Corruption allegation costs Wal-Mart $612 million since 2013, compliance efforts grow

by The City Wire staff (info@thecitywire.com) 276 views 

Alleged violations of the Foreign Corruption Practices Act by Wal-Mart has cost the retailer more than $612 million in legal fees and compliance restructuring costs over the past three years.

The retail giant did not report the ongoing tally of FCPA expenses in any of its three reports issued on Wednesday (April 22). Wal-Mart does report the expenditures during its quarterly earnings releases leaving the public to keep their own tally, until the international corruption probe is resolved.

Wal-Mart’s Global Compliance report, one of the three reports issued Wednesday, came about last year by a mandate from the board’s audit committee in the wake of expanded allegations of bribery, permit mishandling and other corrupt practices in Mexico, India, Brazil and China.

 

In fiscal 2015 which ended Jan. 31, Wal-Mart said it spent $173 million on FCPA compliance-related costs. The majority of that — $121 million — was spent on legal costs associated with the investigation and additional inquiries. The remaining $52 million was spent on Wal-Mart’s own internal compliance overhaul.

In the prior two years, FCPA costs total $439 million for Wal-Mart, with $282 million in 2014 and $157 million in 2013.

 

Wal-Mart said in the 2014 Compliance report it expected to spend more than $100 million on compliance systems enhancements around the globe over the course of the next several years. In the 2015 report released Wednesday Wal-Mart did not mention the FCPA investigations by name and it gave no financial update on costs thus far or expected impact going forward.

Instead, the 7-page report attempted to highlight some of the strides taken by Wal-Mart as directed by the board of directors in 2013. The board’s audit committee established a set of compliance objectives they wanted to see accomplish by Jan. 31, 2014. In an effort to demonstrate Wal-Mart’s commitment to compliance a portion of executive compensation could be withheld should the executives fail to achieve their compliance objectives.

CEO Doug McMillon notes in the recent compliance report that senior management worked with the audit committee in fiscal year 2015 to accomplish 70 of the 72 compliance objectives outlined by the board the previous year. McMillon said some progress was made on the remaining two goals which have been carried over into the current year resulting in no reduction of executive compensation for fiscal 2015.

These compliance objectives can be grouped into three areas: people, policies and processes, and systems. The goals were set in collaboration between the audit committee and its counsel and top management, the report notes. He said additional staff was hired in fiscal 2015 to round out the retailer’s global compliance team. The retailer employs more than 2,000 people in its formal compliance program. The company also said it continued to develop its own internal anti-corruption resources.

“For example, we supplemented our anti-corruption leadership team by recruiting anti-corruption directors in the eCommerce businesses at Walmart.com.br (Brazil) and Yihaodian.com (China). Working with Walmart’s global anti-corruption team, these new directors conduct due diligence, develop and provide anti-corruption training, and oversee the implementation of anti-corruption policies and procedures,” the report stated.

McMillion said the company also built upon efforts began in fiscal 2014 for Wal-Mart’s appointments of compliance monitors in each of its international markets.

“These monitors (known as Continuous Improvement Teams) regularly visit the stores, assess the effectiveness of our compliance controls at store level, train managers on proper compliance procedures and assist the operators in correcting any issues identified,” the report noted.

During fiscal 2015, the teams completed more than 5,500 assessments at retail locations, identified any deviations from company policies and processes and collaborated with store operators to correct over 90% of those issues by year end, the report states. The retailer said it expanded the concept of compliance monitors to focus on anti-corruption policies and related financial controls. As a result of the findings last year a number of one-time externally handled functions have been transferred in-house.

Wal-Mart said it spent more $40 million in fiscal 2015 employing data and tracking analytics for its teams around the world, conducting due dilligence on third party acting on their behalf and centralizing the oversight of its license and permit applications and renewal.

In fiscal 2015 Wal-Mart said it extended a global license-management system into 11 of its international retail markets to simplifies the process for applying for licenses and provide a single repository for documentation associated with its licensing obligations.

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