RC: Could you outline some of the major risks that can emerge from third party and counterparty relationships in today’s business world? What red flags should firms try to identify?

Conlin: In our most recent ‘Ethics & Compliance Third Party Risk Management Benchmark Report’, bribery and corruption by third parties was the top concern among survey respondents at 39 percent. Fraud, at 23 percent, conflicts of interest at 19 percent, and safety & occupational hazards at 10 percent rounded out the top four. With these concerns in mind, there are some red flags to watch out for. First, a lack of cooperation or unwillingness to cooperate in the due diligence process, or inability to produce necessary and expected documentation. Second, clear ties to foreign government officials. Also watch out for a lack of evidence of relatable qualifications for the particular job or service the third party is expected to provide. Other key red-flag indicators include previous documented failures, indictments or negative press about the third parties; compensation that does not relate to standard rates or payment patterns — such as success fees, cash payments or payments to offshore accounts — and lack of a standard, pre-engagement written agreement. Also of concern is if the organisation displays an unwillingness to certify its third-parties’ policies or grant auditing or monitoring rights. Another indicator is general or unclear explanations behind payments made by the third party.  Finally, be wary of generally poor documentation and record keeping. It is critical to evaluate these red flags before and throughout your business relationships with third parties.

Oct-Dec 2016 Issue

NAVEX Global