Auditing third parties is critical to any compliance program and an important tool in operationalizing your compliance program. This is a key way that a company can manage the third-party relationship after the contract is signed and a measure that the government will expect you to engage in going forward.
Four to six weeks in advance, you should perform the audit with your legal counsel to preserve privilege, work with the business sponsor to establish key business contacts, discuss audit rights and processes with the third party. You should prepare initial document request lists for financial information queries, take the time to review findings from previous audits and resolutions, and also review details of opened and closed internal investigations. If there are any code of conduct questionnaires available, take care to review them. Finally, be cognizant of any related Justice Department and SEC enforcement actions.
The next step is to determine the entry points of foreign government involvement, both direct and indirect. The direct category includes customs and duties, corporate taxes and penalties, social security or national insurance issues for employees, obtaining in-country visas and work permits, public official gifts and entertainment, training of and attendant travel for employees of government owned entities, procurement of business licenses and permits to perform work and, finally, areas around police escort and security.
In the indirect category, some areas to review are customs agents and freight forwarders, visa processors, commercial sales agents, including distributors and, finally, those who might be consultants or other channel partners. Document review and selection is important for this process, you should ask for as much electronic information as possible well in advance of the audit. It is much easier to get database records for internal audits than audits of third parties.
Try and obtain records in database or excel format and not simply in .pdf. Request the following categories of documents: trial balance, chart of accounts, journal entry line items, financial and compliance policies, prior audited financial statements, bank records and statements, a complete list of agents or intermediaries, and revenue by country and customer.