Where did the marketing budget go?

Forensic bites series

April 2022

In our March issue, we discussed challenges faced by the internal audit and compliance teams (“IA & compliance professionals”) of multinational companies (“MNCs”) during the COVID-19 pandemic, particularly in relation to their Chinese subsidiaries, joint ventures and business partners, and we explored ways to overcome these challenges and avoid losing visibility into the China business.

Another area of concern that has come to our attention recently relates to marketing expenses incurred in China. Questions raised by the regional office or HQ typically include the effectiveness of the marketing expenditure – hence a business issue – or concerns of potentially inflated or fictitious expenses – in other words, a compliance issue. The latter is nothing new, but because of the COVID-19 related obstacles covered in our previous article, there are increased challenges for the regional office and HQ in monitoring marketing activities and assessing expenditures.

This article seeks to highlight the underlying issues with respect to marketing expenses and the common red flags that IA & compliance professionals should pay attention to. We also provide advice for monitoring and detection of those issues.