Compliance is an essential element of both organizational culture and strategy of the organization. On my blog I am writing about modern compliance work. Being Compliance Officer means being part of a greater community that can change the world for the better... and enjoy that just like a taste of fine red wine!
We all are victims of fraudulent practices, i.e. lost resources, decrease productivity, lower morale, reputational losses, and of course financial losses.
There is broad range of frauds:
it can be an asset misappropriation (theft, payroll fraud, false expense reimbursement, false invoicing),
corruption (bribes, illegal facilitating payments, conflict of interest, gifts),
financial statement fraud, etc.
Prevent from fraud for your and our common benefit
Fraud is a broad concept that refers generally to any intentional act committed to secure an unfair or unlawful gain.
We all play significant role in preventing company from fraud. Any fraud causes serious harm to companies finances and reputation. If Company loses, we all lose! Company has less money for investments, trainings and our development.
It is not true that fraud happens only with fake invoices. Financial fraud typically falls into 4 broad categories:
Fraudulent financial reporting which occurs in the event of improper revenue recognition, overstatement of assets or understatement of liabilities.
Misappropriation of assets which is a result of either internal of external theft (and may happen in case of cyberattack), or can be result of posting fault invoice, directing money to different bank account or paying “ghost” employees, or suppliers.
Expenditures and liabilities for improper purposes which is usually a bribery registered under improper payment scheme or other payments to suppliers for goods or services never received.
Fraudulently obtained revenue and assets, and costs and expenses avoided, these happen when a company commits a fraud against its employees or third parties, or when it improperly avoids an expense, such as taxes.
Be careful and don’t become part of fraudulent events
Be watchful and be alerted in case you see any of the below red flags:
In simple words, this is a process within the business to ensure that the company has transparent supply chain. In details it it all about checking the supplier (before or during the contract) for their attitude and demonstrated actions in areas of business ethics, environment, labor, and trade.
How to set tone at the top?
Having a clear policy and procedures is a minimum. However this has to come with the real business actions taken by individual buyer. Responsible procurement is also about some level of investment. Audits can be costly, as well as contact validation. From time to time decision makers have to stand for good instead of profit, and either reject or discontinue business if the 3rd party is not meeting the code of conduct requirement.
What is the goal of responsible procurement?
The aim is to purchase goods and services at best value, commensurate with business needs, while minimizing risk and financial exposure. Relationships with suppliers has to be conducted in an impartial, transparent and ethical manner and in full compliance with all law and regulations.
What are the key requirements set by responsible procurement?
The key requirements for all employees involved in procurement activities with third parties are:
To document rationale for purchase need, selecting a supplier and keep the selection process transparent internally.
To obtain the best value for the Group or Operating Company.
To use centrally negotiated terms and conditions, where available. These terms and conditions will need to be continuously tested by users and Group Procurement to ensure they remain competitive.
To segregate purchasing duties.
To use Purchase Orders (PO) in the system to capture commitments to suppliers.
To obtain approval of the senior management or committees for significant/strategic contracts.
To ensure supplier risks are proactively identified and mitigated.
How to ensure that requirements are met?
Responsible procurement requires a strong governance around the process. It has to work on both sides: internally for business who needs goods and services and procurement department who executes that needs, as well as for 3rd parties who supply us.
First and foremost is to introduce Supplier Code of Conduct, which is applicable to all 3rd parties the company is doing business with. It should be mandatory element to sign off even before offers are presented. Supplier Code of Conduct should be published on company’s website as a public and easy to find document.
The aim of this document is to confirm by both sides that neither of them shall use any form of slave, bonded, forced, involuntary prison labour or engage in human trafficking or exploitation, and also will follow business ethics in terms of how they produce, distribute and sell their goods and services, including no engagement in money laundering or tax evasion,or unfair competition.
Moreover, the company can conduct a risk assessment analysis, using eg. TRACEsort platform (LINK) before starting any cooperation with a potential supplier, ensuring that they are of a good name and have a solid market reputation.
Responsible procurement is also about continued education of the suppliers and market in terms social responsibility and fair trade. Top class companies proactively manage their 3rd parties by undertaking targeted CSR / Social audits at factories and final assembly locations. It is practically done by continuously identifying supply categories where goods / services are potentially sourced in high-risk areas and asking suppliers to provide visibility of their supply chains.
This advanced 3rd party risk management brings continued progress in the important area of health, safety and environment. It can be done in two ways, either by procurement personnel - by executing audits and work on mitigation actions together with our suppliers through a focus on safety leadership, training and local programs; or through association with specialized auditors (eg. Sedex) adopting the ‘four pillar’ auditor methodology.
You think that this simply cannot happen because we are so sensible and trust that corporation are providing ethical business. Until, one day you see the news like this:
Ferrero, prosecutors investigate Kinder egg child labour allegations (see more LINK)
The investigation actually revealed that indeed kinds under six were making toys for Kinder eggs, and it all happen just in Europe.
Child labour and other CSR issue are wide and common, and in most cases include powerful brands and billion dollar companies, such as Coca-Cola, Exxon, Shell, Disney, Nike.
Let’s have a deeper look at Nike’s boycott history and how they went through that:
After prices rose and labor organized in Korea and Taiwan, Nikebegins to urge contractors to move to Indonesia, China, and Vietnam.
1991: Problems start in 1991 when activist Jeff Ballinger publishes a report documenting low wages and poor working conditions in Indonesia.
Nike first formally responds to complaints with a factory code of conduct.
1992-1993: Protests at the Barcelona Olympics in 1992, CBS' 1993 interview of Nike factory workers, and Ballinger's NGO "Press For Change" provokes a wave of mainstream media attention.
1996: Kathy Lee Gifford's clothing line is shown to be made bychildren in poor labor conditions. Her teary apology and activism makes it a national issue.
1996: Nike establishes a department tasked with working to improve the lives of factory laborers.
1997: Efforts at promotion become occasions for public outrage. The company expands its "Niketown" retail stores, only to see increasing protests. Sports media begin challenging spokespeople like Michael Jordan.
Abuses continue to emerge, like a report that alleging that a Vietnamese sub-contractor ran women outside until they collapsedfor failing to wear regulation shoes.
Nike tasks diplomat and activist Andrew Young with examining its labor practices abroad. His report is criticized for being soft on Nike. Critics object to the fact that he didn't address low wages, used Nike interpreters to translate, and was accompanied by Nike officials on factory visits. Since Young's report was largely favorable, Nike is quick to publicize it, which increases backlash.
1997: College students around the country began protesting the company.
1998: Nike faces weak demand and unrelenting criticism. It has to lay off workers, and begins to realize it needs to change.
The real shift begins with a May 1998 speech by then-CEO Phil Knight. “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse,” Knight said. “I truly believe the American consumer doesn’t want to buy products made under abusive conditions.”
At that speech, he announces Nike will raise the minimum age of workers; significantly increase monitoring; and will adapt U.S. OSHA clean air standards in all factories.
1999: Nike begins creating the Fair Labor Association, a non-profit group that combines companies, and human rights and labor representatives to establish independent monitoring and a code of conduct, including a minimum age and a 60-hour work week, and pushes other brands to join.
2002-2004: The company performs some 600 factory audits between 2002 and 2004, including repeat visits to problematic factories.
2004:Human rights activists acknowledge that increased monitoring efforts at least deal with some of the worst problems, like locked factory doors and unsafe chemicals, but issues still remain.
2005: Nike becomes the first in its industry to publish a complete list of the factories it contracts with.
2005: Nike publishes a detailed 108-page report revealing conditions and pay in its factories and acknowledging widespread issues, particularly in its south Asian factories.
Nike is again a great brand. It managed to turn it brand into great again with the huge investment in business ethics and marketing.
Watch more on the Nike better world:
Today Nike can act as an example:
“AT NIKE, WE BELIEVE IT IS NOT ENOUGH TO ADAPT TO WHAT THE FUTURE MAY BRING – WE’RE CREATING THE FUTURE WE WANT TO SEE THROUGH SUSTAINABLE INNOVATION.”- Mark Parker, President and CEO, NIKE, Inc.
However CSR is a continuous and very challenging journey, and it required a lot of investment in a responsible procurement, read about this in the next post!
Be careful and don’t become part of fraudulent events
