eInvoicing and specifically within the SAP system — most Shared Services or SAP end users are moving to single instances or regional instances of the ERP system — you need to know the effects of the Latin American requirements on your accounting process.