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In previous blogs, we have highlighted a number of entities – both publicly and privately owned, local and international – that have fallen victim to or been implicated in corruption on a grand scale. The resultant fall-out has impacted on these institutions and companies in an incredibly negative manner, both in terms of financial and their public image.

McKinsey and Company, regarded as one of the world’s leading management consultancies, has done serious damage to its reputation after a number of high-profile corruption scandals linked to State Owned Enterprises like Eskom and Transnet, while the SOE’s themselves seem to be embroiled in never-ending scandals involving dodgy payments, improper procurement and more.

Other SOEs like South African Airways have also featured, with the highest echelons of South African government often stars in the show. This blog is not aimed at highlighting the corruption in the country, but rather look at why current detection system fail at capturing it.

Fighting after the fact

In most of the cases we have written about before, the SOE involved would later claim that the work delivered was either overpriced or sub-standard and it did not receive value for money. The SOE would then launch an investigation to determine what transpired and often the large international company contracted to do the job did likewise. Each report either looked to divide the blame or simply pointed the finger at the counterparty.

The next step, rather predictably, was once the law firm had concluded the investigation, a legal battle between the parties ensued. In most cases, the parties reached an out of court settlement and issued statements that conceded little in the terms of wrongdoing by either party. In some cases, the large international company paid back the fees earnt to the SOE, in part or in full, plus interest.

The results are costly, time-consuming and ultimately benefit neither party. In the case of SOE-related cases, however, the real victims are citizens of the country.

So how do companies protect themselves against the threat of corruption? It is clear that third party due diligence was not undertaken in a number of examples we have previously discussed, while in the case of McKinsey, they admitted to having relied upon what appear to be unsophisticated and very elementary compliance tests that would be undertaken by in-house compliance teams at the very beginning of a new business relationship before any contract is considered, let alone had been entered into.

What is the norm?

But what do other large companies say about third party due diligence? And what methods do they employ to protect the reputations of the companies they work for and the people that work in them?

The PriceWaterhouseCoopers survey of businesses in 2020, reported that

33% of the companies surveyed lack a robust Third-Party Due Diligence Risk Monitoring Program and as many as 24% of the companies surveyed reported having nothing in place at all. As much as 20% of the companies reported the risk of corruption having the greatest impact

What types of risks did the companies detect related to corruption by employees, customers, and suppliers? Surveys conducted by MIE and iFacts over the past five years, together with the PriceWaterhouseCoopers survey reported that:

  • 18% of Fraud was attributed to Suppliers
  • 15% of Fraud was attributed to Partners
  • 13% of Fraud was attributed to Consultants
  • 14% of Fraud was attributed to Employees
  • 10% of applicants had Criminal record or pending criminal record
  • 28% of applicants had misrepresented qualifications
  • 19% of applicants had a Poor credit record
  • 6% of applicants had a Fake ID
  • 21% of applicants had a Fake Driver’s license
  • 42% of companies did not conduct an investigation after Fraud had occurred
  • 72% of incidents were not disclosed to the auditors
  • 66% of incidents were not disclosed to regulators or SAPS
  • 59% of incidents were not disclosed to the board of directors

Detection and prevention before it’s too late

Business leaders that we surveyed expressed that where there was a need to undertake measures to prevent and detect corruption, there was often insufficient capacity within the company to undertake in-depth due diligence. Equally, we were told that they did not have the necessary due diligence tools within their current systems and resources. The people surveyed felt that the current systems were unable to detect wrongdoing or compliance programs were unnecessarily complex and getting more costly to maintain, despite an acknowledgment that reporting requirements were becoming tougher.

These are clear indications that although the systems detected some risks, in the case of the examples and surveys, business leaders do not know the extent to which their businesses are vulnerable to the risk of corruption as a result of several factors related to collecting and analysing the necessary data and possessing the necessary skills or tools.

What we do differently at Corporate Insights is that we conduct continual Third-Party Due Diligence assessments, quickly, affordably, and consistently and provide insights as to where there are anomalies or risks against multiple risk criteria.

The variables included in our calculation include such risk areas as vendor identity verification, level of financial stability, indications of fraud, etc that are conducted by our systems on a continual basis to pick up patterns and trends and report them to you.  Our Third-Party Due Diligence is a deep dive aimed at picking up the threat of corruption before it occurs, it is continuous and not a one-off assessment, meaning better protection for your company. One-off assessments have the risk of being quickly out of date and irrelevant, allowing corruption to slip through the cracks, leading to costly audits and damage to a company’s reputation – the latter arguably more problematic to your company.

Protect yourself

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.

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