Post By: Tanya Ganguli and Vidhi Khanijow
The current pandemic crisis has not only crippled businesses and the economy worldwide, but has also forced corporations into taking strict measures to ensure efficient use of the existing resources. Due to this unforeseen situation, law firms have also been revamping their advisory by keeping in mind the external exigencies and ensuring that bribery and corruption related risks are minimized using the existing and available client resources.
With the ongoing social distancing norms and lockdown restrictions, the risk of bribery and corruption increases manifold owing to the economic uncertainty in the market. However, this has impacted the way organisations onboard their third party vendors, and how they have innovated ways and means to reach the desired goals through alternative means.
What are the best practices for effective onboarding of third parties/vendors amidst COVID -19?
Look Before You Leap
- Conduct a root cause analysis to evaluate the following:
- whether the requirement of third parties is due to the expansion in the operations/diversification of the business;
- whether it is generated due to the unsatisfactory performance of the third party; or
- whether it has emerged due to the pandemic restrictions.
- Deliberate with your existing vendor(s) about their available capacity, production, supply chain, delivery timelines etc. and decide the selection criteria strategically.
- Assess whether your existing framework provides for conducting onboarding of third parties seamlessly. You must revise/amend the current framework to accommodate factors such as resource allocation, lockdown restrictions and related social distancing norms.
- Maximize the use of technology in the onboarding process to ensure timely receipt of competitive quotations, segregation of the vendors basis identifiable matrices and adequate documentation to ease the shortlisting and selection procedure.
Right Process to Achieve Success
- Invite competitive quotation/bids from the relevant vendors to ensure fair and effective shortlisting of the most suitable vendor. Adequate checks must also be conducted so that the vendor selected from a pool of available options, provides competitive and quality services as per the prevailing industry standards.
- Document all steps, procedures, minutes of meetings, questionnaires, commercial negotiations, etc. to prevent ambiguity and avenues for potential process deviations.
- Adequate due diligence must be undertaken before engaging any vendor by the organisation, to check for past records, including but not limited to litigation/ bankruptcy checks, instances of improper payments to government officials etc. The due diligence mechanisms must be in consonance with the local business practices and the societal and cultural nuances of a particular region.
- Memorialize all the agreements with the selected vendors in writing, and ensure that adequate Anti-Bribery and Anti-Corruption (ABAC) clauses, audit rights and force majeure clauses are provided therein. The ABAC policy of the organisation must apply to all onboarded vendors. The third party vendors must certify in writing to the organization their adherence and compliance to the ABAC policy of the company.
Prevent, Detect, Correct
- Regular inspection/submission on the status of the work completed by the vendor is imperative to ensure timely completion of tasks, and mitigation of risks.
- Maintain and document pre and post due diligence records pertaining to the third-party relationships with the organisation. This must include efforts undertaken by the company for identifying and investigating all/ any bribery risks and post-engagement monitoring.
- Adequate training to be provided to the selected vendors and apprise them of the organisation’s non- tolerance towards the payment of bribes, “transactional costs”, “liasoning charges”, etc.
- Incorporate a robust approval/ authorization matrix for the payments to be made to the vendors. Flexible schedules must be maintained for the completion of routine compliance, statutory and regulatory payments. This would prevent avenues of payment of bribes for clearing dues in furtherance of the (missed) deadlines.
- Conduct spot checks on the veracity and authenticity of the invoices and supporting documentation submitted during the high risk transactions, payments for the statutory dues made by the vendors to ensure that no unusual payments are made to the government authorities at any given point in time. Such checks must also be conducted to map the proportion of materials/ services utilized by the company with the costs accruing for each project.
About the Authors: Tanya Ganguli, Senior Associate at Law Offices of Panag and Babu where she focuses on conducting internal investigations and defending the firm’s corporate clients facing cross jurisdictional enforcement actions.
Vidhi Khanijow, Senior Associate at Law Offices of Panag & Babu. Her practice primarily focuses on white collar crime in India and related issues involving corporate compliance and internal investigations. She has an audit background, having spent two years at KPMG – in this role, she had conducted end to end audits of mutual funds, hedge funds and asset management companies.