Some large investment banks are creating their own technology programs to track business entertainment expenses. The process will be time-consuming and expensive, said a compliance director at a large firm in New York. “The tracking system is going to be far more of a challenge than most people realize just yet,” he told WSL sister publication Compliance Reporter. “Firms have been spending a lot of time talking to their [information technology] folks.” Firms generally do not create tracking programs like these. For example, not using an outside vendor’s electronic record storage or archiving programs in favor of one’s own is virtually unheard of.
Both the New York Stock Exchange and the NASD have pending proposals to regulate these expenses. Building a system to capture every expense--even a round of drinks at a client meeting--is shaping up to be a real challenge. “But that is what we are going to have to do,” the compliance director said. “If you look at what we are trying to accomplish, it makes sense.” Employees from the firm’s travel and expense group, business development services and information technology department have been working to develop a program that will store all expenses, separated by client name, in the same database. “We had it all [documented] but we have never really pulled it together before by client,” he said. “You are going to have to build a system that will associate individuals’ names with their clients. The reality is that most firms’ systems were not designed to slice and dice it that way.”
Vendors for gift-expense tracking are hard to come by, firms are finding. “I’m personally unaware of a vendor that has any solutions,” the compliance director said. The lack of programs to track entertainment expenses is puzzling, said a spokeswoman for another large investment bank “You would think the outside vendors would have been more forward thinking.” Two vendors that do offer programs are San Francisco-based FIRE Solutions and New York-based Orchestria. FIRE’s program, called PowerComply, enables firms to see which employees are giving and receiving gifts and how much the gifts are worth. “Firms are starting to get nervous,” said Juliana Lutzi, FIRE’s ceo. Lutzi said firms are rushing to centralize entertainment expense records and said FIRE is talking to some. “We will be hosting, tracking and supporting the system for them,” she said. PowerComply prompts individuals to certify that their data is accurate and complete.
While not foolproof against fraud, it meets regulatory requirements that a firm have a program in place and that the program is being supervised. “Any system is only as good as the data that is put into it,” Lutzi warned.
The spokeswoman for the I-bank said her firm is upgrading its own tracking systems. “We are getting all these systems in place for the upcoming regulations,” she said. The NYSE is permitting firms to define appropriate entertainment expenditures in its proposal, but its rules will require extensive record-keeping that will be reviewed by regulators during examinations. The NASD is accepting comments on its proposal until Feb. 23.