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December 8, 2016

U.N. International Anti-Corruption Day: Procurement’s Role

U.N. International Anti-Corruption Day: Procurement’s Role

The United Nations has declared December 9, 2016 “International Anti-Corruption Day” – an effort aimed at raising global awareness of the social and economic impact of corruption, particularly in the developing world. As they explain on their website, “Every year $1 trillion is paid in bribes while an estimated $2.6 trillion is stolen annually through corruption – a sum equivalent to more than 5 per cent of global GDP.”

It is easy to agree (especially in the abstract) that corruption is a major problem, but what are individual teams with supply chain responsibility supposed to do about it? With supply chains becoming more globalized than ever before, it is incumbent upon procurement professionals to recognize corruption where it exists, increase transparency to prevent its spread, and report it when uncovered – no matter the short-term business implications.

Understand What International Corruption Looks Like

Corruption exists in both the public and private sectors. Most commonly, it causes funds to be diverted from their intended purpose and given instead to individuals and groups who profit personally without delivering the expected product or service. Corruption can take the form of falsified records, inflating the cost of materials and salaries. It may also lead to substitution of less expensive but inferior materials, poorly drawn up and executed building plans, or failure to comply with safety and human rights regulations. Sadly, as the value of a contract goes up, so too does the incentive to engage in illicit business practices. As a result, well-meaning companies that want to do business in developing nations often do more harm than good to the local economy and residents by awarding contracts in the region without being fully prepared.

Work to Increase Transparency Through Contracts

Speaking of contracts, legally binding agreements can be a powerful tool in the war against corruption. Unfortunately, if not drafted and managed well, they can also unintentionally give legitimacy to bad actors in the global supply chain. These people use their influence to benefit themselves through the terms and profit from the contract rather than to breathe life into the community that played a role in the delivery process. Based on the forms of corruption described above, contracts signed with organizations in high-risk areas must include detailed specifics about what is to be delivered and when. Penalties for deviating from these specifications must be clearly spelled out, measurable and, when companies do not comply, those penalties must be enforced. In addition, the contracts themselves must be made highly visible. Particularly when private sector organizations do business with government controlled entities in countries at high risk for corruption, contracts must be disclosed and vetted so that all parties are held accountable.

Monitor and Report Suspected Incidents of Corruption

The time and effort invested in crafting and vetting contracts where corruption is a concern are likely to be more than with traditional agreements. This additional requirement does not change after the documents are signed. Governance, oversight, and measurement must be sustained throughout the term of the agreement. In addition, less tolerance can be allowed when questionable practices are suspected or observed. When evidence of corruption is available, it is essential that the company’s leadership team work with the relevant oversight groups to report and resolve corruption.

Ethics and sustainability are not new topics for procurement, but as global markets become increasingly accessible through improved logistics and communications, we need to be aware of additional complexities. The consequences of corruption are many, including failure to deliver and mitigate illegal behavior, but most importantly diverted resources. When funds are diverted from their intended purpose or recipients, localized economies and communities suffer. Procurement is on the front lines of the effort to curb corruption, and unless we are constantly on guard, we may become unwitting participants in this harmful global epidemic.

For more information about the United Nations’ efforts to combat corruption, click here.

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