The Definitive Guide to Gifts, Entertainment, Charitable Contributions, and Third-Party Travel Policies, Part I

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“But I want to send my wife to the Manolo Blahnik launch party in Barcelona. What’s the big deal - I’ve gone every year?  Yes, this year I’ll be in Africa on business at the time, but since it has a plus-one, so this time my wife can take my daughter. I don’t understand the problem.”  The foregoing conversation is a real one that I had with a CEO.  Details have been changed to protect the clueless.

We all know that we need a hospitality and third-party travel policy.  Many of the highest profile bribery prosecutions, in the U.S. and abroad have dealt with gifts, hospitality, third-party travel, and charitable contributions violations.  Excessive hospitality, gifts or charitable contributions meant to influence a decision-maker for an unfair business advantage can cause havoc, as well as violations of the FCPA, UK Bribery Act, and local law.

Many compliance officers struggle when putting together an entertainment and third-party travel policy.  What are best practices?  What is normal?  What is excessive?  And most importantly, what is defensible to a prosecutor? 

We at Spark Compliance have researched this issue often.  We constantly give advice and write such policies for our clients.  To help you with this task, we’ve created the definitive guide to gifts, entertainment, charitable contributions, and third-party travel policies.  This is the first of two posts – this one on benchmarking and best practices for entertainment and third-party travel policies. 

Benchmarking your Entertainment and Third-Party Travel Policy

A survey of Fortune 500 companies showed that more than 80 percent of respondents have spending limits of $250 or less for entertainment or hospitality, with approximately 35 percent of respondents limiting entertainment expenses to less than $100.

The vast majority of our clients have spending limits of $100 or $150 for hospitality to non-governmental officials.  In many companies, Internal Audit performs spot-checks of hospitality and third-party travel receipts to ensure the process was properly followed. 

Best Practices for Hospitality and Travel Policies

  • A hospitality and travel policy should:

    • Include specific examples describing the types of acceptable scenarios for hospitality and travel expenditures. 

    • Require pre-approval and heightened scrutiny for expenditures involving government officials.

    • Require a legitimate business purpose for all hospitality and travel-related expenses. 

    • Specify a maximum threshold amount.  Anything above that amount must be pre-approved. 

    • Decide whether it is appropriate to allow local offices to set the threshold amounts based on local customs and cost of living, and include these limits in the policy if chosen.

  • Limit the aggregate amount of hospitality or travel expenditures to the same individual or group in a given time period.

  • Require that company personnel be in attendance at all company-sponsored events. 

  • Require all hospitality and travel expenditures to be documented with all receipts and supporting documentation included. 

  • The policy should NOT allow:

    • Reimbursement of expenses for spouses, family members, or other guests who do not have a relationship with the client/government agency. 

      • Reimbursement of expenses for excursion or activities that are purely personal. 

    • Per-diem payments to cover miscellaneous expenses.   

  • Best practices that should be included in the policy as requirements:

    • The location should be connected to the business purpose of the travel.  For example, choose a city that is near the factory or office to be visited.

    • Business activities should predominate over entertainment or personal activities. 

    • Only those individuals with a business purpose for attending should be invited on the trip.  Consider having the client/government agency select the individuals to join the trip. 

    • Travel accommodations for clients/government officials should be consistent with those offered to employees of the company.

    • If possible, the company should make all the arrangements and pay for all travel accommodations directly. 

    • The trip agenda should include and document the business events and meetings and not just the meals and entertainment associated with the visit. 

  • The policy should require that all pre-approval requests be in writing.  The pre-approval process should require that the following information be disclosed: 

    • Description of the hospitality or travel program

    • Amount spent on the hospitality or travel (with supporting documentation, if available)

    • Recipient(s) of the hospitality or travel (include full name, position, and company)

    • Recipient’s current relationship with the company (e.g., client, vendor, prospective client, former client, etc.)

    • Whether the recipient is a government official

    • The business purpose for incurring the hospitality or travel expense

Should you wish for a review of your entertainment and third-party travel policy, please contact info@sparkcompliance.com.  This post is co-written by Spark Compliance’s CEO Kristy Grant-Hart and East Coast Vice President Ramsey Kazem.