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Growing Beyond: a place for integrity - Preparing to meet new challenges - EY - India

Growing Beyond: a place for integrity

Preparing to meet new challenges

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“The management of third parties is the biggest blind spot for companies today.” - Survey respondent, US

As companies expand their businesses in rapid-growth markets, they are faced with a wide range of risks that must be actively managed.

A majority of our respondents have taken the important first step by acknowledging the challenges. However, one in five respondents do not recognize that new markets bring new risks.

Managing the risks arising from third parties


Third-party relationships can expose companies to significant ABAC compliance risks. Several publicized enforcement actions by regulators have highlighted the significant costs to companies of breaches by their third parties.

Despite the considerable risks and specified demands of regulators, our survey suggests that the corporate response to mitigating third-party risks is still inadequate. By failing to check the ownership or backgrounds of third-party suppliers, almost half of our respondents’ companies may be leaving themselves open to the possibility of making payments to politically exposed persons or government officials without realizing it. The apparent lack of knowledge held by companies about the third parties they deal with is a real problem.

Effective third-party due diligence and compliance audits


Besides due diligence, third parties should also be monitored on an ongoing basis, including regular compliance assessments and audits. It is therefore worrying that only 45% of respondents identified audit rights or regular audits of the third party as a process in place to monitor the relationship.

It is essential that contractual terms allow for an appropriate scope and level of scrutiny. Audits should generally involve site visits and interviews as well as controls and transaction testing.
Forensic data analytics can help to focus the company’s limited resources on identifying and assessing those third parties that represent the greatest risk.

Managing acquisitions


US companies lead the field in consistently performing pre-acquisition due diligence, with 77% of US respondents reporting that pre-acquisition due diligence is always performed. This compares to a global figure of only 43%.

It is essential that ABAC pre-acquisition due diligence starts early. The acquirer must also move quickly after the purchase to flush out any historic or ongoing corruption issues or control gaps in the acquired business. Key risk areas should be identified for initial rectification.

 


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