New ICAC guidelines assist NSW public sector conduct due diligence checks
The NSW Independent Commission Against Corruption (ICAC) has released new guidance to help the NSW public sector conduct due diligence checks on potential suppliers.
The “Supplier due diligence: a guide for NSW public sector agencies” published on 17 June 2020 (Guide) examines:
The Guide should be used as a tool for NSW public sector agencies to ensure they are achieving the best value for money with the billions of dollars of taxpayer money spent on the procurement of goods and services each year.
What is due diligence?
The Guide defines due diligence as checks performed by an agency on a counterparty to understand whether the supplier:
In a nutshell, due diligence helps to answer the question: should we be doing business with this organisation?
Why, when and how due diligence should be performed?
The Guide states that supplier due diligence is important for ensuring:
The Guide also advises checks may need to occur further along the supply chain should it extend into countries where practices such as forced labour or trafficking in children are common.
Due diligence is typically performed during the procurement or sourcing stage, after potential suppliers have been identified but before the contract with the preferred supplier has been entered into. However, due diligence needs to be considered in the procurement planning phase so that appropriate supplier questionnaires can be included in tender documents.
Supplier due diligence is also an ongoing process and agencies should be checking back in with current suppliers to see if their licences and insurances are up to date, and if they are complying with all legal and regulatory obligations.
In terms of how due diligence should be performed, the Guide recommends that agencies undertake a “risk-based” approach – which is expanded on further below.
Who should perform due diligence?
Due diligence is usually tasked to the procurement team of the agency but may also involve other teams including finance, human resources or legal.
Agencies can also engage third parties to provide due diligence services.
“Risk-based” approach to performing due diligence
The Guide recognises that due diligence takes time and money and recommends a risk-based approach as a result. Other factors the agency needs to take into its approach are the agency’s capability to undertake the due diligence (time, cost and effort involved), the financial risks to the agency, the risk of corruption or other regulatory breaches (known conflicts of interest or high-risk supply chains) and supply risks (importance of the contract to the agency).
The Guide focuses on five categories of checks for agencies to consider based on the following questions:
The Guide provides good guidance and case studies on what to look for when considering the above five questions, as well as supporting resources and information to assist agencies in this process.
The Guide also provides helpful tips on practical issues when performing due diligence, including:
Who should use the Guide?
The Guide is for anyone involved in procurement in the NSW public sector but can also be applied by public sector agencies in other jurisdictions.
Private sector agencies can also look to the Guide as a “best practice” tool when performing due diligence checks on suppliers.
Finally, suppliers can also use the Guide to understand how public sector agencies conduct due diligence and equip themselves with the information they may be required to provide in a procurement process.
The Guide can be accessed from the ICAC website here.
Authors: Scott Alden & Victoria Gordon
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