Companies turning blind eye to supply chains

A majority of companies don’t perform anti-bribery and corruption audits on their suppliers, an area of business operations that’s proved prone to bribery risk in recent years, according to a new survey by Achilles Group, a UK logistics and risk management company.

According to Achilles, 61% of 300 supply chain professionals in North America, Europe and South America who were asked said their companies don’t perform anti-bribery and corruption audits on their suppliers, and one-third of the firms issue contracts without having an anti-bribery or anti-corruption policy for their main suppliers.

The survey found 55% of respondents said their businesses don’t carry out checks on financial reports, while 35% of businesses don’t perform health and safety audits. The respondents represent companies in five industries: oil and gas; mining and cement; construction and mining; utilities and manufacturing.

Supply chains have been a frequent source of corruption trouble. Recent examples include a major supplier to PetroChina Company Limited, a Chinese oil and gas company who had bribery charges filed against it and its chairman in China. Other examples: the 2013 arrest in Japan of an executive at a Toyota supplier on charges he paid bribes to stifle an investigation into one of his company’s plants in China; and Apple Inc. supplier Foxconn saying in 2013 it was cooperating with Chinese police investigating reports of illegal payments being made to Foxconn employees by the company’s supply chain partners.

According to the Financial Times, UK companies are risking serious disruption and reputational damage because they have so little visibility over their supply chains. Businesses in many sectors have little knowledge of where their suppliers are sourcing goods or services.

Supply chain risks were highlighted by the fire in a Bangladesh garment factory, which killed more than 600 people and brought scrutiny on retailers, which had clothes made at the site.

Quoted in the Wall Street Journal, Adrian Chamberlain, chief executive of Achilles, said he’s not surprised by the number of multinational corporations that don’t have these policies or conduct audits on their suppliers, given the globalized nature of their businesses and the ever-growing complexity of supply chains.

Even though there are rules around the world mandating companies perform proper due diligence on their suppliers and their supply chains, Mr. Chamberlain said recent scandals show a lack of enforcement by regulators and a decision by some companies not to take these rules seriously.

Adrian Chamberlain, chief executive of Achilles, said: “It is not an ‘optional extra’ for global businesses to operate in a safe way, tackle bribery and corruption and address financial risks; in many places, these are legal requirements.

“Large businesses have a responsibility to carry out proper due diligence on their suppliers to protect people working on sites, their own reputation and also the investments of shareholders – who trust them to manage risks.

“We estimate that businesses are spending $60 billion on managing information about suppliers globally – yet this survey shows it isn’t working; there are still real gaps in knowledge. It is essential that corporations put in place systems to gather, manage and update supplier information.

“Businesses often rely on the same suppliers. Managing their data is up to 10 times more efficient when whole industries work together to agree common standards of suppliers, and then share non-commercial supplier information via an online portal.”