10/07/2020

Donations and Good Practices to mitigate integrity risks during the Pandemic

 

In times of crisis, and there is no doubt that this Covid-19 pandemic certainly constitutes one, solidarity and empathy fortunately emerge, leading us to want to help our neighbor in an immediate way. That need drives us to make decisions and put them into practice rapidly, not respecting, in many cases, the care and controls that we adhere to in normal times.

For instance, in this type of situation, States (and public entities) usually adopt decisions aimed at speeding up their own internal processes, by making purchase and contract requirements more flexible, while increasing their willingness to receiving donations. Companies, in turn, quickly redefine their strategies in the area of ​​corporate social responsibility (if these already existed) and decide to make donations, of money as well as in kind, to help alleviate the needs generated by  these scenarios.

The downside of this situation is that crisis periods also create opportunities for those who only seek to maximize their benefits, appealing to different types of irregular maneuvers.

In this context, in order to mitigate risks when making decisions, it seems convenient to remember one of Napoleon Bonaparte's best-known phrases: "Dress me slowly, I'm in a hurry".

This phrase shows us that no matter our hurry, certain steps must be taken if we want things to go well. In this specific scenario, this will mean the donation arrives properly and in due time to its destination, that an appropriate and efficient use is made of the donated resources, and that no negative consequences are created for us (whether due to involvement in an act of corruption or money laundering, or as  victims of fraud).

In achieving these objectives, Compliance Programs play a strategic role. It is worth remembering that these programs include actions, mechanisms and internal procedures designed to promote integrity, supervision and control, and are aimed at preventing, detecting and correcting irregularities and illegal acts; they are effective only when they have been specifically developed to fit the needs of the organization –considering size, economic capacity and exposure to risks-, and are dependent on the explicit support from the top management, with an internal leader, and the capacity to be embraced by the culture of the organization.

This way, if an organization has a Program, it will most likely have procedures for making a donation (such as verifying that it is included in the annual donation plan, that the recipient meets specific requirements and submits required documentation, that it possesses prior approval from certain areas and authorities), and which exceptions can be made in cases of urgencies and/or emergencies. On the other hand, if the company does not have a Program or procedures, it will be required to exercise extreme care before taking any actions. But whatever the scenario, in order to mitigate integrity risks associated with donations, here are some good practices to follow:

  • It is essential to create internal documentation that explains decisions and actions, including not only information about the recipient, but also about what will be donated.
  • To make this decision, not only the internal procedures of the donor company must be considered, but also those that eventually regulate the actions of the recipient to ensure that they are not being infringed upon; the latter is particularly relevant when the recipient of these assets is a public entity.
  • Regarding the objective of the donation, it is important to define the reason for the donation and what will be donated (the items, the amounts, the condition they are in, the place of delivery).
  • It should be noted that monetary donations generate a high risk and it is advised that they be avoided, much more so if the recipient is a State agency. This is due to the fact that they are expendable goods, whose traceability is difficult (making it difficult to know their final destination); inefficient use could be made of them (for example, consumables could  be purchased at elevated prices), in addition to the fact that they could be utilized in money laundering, as well as in potential violations of accounting and tax regulations; all of which generate relevant legal and reputational risks.
  • Regarding the recipient of the donation, it is essential to determine why they were chosen (based on career, activity, reputation, etc.) to document who they are, and to establish who the final beneficiary will be. Although it is reasonable in extreme cases to reduce the type of information required from the recipient, in no case can minimum requirements be avoided, such as a reputational analysis that would allow us to conclude that the beneficiary poses no financial or reputational risks to us.
  • Situations that present a conflict of interest, both real and potential, should be avoided, especially if the recipient belongs to the public sector. This means that there must be adequate disclosure regarding any ties or interests that may be at stake (for example, if we are the suppliers for those receiving the donation, if we are in the middle of a hiring process or if we intend to be. Not reporting these situations could make the donation seem like an intent to get something in return, which could be perceived as a bribe). In these cases, the rule is disclosure and the removal of the person involved, to then ponder whether or not it is feasible to continue, given the circumstances, and if so, under what regulations.
  • In turn, precautions regarding  delivery schedules must also be taken. There must be proper documentation of the effective reception of everything we decide to donate; and if we donate to a public entity, unless there is an administrative record that confirms arrival and acceptance, the donation must not be made.
  • The greater the flexibility in the previous procedure, the greater the complementary  monitoring measures that should be adopted to guarantee the final destination of the donated goods. The  company could involve itself in the final destination and use of what is donated, establishing requirements to verify how it was used and/or accompanying the process of its distribution, which would also add positive energy to the organization and generate alignment with a good purpose.

These ideas, far from trying to dissuade donating, are intended to provide a few guidelines so that donations are  carried out in a safer way.

 

Paula Honisch is a lawyer, Master in criminal law, specialist in anti-corruption and criminal compliance. Executive Director of Honisch & Asociados. She designs and implements compliance programs, integrity policies, and prevention of violence and harassment in public and private sector organizations. @PaulaHonisch

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