In previous articles we have dug into the framework that is needed to detect and prevent corruption in your business. We have spoken about the framework in detail, as well as how it uses a customizable decision-making model to help identify the likelihood of an individual’s future behaviour. This risk-scoring model is used on a continuous basis to ensure your business is able to pick up on any changes of behaviour/circumstances over times.
In this article we build upon the employee element of the framework by using it to assess all suppliers and customers to your business, all of which, of course, are operated by individuals.
By applying framework to the office bearers of companies which are your suppliers and customers, you will be in a strong position to assess the risks of corruption associated with prominent people connected with them. There are three elements to consider here: corruption by the company, corrupt acts by its office bearers or any sanctions against the company or office bearers, and the company’s political exposure.
In addition to the above, the other components in our customer and supplier framework will assist you to detect, identify and prevent the risk of corruption or fraud damaging your supply chain or other important relationships.
We have discussed the risk-scoring methodology in previous articles regarding the framework based around individuals and this builds upon it for your suppliers and customers as detailed below:
- Company Details:
Does the company registration number, company name, trading names, registered address of the head office and associated branches correspond with the company’s office registry?
- Tax compliance:
Are the company’s registered tax details confirmed and authentic?
- Bank accounts:
Are the company back accounts verified as being authentic and not black-listed?
- Company Office Bearers:
What are the risk scores from the framework for each of the directors, executives and key management team?
- Beneficial ownership of the company:
What are the risk scores from the framework for each of the directors, executives and key management team of the beneficial owners?
- Professional Advisors:
What are the risk scores from the framework for each of the directors, executives and key management team of the professional advisors? Case studies have demonstrated that auditors and lawyers were involved, either wittingly or unwittingly, with examples of state capture. In some cases, there were clear, demonstrable links between PEPs and corrupt deals associated with some professional advisors. Undertaking a risk appraisal for the professional advisors is a key element in determining your exposure to risk.
- Financial distress:
Determine whether the person or company is in financial distress by considering their financial status, levels of expenditure, if they are under debt review or they have a financial judgement against them. Be sure to consider the value of the judgement and the time since issue, if a judgement exists, to determine its relevance as a risk factor.
- Financial irregularities:
Movement of money during corrupt activities is one of the key things that investigators look for when tracing corrupt practices. People involved in corrupt practices do their level best to shield their transactions from scrutiny. Consider the risks to your business if an employee or business partner of the company being assessed has a trend of moving large amounts of money between mortgage bonds, bank accounts or other financial instruments such as insurance policies etc These movements would be considered to be out of alignment with the person’s lifestyle.
Determine the status of any action against the company such as liquidation, debt review, provisional or otherwise.
What is your assessment of the positive and adverse social and mainstream media reports about the company? Do they suggest a risk of corruption, illicit activities or any history of racist or hate speech?
- Adverse labour action:
What is the company’s track record of working with organised labour? Are there any material legal cases in progress or court judgements that could result in financial hardship for your customer or supplier?
Is the company or any of its directors/office bearers under any sanction by an international body?
- Compliance program:
Are adequate measures being taken to prevent corruption? Are the company’s compliance protocols sufficient?
- Human rights and anti-slavery:
What measures have been taken to comply with the international standards and norms and how robust are they determined to be?
- Occupational health and safety:
What is your assessment of the company’s compliance with the various health and safety provisions?
Does the company have the legal right to own, market or represent the brands that they claim? Has any brand representation right been withdrawn? Are any of the associated brands considered to risks of corruption, intellectual property infringement or general unethical business practices?
Taking the framework further
As the data collection for an individual provides you with a 360-degree view of the risks at play, the same can be applied when looking at external companies. By collecting the data on a company level, you are able to aggregate the data by sector, by position in the value chain and then by the company in its entirety. In turn, you will be able to build dashboards that display the level of improvements you have made to risk of corruption throughout the organisation value chain and serve up the data by department, by internal process or by company as a whole for the board to evaluate.
Further to this, because you are undertaking the data collection on an on-going basis, you can track and quantitatively measure improvements on a monthly, quarterly, half-annually or annual basis. You will be able to update your board on improvements you have made and, as a result of the on-going monitoring, you will also be in a position to detect, identify and prevent harm as a result of risks of corruption by business partners before they impact, which will allow your organisation to take action to prevent loss.
Closing the loop
Once you have collected and assessed the data for employees (hyper-link to the framework for individual article), suppliers and customers you will be able to easily identify intersects between these data sets.
This is a crucial element as it will allow you to identify possible risks of collusion between employees, suppliers and customers.
One of the key determinants in corrupt transactions is a conflict of interest. Corruption Watch reported that “the risk of corruption increases when public duties and the private interest of an involved actor are conflicting because there is a chance that the public position might be exploited to the advantage of private interests”. By connecting the relationships through directorships, social and public media between employees, their families and suppliers and customers you are in a strong position to determine if any of these relationships pose a risk to your company.
The Framework Explained
Putting together a working detection and prevention framework is the first step in safeguarding your business against corruption. We have previously provided a summary of our framework model, which has been used by organisations in South Africa. This should help you better understand how it can help simplify your task in preventing corruption from damaging your business. To revisit this article, click HERE.
Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.
The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.
Click here to book a demonstration or call us today to find out how you can transform your business.