KPMG report addresses magnitude of challenges for those in the ENR sector
10 November 2015 – The vast majority of energy and natural resource (ENR) executives from around the world responding to a new KPMG International survey say that addressing anti-bribery and corruption (ABC) is highly or exceedingly challenging. At the top of the list of challenges for 89 percent of respondents? Employee awareness, training and communications and varying country regulations.
Recognizing the magnitude of ABC challenges, KPMG International conducted a survey of 659 executives in a range of functions and industries from around the world. Fifty-four (8 percent) work in the ENR sector (38 of whom work in oil and gas).
Michael Wilson, Lead Partner, Risk in the Boardroom, and Global Lead Energy Risk, KPMG in the UK comments:
“It appears a growing number of companies are finding it more difficult to deal with ABC issues because of their complexity, increasing globalization of operations and the need to deal with these matters in many different jurisdictions in an extremely cost-conscious environment. However, the potential cost of failing to comply with ABC regulations somewhere in the world is significant: sizeable fines, the possibility of imprisonment, and the loss of corporate reputation.”
Eighty percent of respondents also cite managing third-party risk as one of the most difficult areas to deal with as it relates to ABC. ENR executives responding to the KPMG survey titled ‘The growing global challenge: Managing anti-bribery and corruption compliance in energy and natural resources’, say they are challenged by auditing third parties for compliance, dealing with the variation in national regulations pertaining to bribery and corruption and conducting due diligence over them. Sixty-nine percent of ENR respondents say their company’s ABC risk assessment examines the potential risk posed by third parties. But, 41 percent say they do not have a risk-based process for onboarding third parties.
According to Wilson:
“This is an important gap in the program. A proper procedure to vet third-party agents during the onboarding stage can prevent the contagion of corruption spreading through the organization. Even earlier than onboarding, companies need to make a greater effort to assess third-party risk.”
When asked which business areas they perceive to be high-risk, half of the survey respondents cited corruption at customs and export agencies as they negotiate ports, border crossings and airports to bring in equipment and goods to develop ENR projects outside their home country.
When asked how they manage the risk of bribery and corruption during the transport of equipment and materials across borders, half the oil and gas respondents say they enhance the monitoring of invoices from third-party logistics providers; 47 percent say they conduct follow-up investigations of allegations and take appropriate disciplinary action against employees and third parties, and the same proportion say that they train logistics managers on bribery and corruption.
Even though there is room for improvement in ENR companies’ ABC compliance programs, it seems that organizations are aware of the growing problem of corruption and are taking steps to raise the bar. Indeed, 80 percent of ENR respondents say their company has a formal, written ABC compliance program.
Also, many companies have an array of weapons in their arsenal to combat corruption. Between half and 69 percent have a several elements in their program, including whistleblower mechanisms, training programs, continuous monitoring, a full-time ABC compliance officer, and ABC compliance risk assessments.
Roy Waligora, Forensic Sector Leader, ENR, KPMG in South Africa comments:
“In these tougher times there is an increased burden placed on compliance functions to manage the risk in a cost-effective way. This may seem daunting, but it does not have to be. The first step is to undertake a global risk assessment to find the areas of greatest vulnerability, by geography, function, and operation. Such an assessment, if done well, can or should also reveal the weak points in a company’s suit of armor. To find the gaps and fill them, ENR organizations must make better use of technology, coupled with a risk-based approach, to establish a defendable position.”
Please visit www.kpmg.com/ENRforensics to download a copy of the KPMG International survey: The growing global challenge: Managing anti-bribery and corruption compliance in energy and natural resources.
Jimmy Helm, Partner, KPMG Forensic in Central & Eastern Europe and Global Leader, KPMG Anti-Bribery & Corruption Services
“A growing number of companies are finding it more difficult to deal with ABC issues, because of their complexity, increasing globalization of their operations and the need to deal with these matters in many different jurisdictions. There’s a greater understanding of the issues faced, but this doesn’t mean they are easier to deal with.”
Annabel Reoch, Director, KPMG in the UK
“Prosecutors and regulators may not take kindly to a head-in-the-sand approach to third party risk mitigation. By not exercising third party audit rights, unethical conduct may continue unchecked, risking greater fines, penalties and business disruption when the issue eventually surfaces.”
Roy Muller, Partner, KPMG in South Africa
“Companies need to take a risk-based approach to the ABC due diligence of vendors. However, a material weakness is where companies indicate that ABC risk is considered, there is often no audit trail or a very poor one to identify high-risk third parties and no clear ranking of them according to the level of risk.”
Gary Gill, Partner in Charge, Forensics, KPMG in Australia
“Given that operations are often concentrated in remote locations away from head office scrutiny, and often coupled with a reliance on local supplier bases, it’s not surprising that the majority of matters we investigate in the resources sector relate to allegations of undisclosed conflicts of interest, kickbacks and the like.”
Michael Schwartz, Principal, KPMG in the US
“Challenges noted in the survey are especially worrisome because a high proportion of bribes are now paid either by third parties to the ultimate recipient or to seemingly un-related third parties acting on behalf of the ultimate recipient. The interposing of third parties makes it harder to police. Clearly, a lot more needs to be done to manage third-party risk, from the vetting and selection of suitable intermediaries and suppliers to the continuous monitoring of transactions with these third parties.”
Mark Bowra, Practice Leader, Asia Pacific, KPMG in China
“Giant companies in Asia have been the subject of high-profile regulatory probes in recent years. These probes have resulted in significant fines and criminal prosecutions for providing improper hospitality, gifts and entertainment. China’s ongoing ‘Tigers & Flies’ anti-corruption campaign has been felt by officials and businesses across all industries in China, including state-owned entities in the oil and energy sector. China is now working with international regulators in ways that were never thought likely just a few years ago.”
Claudio Peixoto, Managing Director, KPMG in Brazil
“The introduction of antic-corruption laws in January 2014 have had a major impact on Brazilian executives. Together with the high-profile and ongoing corruption investigations in the ENR sector, executives in Brazil have become very aware about ABC risk. This represents a cultural change in Brazil and is placing an emphasis on ABC risk assessment and ethics.”
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