by Gerard Smith — A recent article in The Press-Enterprise reported that the San Bernardino County district attorney’s office began laying out its case against a local disaster-restoration company charged in a multi million dollar forgery and insurance fraud case.
Investigators allege three defendants were involved in a scheme in which they cashed insurance company checks by forging homeowner signatures and fraudulently endorsing mortgage companies banking information on the back of the checks.
Work that the checks were meant to pay for was not completed by their company and, in some cases, no work was done, which, according to investigators, led to more charges.
How many companies utilize service providers like this without knowing who they are getting into or continuing to do business with?
More than 80 percent of companies conduct formal background checks on their full time employees, but less than 20 percent do any type of screening of their vendors, suppliers, and subcontractors. This gap in due diligence and compliance management is a significant area of risk for organization’s that should not be ignored. With the continued globalization of business, exposure to financial and reputational losses is increasing and awareness of the need for “know your supplier” programs is fast becoming one of the top risk management objectives for companies today.
Is your company certain you know the vendors with whom you conduct business? The truth is, if you are not continually monitoring the backgrounds of your vendors you may not be fully aware of your risks when conducting business with them.
Key questions your company should consider when evaluating your vendors:
- Does my vendor appear on any governmental watch list?
- Do I have a compliant certificate of insurance?
- Do I have a compliant W-9 Tax Form?
- How financially stable is my vendor?
Like many companies, the answers to these questions may be uncertain or vague at best. The lack of current and accurate information in any of these areas can result in significant issues of financial and reputational loss for your company.
Potential Consequences for Your Company
Does my vendor appear on any governmental watch list?
Most companies are familiar with the U.S. Patriot Act. In addition to the U.S. Patriot Act, companies that operate internationally must be in compliance with the Foreign Corrupt Practices Act and the UK Anti-Bribery Regulations.
In recent years, the U.S. Federal Government has significantly stepped up their enforcement of compliance with these acts. The fines for a single infraction can be astounding let alone the reputational loss that your company can experience from doing business with any person or any company on any of these lists.
Many companies working with property managers require the screening of all current and prospective vendors against these lists and hold their property managers liable for the thorough and accurate due diligence when screening vendors.
Do I have a compliant certificate of insurance?
One of the most time consuming and daunting tasks every business, especially property management firms, must contend with is correctly assessing and managing certificates of insurance (COI). In nearly every contract, there is a specific level of insurance coverage that is required from the vendor which has been negotiated by highly skilled attorneys and risk managers. The task of collecting and managing the COI to ensure that it meets the contracted requirements is generally handled by a manager or administrative person who may not have any training in managing COIs. In many cases, only after an incident occurs or a company’s auditor arrives does a company become aware of the fact that the COI is either missing, expired, fraudulent and/or non-compliant. Our experience indicates that more than 90 percent of current COIs are non compliant and the ramifications of this problem can be significant.
Do I have a compliant W-9 Tax Form?
The IRS requires every person or business to collect a signed and dated W-9 Tax Form from each vendor. Most companies simply file the forms and fail to thoroughly verify if the W-9 Tax form is the most current version and is properly completed.
How financially stable is my vendor?
One of the greatest unknowns for any company is the financial well being of their vendor. Most companies assume their vendor companies remain financially stable; however, in the current economy, circumstances have changed for many vendors and typically this only is discovered when the vendor fails to perform. This creates enormous issues, especially for the real estate industry as projects are delayed, payments lost, move-ins delayed, and liens filed against the property. As a property manager, how do you explain that due diligence was not fully performed on the subcontractor to your client?
The Solution
Establishing a contract with a vendor without verifying credentials and licensing or uncovering any unfavorable financial or criminal background can have significant legal, financial and reputational ramifications. Even existing vendors may have changes in the stability of their company or may allow licensing and certifications to lapse.
With the increasing number of global vendors that move throughout organizations today, the need for enhanced due diligence and compliance management is essential to risk management. However, this can be a difficult task for companies to accomplish effectively.
Selecting a qualified and competent outsourced third party with the resources to implement a formal vendor screening and compliance management program that is consistent, equitable and effective is critical to safeguarding the future of companies today.
About the Author: Gerard Smith is president of Global Risk Management Solutions, the leading out-sourced vendor screening and compliance management company. For more information, visit www.GlobalRMS.com/BOMA or e-mail sales@GlobalRMS.com.
Global Risk Management Solutions participates in BOMA International’s Affinity Program, providing BOMA members with a no cost vendor screening and certificate of insurance management program. Learn more about BOMA’s Affinity Program at www.boma.org/Membership/BenefitPrograms.
About the Author: Gerard Smith is president of Global Risk Management Solutions, the leading out-sourced vendor screening and compliance management company. For more information, visit www.GlobalRMS.com/BOMA or e-mail sales@GlobalRMS.com.
Global Risk Management Solutions participates in BOMA International’s Affinity Program, providing BOMA members with a no cost vendor screening and certificate of insurance management program. Learn more about BOMA’s Affinity Program at www.boma.org/Membership/BenefitPrograms.