Corruption Matters - June 2020 | Issue 55

Home > Red flags: better knowing now than later

Red flags: better knowing now than later

Sloppy due diligence practices can become an attractive loophole for rogue employees and suppliers. It’s as easy as adding a favoured supplier into an agency’s system and doling out the purchase orders for bogus work. The ICAC has investigated and exposed numerous instances of corruption that could have been prevented if agencies had heeded the warning signs at the get-go.

The purpose of conducting sound due diligence with suppliers is to identify any red flags before a new supplier is entered into an agency’s financial gateway. But what are the practical steps involved in conducting sound due diligence? How do you gauge red flags, what do they mean and what risks do they signal?

The ICAC has produced a guide to help the NSW public sector conduct due diligence checks on potential suppliers in order to

• achieve value of money
  
  
• prevent corrupt conduct
  
  
• maintain trust in public administration
  
  
• comply with legal and regulatory expectations.
  
  

The guide is arranged into the following five categories:

1) Is the supplier genuine?

2) Is the supplier capable and reliable?

3) Is the supplier financially viable?

4) Does the supplier have the required authorities, licences and status?

5) Is the supplier of good repute and integrity?

Under each category, a reader is offered guidance on the compliance checks to conduct, additional sources to reference, and what tricks-of-the-trade to watch out for. An additional chapter is dedicated to other practical issues, such as the benefits of spreading due diligence responsibilities across an agency’s business units or advice on how to handle due diligence when it comes to a supplier’s subcontractors.

A high-risk supplier has… no Australian Business Number (ABN) or an invalid ABN recently formed or has no track record changed its bank account details recently not registered for GST (or just recently registered) a generic email (for example, gmail, hotmail or bigpond) no known physical premises for the business or just has a PO Box no landline or never answers telephone calls no advertising and/or has no online presence no relevant licences (or licence is recently acquired) opaque ownership one or very few customers; that is, is largely dependent on the government agency to remain viable.

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