Latin America einvoicing policy and the FCPA legislation

The government has visibility into every single one of your invoices – Do You?

As we continue to explore transparency and risks in Latin America, I wanted to continue on 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.

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”).”

Source: fcpamericas.com/about-the-blog/ 

So what do you do next, where do you go.

Start with Mexico and expand to Brazil:

Remember the Mexico government announced on Dec 28, 2012 that the validated XML structure of the CFDI must be archived for a period of at least 5 years. And this XML will be used as the single version of the truth for auditors when reviewing VAT tax discrepancies.  So here lies the problem -- an organization could see the inbound CFDI volume double if not triple in 2014.  There is no way that manual processes will be able to keep up with the increased load so automation is going to be necessary.  Here are some recommendations in the short term for AP managers or Shared Service managers looking at Mexico eInvoicing.

1. Ensure you’re compliant with the Dec. 28 2012 legislation for XML validation and archiving today. Many companies are not doing this process properly, and you need to be sure to get compliant regardless of CBB, CFD or CFDI invoices.
2. Understand the volume of CFD versus CFDI you are receiving today and will be receiving in the future as the government changes.
3. Understand how you are proving validations of the inbound documents - many PACs in Mexico still have very basic validations that don't cover all requirements. 
4. Go beyond the "okay to deduct" which is the government validations of the comprobante and look into the "okay to pay" processes which will ultimately streamline your Inbound Receiving and Payables process. There is what you have to do, and then there is what you can be doing from the government mandates to streamline your operations and ensure expenditures match registered and approved purchases.
5. Speak with vendors that specialize in Latin America eInvoicing and specifically 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 changes on your AP process.

The same basic rules apply to Brazil, but with the changes and the final CT-e mandates taking hold in December of 2013 – ensure you have full visibility into Goods, Service Invoices and CT-e.