SHR's Gift Exchange Policy is summarized below:

Creating and maintaining good relationships with our customers, suppliers, and business partners are important to SHR's success. The occasional exchange of gifts, meals, and entertainment of small value are a common business practice meant to provide a legitimate opportunity to interact, create goodwill, and establish trust.

However, it is important to use good business judgment when determining the appropriateness of gifts, meals, or entertainment. Business gifts that are extravagant or would in uence behavior are inappropriate and should not be given or accepted. An inappropriate gift might cloud objectivity and decision-making. The exchange of gifts given with the intent to bribe, make a kickback, or place undue in uence are illegal and not the way SHR conducts business.

An appropriate business-related gift is:

? Of moderate value, whether given or received.

? Something that will not embarrass or discredit the company.

? Not made in cash or cash equivalent such as checks, money orders, stock, and similar items.

? Gifts, meals, or entertainment that you receive that have an actual or estimated value of over US $500 must be reported to the CCO.

1. Based on your review of the policy above, what would you consider the strong points of the policy and what, if any, shortcomings did you notice?
2. Develop key steps to test compliance with the Gift Exchange Policy. Specically, outline key procedures that might be performed to test the design adequacy and operating effectiveness of controls related to this policy.

 

(1)

Strong points of the policy:

Disallowance of Cash and cash equivalent is a good policy, gifting only cash does not indicate intent to create legitimate relationships and can be construed as a kickback. Hence this is a proper point.

Limit on value, even if a high value gift is not cash, it can be taken as an inappropriate tool to cloud objectivity.

(2)

Procedures to be performed:

Check compliance with mode of gifts like cash gifts and see if such instances have been identified by the company and if disciplinary action was taken.

See whether the gift policy is communicated throughout the company and if employees are aware of the policy.

Step-by-step explanation

Strong points of the policy:

• Disallowance of Cash and cash equivalent is a good policy, gifting only cash does not indicate intent to create legitimate relationships and can be construed as a kickback. Hence this is a proper point.

• Limit on value, even if a high value gift is not cash, it can be taken as an inappropriate tool to cloud objectivity. For example gifting a Rolex watch would not be appropriate as it is extravagant and can be taken as an attempt to gain undue influence.

Weak points of the policy:

• No limit on frequency of gifts, the policy does not contain a limit or reporting requirement on frequent gifts. For example a gift worth $400 is given to an SHR employee every week, even though the individual value of each gift is below $500, the frequency suggests some form of undue influence. Hence this point should be added to the policy.

• Applicability to family members, the rules in the policy should also be applied to family members of employees regarding giving and accepting gifts to and from parties doing business with SHR.

Procedures to be performed:

• Verify declarations made by employees to the CCO regarding gifts over $500, check whether these are reviewed by the CCO and if any particular employee is frequently receiving large gifts.

• Check compliance with mode of gifts like cash gifts and see if such instances have been identified by the company and if disciplinary action was taken.

• See whether the gift policy is communicated throughout the company and if employees are aware of the policy. For example checking whether the policy is displayed on the office notice board, quizzing random employees about the policy.

• Inspect instances of non compliance with the policy, if an instance was detected how long was it going on for, what was the value of the gift, and if any disciplinary action was taken by the CCO in a timely manner.