Treasury News Network

Learn & Share the latest News & Analysis in Corporate Treasury

  1. Home
  2. Operations
  3. Control & Compliance in Operations

Companies must wake up to risk of third party non-compliance

Auditing third parties for compliance was the number one anti-bribery and corruption challenge for corporates, according to the Global Anti-Bribery and Corruption Survey 2015, conducted by KPMG International.

In the US, 77% of companies said auditing third parties for compliance was the number one challenge, while in the UK this figure was 51%.

Despite being the most pressing concern, more than one-third of the companies polled do not formally identify high-risk third parties, while more than half of those respondents with right-to-audit clauses over third parties have not exercised that right.

The survey took a sample of 659 corporate risk leaders from 64 countries and looked at the challenges they face in complying with anti-bribery and corruption regulation, as well as the strengths and weaknesses of their organisations in combatting bribery and corruption.

The survey also found:

  • anti-bribery and corruption considerations are not taken seriously enough by companies preparing for M&A with foreign entities;
  • companies say they lack the resources to manage ABC risk; and
  • although data analytics is an increasingly important and cost-effective tool to assess ABC controls, only one-quarter of companies use data analysis to identify violations and, of those that do so, less than half continuously monitor data to spot potential violations.

The member governments of the Organization for Economic Co-operation and Development (OECD) signed the Anti-Bribery Convention 18 years ago. It establishes legally binding standards that criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction. Despite the tougher enforcement of regulations to crack down on bribery and corruption, illegal payments to counterparties are still a problem. In 2013, the World Bank estimated that the amount of bribes worldwide totals $1 trillion a year.

Yet, despite stricter regulations and tighter controls, along with a proliferation of corporate risk management programmes that monitor counterparties, the survey concludes that companies are continuing to fail to comply with the tougher regulations. Many face heavy fines as a result. It conjectures that having the perfect corporate ABC programme may not be effective in improving the way companies do business and may even lull senior executives into a false sense of security.

CTMFile take: This is a very serious issue that closely affects corporate treasurers, who play a key role in relationships with third parties in the supply chain and in monitoring payments to and from counterparties. Corruption happens everywhere and those in financial departments – front, middle and back offices – are in important positions to uphold standards. As the KPMG survey suggests, the B20 coalition – a group of private sector organisations in the G20 economies that provide official recommendations to the G20 leaders on how to promote integrity and transparency in business – is heading in the right direction.

Like this item? Get our Weekly Update newsletter. Subscribe today

Add a comment

New comment submissions are moderated.