November 2013 Ethics and compliance programs: how to access public contracts Does your company need to obtain certification in order to compete for public contracts? This article provides a step-by-step approach for large and mid-size companies to evaluate their corruption risks and put a program in place to address them responsibly. Over the last year, numerous testimonials have been made with respect to bribery of government officials, illegal political contributions, money laundering, under-the-table payments, and other forms of corruption. Governments, particularly in Québec, sent a clear message to companies that wish to have access to public contracts: corrupt behaviour won’t be tolerated. That is why anticorruption compliance has become top of mind for boards of directors, audit committees and senior management. Globally, and locally, companies are looking to enhance ethics and compliance programs to prevent and detect corruption violations unless immediate changes are made. Québec companies with compliance failures may be denied access to public contracts under the provincial legislation, Integrity in Public Contracts Act, (“Bill 11”), or other Canadian regulations. 1 ill 1 applies in Québec to public-sector B contracts worth $40 million and over. Before they bid, companies must submit an “application for authorization” with the Autorité des marches financiers. This fall, the contract threshold for Bill 1’s integrity process will be lowered to $10 million and in three years, all public contracts worth $100,000 and more will be vetted. There have also been augmented enforcement efforts on a federal level, as well as internationally, on anti-corruption regulations, such as the Corruption of Foreign Public Officials in Canada, the Foreign Corrupt Practices Act in the United States, and the Bribery Act of 2010 in the UK. With the weakened global economy increasing competition in emerging economies, the risk of corruption in companies continues to grow. There are ways of mitigating the temptation to choose corrupt profits. Ethics and compliance programs like any other program require full and complete commitment by all members of the organization. Practical considerations for implementing or updating an anticorruption compliance program We have developed recommendations as to what companies should be doing to detect and deter corruption. There is no one-size-fits-all program, when it comes to ethics and compliance. Companies should consider a variety of factors specific to their facts and circumstances when deciding what is appropriate for their specific business needs. The ethics and compliance program may be influenced by several organizational risk factors such as the company’s: • size and complexity; • industry in which it operates; • the countries in which it operates; • its business model, specifically if it should call upon agents; • nature and seriousness of potential offenses; • collateral consequences (risk of harm to shareholders, pension holders, employees, or others); • business culture “tone from the top”; and • cost of remedial actions. An effective anticorruption compliance program will positively affect a company’s culture and deter wrongdoing, making non-compliance less likely and reducing the severity of any consequences. Corruption is a serious risk that should be treated as a priority and actively managed to avoid legal action. If you have not yet carried out a thorough assessment of the corruption risks facing your business, now is the time to act. • history of misconduct; Characteristics of an effective anticorruption compliance program Effective ethics and compliance programs are: • critical to a company’s good governance; • essential in detecting and preventing corruption violations; • tailored to the specific risks associated with the business; and • dynamic and able to evolve with changes in the business place. Ethics and compliance programs promote ethical organizational culture and commitment to legal compliance. They protect the company’s reputation and instill trust and confidence. They help prevent, detect, remediate, and report misconduct, including corruption violations. Companies that are committed to seriously combatting corrupt activities should take reasonable steps in order to respond appropriately to criminal conduct and prevent corrupt activities, including by assessing their ethics and compliance program. 2 | Ethics and compliance programs: how to access public contracts A checklist for considering your compliance program Companies wanting to access public contracts can consider the following checklist when deciding whether to introduce a new and comprehensive compliance program, or to update and enhance an existing one: 1. 2. 3. 4. 5. ave you reviewed your anticorruption compliance standards and procedures, during the last year, H taking into account relevant developments in the environment? Is a senior corporate executive assigned the responsibilities for the implementation and oversight of the Company’s anticorruption policies, standards, and procedures? oes senior management provide strong, explicit, and visible support and commitment to its corporate policy D against violations of the anti-corruption laws? o you have a clearly articulated, documented and visible corporate policy against violations of D the anti‑corruption laws? Have you identified the areas in which is your company is most exposed through a risk assessment? Are there specific policies and procedures in high-risk areas? For example, policies with respect to: gifts; hospitality, entertainment, and expenses; customer travel; political contributions; charitable donations and sponsorships and facilitation payments. 6. Is there a system of financial and accounting procedures, including a system of internal controls, reasonably designed to ensure the maintenance of fair and accurate books, records, and accounts to ensure that they cannot be used for the purpose of bribery or concealing such bribery? 7. re there adequate mechanisms to effectively communicate anticorruption policies, standards, and A procedures to targeted directors, officers, employees, such as periodic training and monitoring of compliance with training requirements? 8. 9. 10. Is there an effective system for providing guidance and advice, confidential reporting of issues, protection of whistleblowers, and responding to such reports? Has your company enforced compliance through appropriate disciplinary procedures? Is there appropriate due diligence and compliance requirements over agents and business partners, including a documented risk based due diligence, informing them of the company’s commitment to compliance with laws on corruption and seeking a reciprocal commitment from them? 11. 12. A re there standard provisions in contracts with all agents and business partners such as anticorruption representations, rights to audit and rights to terminate? Is there periodic review and testing of anticorruption compliance code, standards, and procedures designed to evaluate and improve effectiveness in preventing and detecting violations? Ethics and compliance programs: how to access public contracts | 3 How EY can help As you interpret the guidance issued by Québec authorities in order to assess what, if any, further steps your company will need to take to establish leading anticorruption practices, the recommendations outlined here provide a solid starting point for thinking about updating or establishing your organization’s anticorruption compliance program. EY’s professionals have extensive experience with anticorruption compliance, regulatory matters and investigations, and we leverage our deep knowledge to support your business goals. We tailor our overall approach to your organization and industry. We consult with you and pay attention to any unique circumstances. As with other companies we have served, we will work closely with you to develop a personalized work plan, geared to meet your needs and your specific situation. About the author This paper was written by Denis Chalifour, leader of EY’s Fraud Investigation & Dispute Services practice in Québec. Denis holds a diploma in investigative and forensic accounting from the Rotman School of Management of the University of Toronto and the professional designation of Chartered Public Accountant. Denis is also a Certified Fraud Examiner. With over 25 years of professional experience, Denis provides investigative and forensic accounting services, specializing in fraud detection and litigation support services. He has assisted clients in investigating matters involving financial statement fraud investigations and restatements, management fraud, employee fraud, asset misappropriation and various dispute-related engagements including shareholder disputes. Denis can be reached at [email protected] or +1 514 874 4627. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. 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