Suppliers of the supply chain are usually selected at a rapid pace to ensure that the flow of supplies and goods or the manufacturing process moves quickly and at an affordable cost. In the year 2020, due to significant disruptions to supply chains, there were increased chances of fraudulent activities or corruption. Implementing Due Diligence Background Checks can help mitigate these risks by thoroughly vetting suppliers and partners before engaging in business, ensuring a more secure and reliable supply chain.
There are many factors involved, including the speed at which goods are manufactured and distributed to international markets along with a myriad of different market requirements. The supply chain is also broken because of the pandemic. Since most countries are involved in lockdowns that are repeated to stop the spread of the virus, a lot of business methods have to be adapted “on the fly”, which has created more chances for criminals to gain the advantage of the weaknesses.
The majority of companies concentrate on possibilities to lower logistical costs by constructing distribution and manufacturing centers located in “best-cost” developing countries, or emerging growth markets, where the cost of labor is significantly lower. Yet, few businesses are realizing the increased risk that exists in these nations and the necessity to reduce the risk. As an example, few firms are aware of this alarming number: 35% of worldwide agents and distributors suffer from problems with corruption.
In addition, many companies are unaware that they have a problem, but the majority of them are not equipped to handle the risk. Studies show that, when it comes to tackling corruption-related risks The majority of companies operate on an ineffective and unstructured strategy. A lot of mid-sized or small businesses with limited resources are utterly unprepared.
A few companies, particularly large companies, can use vendor screening or risk scoring of their worldwide supply chain and also through the review of their compliance or legal departments. In reality, the risk rating is dependent on a limited amount of due diligence data, and therefore the risk of many significant risks can not be considered. The cost of corruption-related problems is high, through penalties and fines, reputational damage, and even jail time for the top executives, not to mention the loss of revenue or business.
How Risky Is It?
In the year 2019, Transparency International discovered that ” anti-corruption efforts stagnate even in G7 countries.” The United States received its lowest score in the past eight years, at just 69 points from 100. The same year, just a year later, rather than getting better marks it was worse. The United States dropped another 2 points, resulting in a score of just 67 points out of 100.
Additionally, in addition, the UN Global Compact released a report about fighting supply chain corruption, which said “the cost of corruption equals more than 5% of the global GDP (US $2.6 trillion), with over $1 trillion paid in bribes each year.”
Additionally, in 2020 as per the FCPA Blog The DOJ and SEC brought FCPA enforcement action against 12 businesses and issued financial penalties that totaled an astounding $6.4 billion. In contrast, in the year 2019, 14 companies had to pay a (then) new record $2.9 billion in settlement fees to resolve the FCPA cases.
The cooperation between multinational corporations and multinational authorities to expose the underlying violations is also growing as a result of more corporations operating globally in their supply chain, and the necessity for enforcement of cross-border measures to limit the impact of corruption and bribery globally. It has led to increasing multi-jurisdictional FCPA instances and other nations are now beginning to implement FCPA law similar to the one found in those in the United States. Foreign governments received over $5 billion in 2020 thanks to FCPA settlements arising from corruption cases.
Not all Regions Hold the Same Standards
In some places in some places, fraud and bribery is a regular occurrence. Collaborative arrangements, such as gifts or kickbacks, to obtain contracts, or deceive customers about the quality of goods and services offered in various areas is considered to be a normal method. Modern slavery, human rights, and environmental problems also become relevant.
In the year 2019 Apple’s factory for suppliers located in China, Foxconn was a target because of labor laws violations. In the year 2020, Apple’s China supply chains were scrutinized on December 31, when workers from Apple’s supply chain supplier Pegatron held a demonstration in protest against wages that were not paid, as reported by China Labor Watch.
So, what exactly does an organization need to take to reduce risk within the supply chain? These are five things to consider when dealing with this issue:
1. Do a Risk Assessment of Corruption
As it is essential to visit an appointment with a dentist or doctor for a check-up on your own well-being. It’s important to assess the risk of corruption if you have to deal with subcontractors and suppliers. A reputable investigative company is able to conduct a risk assessment to determine how your company and suppliers will be rated in terms of risk. It is vital for the company to have an extensive background and experience in the field of investigative investigation and assess the risk of supply changes together with resources that have global the ability to reach. You can’t eliminate risks that you aren’t yet able to identify.
2. Utilize an Independent Firm for Periodic Risk Audits
You should not only begin to conduct external and internal risk audits regularly, but, you must also review the results of your supply chain risk assessment. Do you have risk-scoring methods sufficient enough to identify any changes to suppliers or identify various forms of fraudulent activities? The use of questionnaires is not enough for this task. Things could have changed in response to the outbreak that could initially have been stable, however, they are no longer. The quality of care is more crucial than frequency for employees, as well as suppliers and subcontractors. The identification of internal risk is equally vital as identifying external risk in the supply chain. Re-examination of these elements could prove vital as the pandemic diminishes its impact, but supply chains remain fragmented or change to reflect an evolving business environment.
3. Create and Implement Security Measures and Compliance Programs.
Transparency and prevention are the best ways to reduce risks. It is crucial to develop an effective risk management program that includes assistance from an external third-party Security as well as risk-management company that is skilled in extensive due diligence audits on both corporate and individual level across the globe.
The collaboration with an external investigation firm can also help prevent the possibility of criminals or inexperienced internal teams from not using the best program suitable for your requirements.
A few steps to a successful conformity program are:
- Establishing policies regarding donations and hospitalities. Making sure they are followed and reported on;
- Documentation on “conflicts of interest” to be signed and read by your staff,
- Training programs for employees on the methods and policies used to fight fraud, and understand how members of the team should react to risks;
- Create a program for whistleblowing in which employees can disclose suspicious activities;
- Conduct due diligence when dealing with subcontractors and suppliers;
- Create a two-person change procedure within your procurement team to ensure that your suppliers cannot be altered, added, or removed without the knowledge of another team member;
- Remove old suppliers from the system
- Be aware of changes in staff behavior and then review internal accounting controls starting from beginning to finish and
- Create a breach of contract procedure.
It is crucial to focus on the importance of training to equip your employees with the ability to recognize possible risky areas, understand the expectations of their employees as well as improve their detection strategies.
Following transparency, traceability is the next crucial element to reduce risks. It can ensure that you don’t have any corruption issues in the supply chain, by enhancing your capacity to detect your traceability, tracking and identify components of your service or products. The more efficiently you’re capable of tracing these components of your enterprise more likely you are to avoid fraud and also the quicker you can react to problems that might arise.
4. Perform Thorough Due Diligence Inspections Whenever Red Flags are Raised.
The due diligence of executive managers differs from the due diligence in companies. Sometimes, it is referred to an executive background investigation, it examines more than 30 parts of public records information as opposed to standard background checks which are generally restricted to five components of the criminal record, educational background, and employment histories that are that are suitable for an evaluation of employment for staff, but not sufficient for the executive level. The background check includes detailed examinations of other media sources as well as the most thorough, dark, and historic internet search.
In contrast to regular background checks, may uncover information that is crucial that otherwise would be ignored. Background checks on executives result in less than 1 percent of the serious problems and deep due diligence can reveal 20% of the details that you need to have access to to guard your reputation as a business and expose you to adversity and misdeeds.
Due diligence for business is similar and when properly executed, results in on average 35% severe concerns, mostly relating to corruption. Doing thorough due diligence on your supply chain, or urging the practice to be undertaken by your companies within the supply chain could be a significant step to reducing your threat.
5. Partner with an Outside Investigative Firm that has Expertise in Thorough Due Diligence as well as Supply Chain Risk Management
An impartial third-party investigative company can protect your business. A corruption risk analysis in establishing and implementing risk compliance and training programs as well as conducting extensive due diligence carried out both internally and externally is dependent on the expertise and knowledge of the firm that you work with. Consider key hiring decisions, M&A deals, and suppliers in your supply chain to make more educated risk choices and stop “bad actors” from damaging your reputation and the business it serves.
The majority of firms who conduct supply chain investigations such as background checks, and executive due diligence are proficient or knowledgeable. Select an outside investigative partner whose primary focus is the execution of extensive due diligence inspections on both personal and corporate levels which have resources that span the globe and have long-term experience in the field of risk reduction for supply chains. Be sure that they have strong connections for checking across other countries; “boots on the ground” capabilities are frequently crucial in fast-growing as well as emerging markets, to ensure the supply chain firms are as they claim to be.
