Failure To Monitor Third Parties Heightens Bribery And Corruption Risks, KPMG Survey

NEW YORK, Sept. 8, 2015 /PRNewswire/ -- Although a very high proportion of bribes is being paid by third parties, many companies are not monitoring their intermediaries for anti-bribery and corruption (ABC) risk, according to the results of a new survey by KPMG International, Anti-Bribery and Corruption: Rising to the challenge in the age of globalization.

While many companies are performing due diligence when bringing third parties aboard, the majority of the survey respondents at U.S.-listed companies are not taking the next steps to monitor these intermediaries. Despite 73 percent of companies indicating they have a formal risk-based third party onboarding process, only 45 percent have right to audit clauses in their third party contracts, with slightly more than half (23 percent of the total) of those exercising these rights. Auditing third parties for ABC compliance ranked as the most challenging ABC issue faced by the respondents. Effective monitoring starts with the identification of those that present the greatest risks, however less than three-quarters said their companies have a formal process to identify third parties from an ABC perspective.

The lack of ongoing monitoring is not restricted to companies' third party policing efforts. There is also room for improvement in regular monitoring in their own ABC compliance programs. While 9 in 10 U.S.-listed respondents said their companies have a formal, written anti-bribery and corruption compliance program in place, only 68 percent said these programs include continuous monitoring and internal audit protocols. 

"The good news is that as ABC compliance programs continue to mature, companies are being more proactive in their third party due diligence efforts," said Phillip Ostwalt, partner and Global Investigations Network Leader at KPMG LLP. "However, companies are not consistently following through to evaluate their own ABC risks or those presented by their third parties. This failure is particularly significant given regulatory focus on ensuring that compliance programs are equipped to mitigate such risks."

Oversight of third parties is the greatest challenge in managing ABC compliance programs because the role of these intermediaries in companies' interactions with governments has grown and supply chains have become more complex amid business globalization. According to the Foreign Bribery Report of the intergovernmental Organisation for Economic Co-operation and Development (OECD) released in 2014, more than three quarters of the 427 corruption cases analyzed involved third parties.

Advanced Technology to Identify Potential Violations Underutilized
Data and analytics-based solutions can allow for more efficient and cost effective monitoring of ABC compliance – whether it be suspicious activity within the organization or at a third party. Global organizations managing volumes of data would be challenged to monitor their operations for possible suspicious activity without effective data analytics. However, only 27 percent of U.S.-listed respondents use data and analytics to detect potential ABC violations and just under nine percent continuously monitor this data.

"Regulators are examining whether companies have the means to identify the data, how they are auditing the data and how they are using it to detect potential violations," said Marc Miller, partner and Advisory Risk Consulting Life Sciences leader at KPMG LLP.  "In order to properly analyze data for potential violations, an organization must thoroughly understand what their inherent risks are and how to flag data to identify abnormal activity. The technology exists to execute this analysis, but companies are not taking advantage of it."

Additional Findings

• Assessing Risk Controls a High Priority – 81 percent of U.S.-listed companies are prioritizing the need to evaluate their ABC controls to determine whether they are effectively mitigating risks, as part of their overall risk assessment, or as a separate activity.
• M&A Due Diligence Challenges - 73 percent of U.S.-listed respondents indicated that M&A is part of their growth strategy, however a little more than half of the respondents said their companies include ABC considerations as part of pre-acquisition due diligence.
• U.S. Regulation Has Global Impact - Threat of enforcement through the U.S. Foreign Corrupt Practices Act (FCPA), is causing suppliers and partners of U.S. companies to develop ABC compliance programs of their own. 79 percent of respondents listed outside of the U.S. or UK have developed formal anti-bribery programs.

About the Survey
KPMG International, together with Singapore Management University, performed a survey across 64 countries, receiving 659 responses, of which included 217 respondents from U.S.-listed companies. Respondents considered themselves "one of the most senior persons in charge of day-to-day ABC matters at their companies" and represented unlisted and listed companies of varying size across a spectrum of industries. Industries represented included banking, life sciences, manufacturing and energy and natural resources. The respondents represented companies subject to local and cross-border ABC regulations.

About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services operating in 155 countries and having more than 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, please visit www.kpmg.com.

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 162,000 professionals, including more than 9,000 partners, in 155 countries.

Contact: Michael Rudnick
KPMG LLP
201-307-7398
[email protected]

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SOURCE KPMG LLP

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