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Enhancing Transparency: Anti-Corruption Assessment During Vendor Registration

Updated: Aug 29, 2023

In the realm of anti-corruption and anti-corruption risk assessment, vendor registration acts as a gatekeeper, allowing only those who uphold integrity to enter.

Anti-corruption assessment

To improve is to change; to be perfect is to change often

Corruption remains a significant challenge across the globe, eroding economic growth, distorting fair competition, and undermining public trust in institutions. For businesses, tackling corruption is not only a moral imperative but also a strategic move to ensure sustainability and maintain a level playing field.


One crucial aspect of combating corruption is to implement robust counter fraud and anti-corruption assessments during vendor registration processes. This proactive approach helps organisations ensure that their suppliers and partners adhere to ethical standards, fostering transparency and accountability in business transactions.


PASSING ON FRAUD AND CORRUPTION RISK

How does any organisation ensure that a vendor that they are onboarding, doesn't have an unknown fraud or corruption risk. When you consider a new way of thinking for government and private sector procurement, where there are significant concerns surrounding procurement fraud and corruption, how do you protect national and organisation revenues and how do you send a message that you have a new stance in dealing with this problem.


In 2012 and again in 2015 and 2020, Transparency International UK Defence and Security Programme initially led by Mark Pyman assessed the level of commitment to transparency and anti-corruption standards in 134 of the world’s largest defence companies by analysing what companies are publicly committing to in terms of their openness, policies and procedures.


Based on the extent of public evidence on their ethics and anti-corruption programmes, companies were placed in one of six bands A to F from extensive evidence through to almost no evidence.


All companies in the index were sent a draft assessment for comment and review.

TI also reviewed information that is internal or confidential to companies. Sixty-three companies provided detailed internal information in 2015, almost double the number that did so in 2012.


COMPANY ANTI-CORRUPTION RISK ASSESSMENT

In the latest assessment the level of risk the anti-corruption analysis was banded into ten categories, specifically:

  • Leadership and organisation control

  • Internal controls

  • Support to employees

  • Conflicts of interest

  • Customer engagement

  • Supply chain management

  • Agent, intermediaries and joint ventures

  • High risk markets

  • Offsets

  • State Owned Enterprises


KEY FINDINGS

Of the companies assessed only a few received an A or B rating. A number of the key findings confirmed that:

  1. 77% of companies show evidence of a formalised approach to anti-corruption, either as a standalone policy or embedded as part of a wider ethics and compliance programme.

  2. 85% of companies publicly indicate that they have, at least, a basic whistleblowing system in place.

  3. 69% of companies show no evidence of a clear policy to regulate the use of agents and address the corruption risks associated with their use.

  4. Only 19% of companies worldwide publicly indicate that they measure the effectiveness of their anti-bribery training and communications through specific mechanisms, such as employee surveys.


COMPANY ACTION

This significant piece of analysis and subsequent publication on which companies have been proactive in developing and improving their anti-corruption initiatives highlight a major point. A significant number of companies recognise the importance of anti-corruption to their reputation and business bottom line.


Although a significant piece of work by all, the findings are clear and now a strong method of assessing the defence sector for business bribery risk and should be a message to all sectors of how they should look at risk mitigation to ensure that companies that they are considering as suppliers or contractors have adequate risk mitigation in place and that they are serious about ensuring that they don't pass on fraud risk.


Transparency during vendor registration is not just a checkbox; it's the cornerstone of a corruption-free business ecosystem

A NEW VENDOR ANTI-FRAUD APPROACH

When we appraise this simple method of assessing fraud and corruption risk, both the public sector and private sector need to assess its supplier onboarding process.


If steps are taken to check for conflicts of interest, a vendor’s ability to adequately complete the contract including verifying previous performance, that companies are a low financial risk, that they are compliant with organisation policies such as health and safety or action towards the sustainable development goals including modern day slavery and child labour, why wouldn’t we make the same assessment for their proactive stance on counter fraud and anti-corruption.


If a vendor can’t adequately evidence that they can protect public or private sector revenues particularly in high value projects, why would you wish to approve them as a contractor. It shouldn't just be the responsibility of the relevant public or private sector organisation to mitigate fraud and corruption risk. They should be able to demonstrate:

  • action by their leadership in setting and leading anti-corruption and governance activities

  • their risk management approach to their supplies and supply chain including risks from counterfeit products and bribery

  • company's procurement and anti-fraud and corruption policies including codes of conduct

  • what counter fraud and anti-corruption training is provided to their staff

  • information on staff engagement including helplines and hotlines to receive guidance and report fraud and corruption suspicions

THE SIGNIFICANCE OF ANTI-CORRUPTION ASSESSMENTS

Vendor registration is the gateway through which suppliers gain access to a company's procurement opportunities. As such, it's an opportune moment to conduct thorough anti-corruption assessments. Implementing stringent assessment measures provides several benefits:

  1. Preventing illicit activities: By scrutinising vendors for potential fraud and corruption risks, businesses can avoid associating with entities engaged in illicit activities. This prevents the possibility of inadvertently becoming complicit in corrupt practices.

  2. Ensuring fair competition: Corruption can lead to favouritism and unfair advantages for certain vendors. Transparent anti-corruption assessments ensure fair competition, promoting a healthy marketplace that rewards competence and innovation.

  3. Enhancing reputation: Partnering with ethical vendors boosts a company's reputation. Consumers and stakeholders are more likely to support businesses that uphold integrity in all their dealings, leading to enhanced brand loyalty.

  4. Mitigating legal and financial risks: Businesses that engage with corrupt vendors face legal and financial repercussions. Anti-corruption assessments help mitigate these risks by avoiding involvement with entities that could potentially lead to legal troubles.

  5. Aligning with global standards: International legislation, such as the Foreign Corrupt Practices Act (FCPA) in the United States and the UK Bribery Act, can impose severe penalties on companies engaging in corrupt practices. Anti-corruption assessments ensure compliance with these standards.


COMPONENTS OF AN EFFECTIVE ANTI-CORRUPTION ASSESSMENT

An effective counter fraud and anti-corruption assessment during vendor registration encompasses several key components:

  1. Due diligence: Conduct a thorough investigation into the vendor's ownership, history, and affiliations. This involves checking for any prior allegations or convictions related to corruption or unethical practices.

  2. Financial integrity: Analyse a vendor's financial records to identify any irregularities that might indicate potential corruption, such as unusual payments or discrepancies.

  3. Code of conduct: Require vendors to adhere to a comprehensive code of conduct that outlines expectations regarding ethical behaviour, anti-corruption policies, and compliance with laws.

  4. Training and education: Offer training sessions to vendors about anti-corruption policies and the consequences of non-compliance. This educates vendors about the company's stance on corruption and reinforces the importance of ethical business practices.

  5. Monitoring and auditing: Implement a system for ongoing monitoring and auditing of vendor activities. Regular reviews help ensure that vendors continue to meet anti-corruption standards throughout the duration of their partnership.


THE KEYS TO THE FRONT DOOR

Supplier registration is the key point and maybe the only opportunity that we assess a company for risk and yet in the majority of cases, we don’t assess their anti-corruption or anti-fraud stance. Having a policy isn’t enough, it’s not just about communication by the vendor that they have a policy it’s also about proactive action.


How do companies evidence that they can protect their supply chain from product substitution? Do they understand the key procurement fraud methodologies and how to mitigate the risk particularly within high value projects? The Transparency International report highlights a number of key areas where a vendor should be assessed for fraud and corruption risk.


Where we signpost our stance on counter fraud and anti-corruption and spend more time and resources at the point of supplier registration, it will more effectively reduce incidents and opportunities for corruption, create a more effective procurement process and more likely reduce the instances of failing projects.


Since the Transparency International publication in 2012 and again in 2015 some companies have taken significant steps in anti-corruption, possibly because of the risk or more likely because of the perception of reputational damage from the findings, however, I feel with more and more press coverage on global corruption investigations and prosecutions, are companies taking this significant guidance seriously?



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