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Third Party Compliance: Issues and Strategies to Mitigate Corruption Related Risk
The document discusses third party risk and strategies to mitigate corruption risk. It defines corruption and bribery, and outlines the Foreign Corrupt Practices Act. It then discusses how third parties present significant risk, and outlines key components of an effective third party risk management program including due diligence, ongoing monitoring, and collaboration between compliance and internal audit functions.
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Third Party Compliance: Issues and Strategies to Mitigate Corruption Related Risk
- 1. THIRD PARTY COMPLIANCE: ISSUES ANDSTRATEGIES TO MITIGATE CORRUPTION-RELATED RISK MATTHEW RUBLE, SENIOR MANAGER DAN REYNOLDS, MANAGER GRANT THORNTON, LLP Institute of Internal Auditors- Philadelphia Chapter 2015 Spring Conference – Internal Audit 2020 APRIL 20, 2015
- 2. The Philadelphia Chapterwas established in 1943, and is the 5th affiliate chapter of The Institute of Internal Auditors (IIA). The Philadelphia Chapter, its board of governors, its officers, The IIA , and today’s presenters are not responsible or liable for any acts or omissions and specifically disclaim any and all responsibility or liability for acts or omissions. The material contained herein or communicated is for informational purposes only and should not be construed as accounting, financial, tax, or legal advice. Please seek guidance specific to your questions or concerns from qualified advisors. All content including graphics or art work is protected by law and may not be duplicated in any form with out the express written permission from the Philadelphia Chapter. © 2014 Philadelphia Chapter of the IIA Disclaimer, Trademark, and Copyright Notice Philadelphia Chapter of the IIA IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 3. AGENDA 3 • Corruption andBribery • Foreign Corrupt Practices Act • Third Parties • Key Components of an Effective Third Party Program • Role of Internal Audit IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 4. 4 CORRUPTION: • Abuse ofentrusted power for private gain BRIBE: • Something valuable (such as money) that is given in order to get someone to do something IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 5. BRIBERY AND CORRUPTIONARE GLOBAL CHALLENGES 5 Source: 2014 Corruption Perception Index (Transparency International) IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 6. BRIBERY AND CORRUPTIONARE GLOBAL CHALLENGES 6 Source: 2013 Global Corruption Barometer (Transparency International) IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 7. 7 IIA PHILADELPHIA CHAPTER2015 SPRING CONFERENCE
- 8. 8 IIA PHILADELPHIA CHAPTER2015 SPRING CONFERENCE
- 9. Social EconomicPolitical THE IMPACT OFCORRUPTION IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 10. FOREIGN CORRUPT PRACTICESACT (FCPA) 10 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Anti-Bribery Provision • Prohibit offering or promising anything of value to a foreign government official to obtain or retain business. Books and Records Provision • Must maintain books and records that accurately and fairly reflect the entities transactions. • Must maintain a system of internal accounting controls.
- 11. FCPA APPLIES TO: 11 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Issuers Individuals in U.S. U.S. Citizens Entities with U.S. Presence Traded on U.S. Exchange
- 12. BRIBERY – NOTJUST CASH… 12 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 13. …ANYTHING OF VALUE 13 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 14. FLIR SYSTEMS, INC. 14 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Casablanca Paris Dubai Beirut New York City 20 Days 12 Hours $7 Million
- 15. LARGEST FCPA ENFORCEMENTACTIONS COMPANY COUNTRY PENALTY (Millions) YEAR Siemens Germany $800 2008 Alstom France $772 2014 KBR/Halliburton USA $579 2009 BAE UK $400 2010 Total SA France $398 2013 Alcoa USA $384 2014 Snamprogetti Netherlands B.V/ ENI S.p.A Netherlands /Italy $365 2010 Technip SA France $338 2010 JGC Corporation Japan $219 2011 Daimler AG Germany $185 2010 15 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 16. 16 IIA PHILADELPHIA CHAPTER2015 SPRING CONFERENCE Reported FCPA cases involve third parties Companies that do not perform due diligence on their third parties Source: 12th Global Fraud Survey - 2013 THIRD PARTY RISK
- 17. 17 IIA PHILADELPHIA CHAPTER2015 SPRING CONFERENCE THIRD PARTY RISK
- 18. THIRD PARTY RISK 18 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Third Party Population Third Party Representatives A third party is any entity or person providing goods and/or services to an organization. A third party representative is any entity or person that acts on behalf of an organization.
- 19. KEY COMPONENTS OFA SUCCESSFUL PROGRAM 19 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 20. 20 IIA PHILADELPHIA CHAPTER20134 SPRING CONFERENCE OPERATING MODEL COMPONENTS CORPORATE OBJECTIVES KEY RISK DOMAINS THIRD PARTY RISK LIFECYCLE Text Text Third Party Risk Framework Governance Policies & standards Business processes Tools & technology Risk metrics & dashboard Risk culture Contractual risk Continuity of service/product risk Financial viability risk Transactional / Operational risk Credit risk Reputational risk Legal / regulatory risk Geo-political risk Information security risk Strategic risk Planning, risk identification Due, diligence, 3rd party selection Contract negotiation & on boarding Termination & off-boarding Growth/innovation (products/services) Improved client experience Cost optimization Improved time to market Risk & compliance mgmt On-going monitoring & mitigation Continuous improvement
- 21. THIRD PARTY MANAGEMENTLIFECYCLE 21 • Develop and implement a new, well- governed process to manage on-boarding of third parties – Confirm to whom/where they are doing business, and the means by which they conduct business, etc. • Conduct due diligence on third parties to assign levels of risk which determine the level of monitoring required • Train the workforce and third parties on the rules and risk of fraud and corruption • Monitor and detect transactions identify and act upon potential threats Risk Model Certification & Training Verification & Updates Reporting & Analytics Financial Controls Transaction Monitoring Onboarding IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 22. 22 Services to be provided Transaction Level Geographic Risk Interactions withgovt. officials Input From Business IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE RISK MODEL DEVELOPMENT High Risk Low Risk Moderate Risk
- 23. 23 IIA PHILADELPHIA CHAPTER20134 SPRING CONFERENCE STRONG TONE AT THE TOP SUPPORTING TONE AT THE MIDDLE PROPER STRATEGY & GOVERNANCE NETWORK OF SUPPPORT UTILIZE REPORTING AND ANALYTICS COMPREHENSIVE TRAINING THIRD PARTY MANAGEMENT: KEYS TO SUCCESS • Build and drive culture of compliance • Communicate often • Reinforce culture set forth by leaders • Conduct discussion-based programs • Don’t boil the ocean – take a risk based approach • Make training relevant • Train third parties on what is expected of them • Identify critical influencers across the globe • Develop regional/location champions • Develop robust reporting • Dashboards by region or business
- 24. THIRD PARTY DUE DILIGENCE:MITIGATING RISKS 24 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 25. THIRD PARTY DUEDILIGENCE 25 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Due Diligence Process Third Party Recommendation
- 26. DUE DILIGENCE PROCEDURES 26 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Third Party Questionnaire Background/ Ownership Policies Business References Open Source Investigations Enforcement Action Databases Sanctions/ Watchlists Civil and Criminal Prosecutions Due Diligence Reports Negative Media (Local Language) Political Exposure State-Owned Entities
- 27. 27 THIRD PARTY DUEDILIGENCE: MITIGATING RISK IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Contract Terms • Anti-bribery language • Right to audit clause Anti- Corruption/Anti- Bribery Training • Local language Transaction Testing • Review internal books and records for transactions with third party Exercising Audit Rights • Review third party's books and records. Review Third Party's Compliance Program • Code of Conduct • Policies • Training
- 28. COLLABORATION BETWEEN COMPLIANCE AND INTERNALAUDIT 28 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE
- 29. 29 IIA PHILADELPHIA CHAPTER20134 SPRING CONFERENCE Third Party Program Audit Third Party Program can : - provide "of interest" third parties by region/country - share investigation findings and recommendations for "of interest" third parties - provide a random sample third parties Audit can: - share audit findings of third party investigations - gather and provide contracts, written agreements, other relevant data - request investigations on third parties COLLABORATION BETWEEN AUDIT AND COMPLIANCE • To maintain independence, Audit should not be part of day-to-day management of the program • Audit can provide an opinion on the compliance program
- 30. THIRD PARTY AUDITS 30 IIAPHILADELPHIA CHAPTER 2015 SPRING CONFERENCE Review due diligence performed by compliance Level 1: Internal Books and Records Review Level 2: Third Party Books and Records Review (Exercise Right to Audit Clause) Level 3: Third Party Compliance Program Review
- 31. OUTLOOK AND RESOURCES IIAPHILADELPHIA CHAPTER 20134 SPRING CONFERENCE 31
- 32. CORRUPTION OUTLOOK 32 IIA PHILADELPHIACHAPTER 2015 SPRING CONFERENCE • Prosecution of individuals (FCPA) • DOJ tripled their task force 10 to 30 • Continued Industry sweeps • More countries developing similar legislation – Brazilian clean company act January 2014
- 33. RESOURCES 33 IIA PHILADELPHIA CHAPTER2015 SPRING CONFERENCE • FCPA (legislation): http://www.justice.gov/criminal/fraud/fcpa/ • "A Resource Guide to the U.S. Foreign Corrupt Practices Act" http://www.justice.gov/criminal/fraud/fcpa/guidance/guid e.pdf • Transparency International http://www.transparency.org/
- 34. LET'S KEEP THECONVERSATION GOING 34 IIA PHILADELPHIA CHAPTER 2015 SPRING CONFERENCE • Matthew Ruble – Matthew.Ruble@us.gt.com – linkedin.com/in/matthewruble • Dan Reynolds – Dan.Reynolds@us.gt.com – Twitter: @DanReynoldsCFE – linkedin.com/in/dreynoldscfe