Simplifying third-party due diligence in a complex world. Forensic & Integrity Services

Transcription

1 Simplifying third-party due diligence in a complex world Forensic & Integrity Services

2 A challenging landscape Understanding who you conduct business with has become more than just good business practice; it is increasingly becoming a smart compliance imperative. Multinational organizations are rapidly adjusting to enforcement standards according to which companies are responsible for the actions of their business partners and vendors, and need to conduct effective third-party due diligence on them. Be it the Foreign Corrupt Practices Act (FCPA) in the US, the UK Bribery Act or the recently enacted anticorruption regulations in India, Brazil, Russia, China and Mexico, governments are taking clear steps against the practice of making improper payment through third parties. The Criminal Division of the United States Department of Justice (DOJ) and the Enforcement Division of the United States Securities and Exchange Commission (SEC) recently provided guidance on compliance with the FCPA. Understand the business rationale for including a third party in a transaction. You should understand the role of and need for the third-party due diligence to be conducted and ensure that the contract terms specifically describe the services to be performed and the potential risks involved with these. Monitor your third-party relationships once they begin. Where appropriate, this may include acquiring and exercising audit rights, updating existing due diligence, conducting regular training sessions and requesting third party to obtain annual compliance certification. Proper due diligence and monitoring not only helps to reduce the risk of corruption, but can also cut down on fraudulent transactions, embezzlement, conflict of interest, related-party transactions and money laundering. They help a company to safeguard its assets and reputation. Responding to these emerging standards in a standardized and efficient manner is however a huge operational challenge. Management is often challenged by widely varying availability of information across markets and fragmentation of their own internal systems. The question is how can one create a consistent and, practical diligence process for third parties in New York, New Delhi, Ningbo and Nairobi in order to mitigate third- party risk? While guidance is in the context of anticorruption controls, the principles generally help third parties deal with risk. Some key points relating to third parties include: Understand the qualifications and associations of a third-party partner, including its business reputation and its relationship, if any, with government officials. The degree of scrutiny should be risk-based, and you should increase your scrutiny if and when red flags surface.

3 Overcoming obstacles Integrity Consistency Client needs Accessibility Our Integrity Diligence teams understand this problem. We help clients design, implement and maintain effective third-party diligence systems around the world. Our offerings are built on our wide and long experience of conducting complex international fraudand corruption-related investigations, as well as fraud and corruption risk consulting projects, in every major market worldwide. Our Integrity Diligence offering is designed to respond to the following needs of our clients 1 Consistency Standardized risk-based procedures for diligence that can be practically implemented wherever our clients do business worldwide 2 Accessibility The ability to continuously update and monitor diligence programs from locals market to headquarters as well as a broad global network of forensic professionals who are located near our clients and their third parties 3 Integrity A careful approach to applicable laws on data privacy and collection in relevant jurisdictions

4 EY_ID is a technology tool created by EY to help its clients efficiently and effectively address the risks involved in their third-party business relationships worldwide. The tool is a web-based, globally accessible platform and provides companies with the opportunity to collect relevant information about their third-party partners, segment third parties by their level of risk, conduct and document multiple levels of due diligence conducted on these, obtain certifications from third parties and incorporate streamlined approval processes in their operations. It is designed to enhance standardization, transparency and accountability throughout the life cycle of a third-party partnership. EY_ID offers advanced dashboards with visual data analytics and an enhanced search functionality. It also offers a highly customizable platform that can be configured to meet your specific program design, including features such as the following: End-to-end third-party life cycle management in a clientbranded and secure website Automated risk-scoring engine and self-directed risk assessment tool to calculate third-party risk, based on clients risk tolerance and priorities Highly customizable workflow manager with client-driven approval hierarchy Secure and archived repository for third party records, red-flag analyses and approvals Addressing third-party risk in today s environment requires a systematic approach, and EY_ID is there to provide the tools.

5 Today, EY Forensic & Integrity Services India has more than 65 third-party due diligence specialists with multilingual capabilities. The in-house team is proficient in English, German, French, Spanish, Chinese, Japanese, Bangla and various other Indian languages. An analysis of over 30,000 third-party due diligence checks which were undertaken in the last three years highlighted that almost 50% of cases which were reviewed had red flags. Sector focus Commonly raised red flags when conducting third-party due diligence Omission of certain key personnel/ shareholders A lack of information or trading history (this factor alone would not rule out start-ups) A business address in a non-commercial zone or at service office suites Pharmaceutical Oil & Gas Automobile Low capitalized company Suppliers with a small capital base acting merely as middlemen for undisclosed suppliers Financial services FMCG Retail Tampering or irregularities with the tendering process Acceptance of late bids or bids being accepted despite failings in technical specifications or scoring, and bids at or very close to set budgets Technology Types of third parties representing the biggest compliance risk 12% 22% 57% 9% Source: EY Asia-Pacific Fraud Survey 2013 Vendor/Supplier Distributor Agent Joint venture partner 55% 26% of respondents believe risks are more likely to arise from third parties than from internal staff. of respondents have no systems or processes in place to manage and monitor third-party relationships.

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