Fraud Prevention Tip #34: Tell Suppliers & Contractors How To Do Business With You
Healthy relationships with suppliers and contractors are critical to the success of pretty much every business organization. But blind reliance on these third parties can leave us exposed to many risks – including misconduct and fraud. Even highly ethical suppliers and contractors can see their integrity efforts undone by just one of their employees who handle your account. And if their employee colludes with your employee to commit fraud, all bets are off.
The best we can do is set the stage for success. We have to teach suppliers, contractors and any other third party organizations how to do business with us. Here are a few suggestions to get you on the right path.
1.Be crystal clear on required conduct. Make your Code of Conduct a key provision of all documents that spell out your relationship. It’s always nice if they have a Code, but make sure they certify compliance with your Code.
2. Include Right to Audit language in documents covering all third party relationships. Not just contacts. Purchase orders, bids, and requests for quotations, engagement letters, leases, loans and any other deal document.
3. Finalize specifications before signing deals. It’s our job to be clear on what we’re buying, what we’re paying, and all other important procurement variables. Don’t leave it up to the other party to decide what you want or meant.
4. Once the relationship is underway, be involved. Monitor, check details, perform quality checks. Provide competent field verification where appropriate. Be organized and methodical in overseeing the results of third parties – especially service providers!
5. Zero tolerance for gaming behavior. If they act up, cut them off. Build in a legitimate ‘out’ to all third party deals in the event of wrongdoing or fraud. Zero tolerance is the only level that works. Period.
6. Perform or sponsor compliance audits. For construction, property management, technical services, advertising, IT services, outsourcing and many other areas where it’s difficult to determine whether we got what we paid for, send in the specialists. Your internal audit team is a great place to start. Otherwise, look outside for experts who specialize in the subject area, and arrange to get them in for what I like to call “Vendor Assurance Reviews”.
7. Be willing to say no and walk away. We need to feel a gut level of trust with our third party suppliers and consultants. If that confidence isn’t there, walk away. There’s always someone else out there that can step in and take their place.
Be explicit in defining your expectations of suppliers, contractors, consultants, business partners and all third parties. It’s our job to tell others how to do business with us. Don’t leave it up to them.
John J. Hall, CPA
John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”