Pressures from global growth, heightened enforcement of regulations and third party risks are top concerns among executives according to the Anti-Bribery and Corruption Benchmarking Report (ABC Report) recently released by Kroll and Ethisphere.
The ABC Report provides a comprehensive view of the types of bribery and corruption risks compliance professionals frequently face. It summarizes the responses from the survey launched in November 2016 to a global audience on due diligence, stakeholder engagement, and merger and acquisition activity. Included in the report are responses from 388 senior-level executives in various industries around the world.
Survey respondents indicated that third parties are the biggest risk to their company’s ABC program. The top concerns with third parties relate to reputation. Over the span of one year, reputational concerns went from the least likely reason for a third party to fail vetting standards to the most, which marks a significant reversal.
The ABC Report indicates that boards of directors and senior management are increasingly working together in the oversight of anti-bribery and corruption efforts. Boards are increasing their expertise so they can better evaluate and monitor program effectiveness.
About one third of respondents expect risks to increase over the coming year. The top risks to ABC programs were reported to be from third party violations at 40 percent, complex global regulatory environment at 14 percent, and employees making improper payments at 12 percent. Despite increased ABC compliance and enforcement, a majority of compliance officers responded that their resources are insufficient to support ABC efforts; they are also concerned about their own personal liability with one third reporting a greater level of concern than the previous year. However, many also reported increased support from Chief Financial Officers and finance teams, which are a vital third line of defense against corruption.
The ABC Report further suggests that increasingly complex third party networks have become the norm, making compliance more challenging. Approximately 40 percent of respondents indicated they do business with more than 1,000 third parties in a given year, and 29 percent manage more than 5,000 third party relationships.
Regarding the role of compliance post-onboarding, 55 percent reported experiencing issues after initial screening and due diligence of third parties. Reasons for such issues include misconduct that arose subsequent to the time of initial onboarding, noncompliant behavior that was not disclosed pre- or post-onboarding, and red flags not discovered because of inadequate initial scoping of the original diligence. The ABC Report found that the most common way third party issues are identified post-onboarding is through continuous monitoring and due diligence, which emphasizes the need for such measures.
In the final section of the report, Kroll and Ethisphere found that mergers and acquisitions continue to be a challenge, with respondents not conducting the levels of due diligence expected on M&A targets or their third parties. The report suggests that after a deal is complete, companies should adopt a risk-based approach to incorporate third parties of the newly acquired company into their existing programs.
Download the full report here.