André Previn died this week. He was described in his New York Times obituary as a musician “who blurred the boundaries between jazz, pop and classical music — and between composing, conducting and performing — in an extraordinarily eclectic, award-filled career”. He won four Oscars for musical scores, was married to Mia Farrow (between her marriages to Frank Sinatra and Woody Allen) as was “as a “wunderkind in a turtleneck” and the “Mickey Mouse maestro” when he was in his 20s and 30s. He was often compared to Leonard Bernstein, a similarly versatile conductor, composer and pianist.”
It was in this period I first became acquainted with Previn when he succeeded Sir John Barbirolli as the conductor of the Houston Symphony Orchestra (HSO), if only for a short glorious year, before he decamped to London to become the Principal Conductor of the London Symphony Orchestra. My introduction to classical music was when my mother dragged me, kicking and screaming to see him lead the HSO. I was mesmerized, leading to a life-long love of classical music.
One thing Previn acceded at was communication and preparation. These are two key components to the auditing of third parties, which is critical to any best practices compliance program and an important tool in operationalizing your compliance program. It is a key for a company to manage its third-party relationships after a contract is signed and one which the government will expect you to engage in going forward. Regulators have begun to question companies about the status of their third-part audit program; its frequency, the basis for the decision on whom to audit, its robustness and the follow up from the results.
Marianne Ibrahim, Director of Global Compliance at Baker Hughes, a GE company, has led her company’s efforts in this area for several years. Ibrahim said you should plan out four to six weeks in advance, you should perform the audit under your legal counsel’s lead to preserve privilege, work with the appropriate business unit sponsor of the third-party to establish key business contacts, discuss audit rights and processes with the third-party. Your audit team should also include at least two forensic auditors, who have a strong finance and audit backgrounds. The selection of the third-party to audit can be based on a variety of factors such as audit rotation, internal risk-ranking and market intelligence.
Next, you should prepare initial document request lists from the third-party, delivered in a timely manner, so that you can review them prior to the audit. You should also 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 and, finally, be cognizant of any related Department of Justice (DOJ) and/or Securities and Exchange Commission (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 areas around police escort and security. In the indirect category, some of the key areas to review are: customs agents and freight forwarders, visa processors, commercial sales agents, including distributors and those who might be consultants or other channel partners.
Ibrahim noted that setting expectations with your third-party is a key step when you sit down to perform the audit. She said that she begins by sitting down with the third-party to “thank them for their time when we review the audit rights” clause from their contract. She added that “especially in Asian culture is the expectation in writing to remind them these are the audit rights that we are enforcing. It really just set the tone for expectations.”
Your lead interviewer should be an attorney to preserve privilege, who should also be culturally sensitive, patient and create a good working relationship with the forensic auditors on your audit team who will be reviewing the documents. Ibrahim cautioned that you are not conducting “an investigative interview. This is an exploratory interview.” The reason is because you are trying to get them to open up and to be comfortable with audit process. At the same time the attorney-led interview is ongoing, the forensic auditors are reviewing their books and records including petty cash funds; bank accounts; general ledger account, including travel, entertainment, meals and gifts; charitable and political donations, and payments to customs and freight boarders.
You should also use this interview process to educate the third-party on any gaps around your compliance program. This can be done directly in the interview process or at the end of the audit, when you review the results with the third-party to give immediate feedback. Of course, if something more sensitive has been uncovered in the audit, you may want to do additional research or have further review in your corporate office.
Perhaps the over-riding theme from Ibrahim was ongoing communications both before, during, and after the audit. It begins with setting appropriate expectations with the third-party, moves to remediation, if needed, quickly and efficiently, and also sitting down with a third party to reviewing the audit findings. At the end of the day, your third-party should be seen as a partner in the compliance efforts for the company.
Andre Previn set list (all from YouTube)
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© Thomas R. Fox, 2019