In today's dynamic and interconnected business world, third-party risk management emerges as a strategy for the success and sustainability of organizations. With the increasing complexity of supply chains and the need for external services, it becomes urgent to master the nuances of TPRM. Contractor risk management is an essential activity for any company, regardless of its size or segment. It is through it that suppliers can remain in compliance with laws and regulations, as well as continue to provide quality services with maximum security, and beyond. From ensuring regulatory compliance to optimizing operational efficiency and mitigating risks, effectiveness in managing external partners has become a competitive advantage, which is what contractor risk management focuses on. In this text, we will go through some important points of this growing area worldwide. What is Third-party risk management? Contractor Risk management is the process of controlling the risks of outsourcing through the identification, selection, evaluation, contracting, monitoring, and relationship with suppliers. It is the way in which the relationship between companies/entities/individuals is supervised in a way that provides the greatest possible security. Through the contractor risk management flow, suppliers provide information about their third parties, and the contracting company or consultancy analyzes the documents to understand if the legal and contractual requirements have been met. The goal here is to understand if the requirements established at the time of contracting are being followed. It is through contractor risk management that risks such as slave labor, deaths, accidents, and company bankruptcies are mapped preventively. After all, these are cases that can cause irreparable damage to the business and are not always observed naturally. Effective contractor risk management aims at more sustainable and mutually beneficial relationships between companies and suppliers. Why Implement Contractor Risk Management? Contractor risk management impacts the entire organization. The decision to implement it will define whether these impacts will be positive or negative. It is widely known that outsourcing services generates operational risks, both in compliance and security. One of the benefits of contractor risk management is to mitigate these risks generated by hiring suppliers, which will allow for the harmonious continuity of business. In addition, all companies are subject to regulations and laws, which must be followed. With active contractor risk management, it is possible to monitor suppliers and understand if they are operating in compliance with the legislation. This avoids fines and penalties that could eventually fall on your company. Not to mention that third-party services impact your operational efficiency. How? The quality of the products/services provided is directly linked to your product. Whether by labor or raw material, this relationship directly and deeply impacts your organization, so it is important to pay close attention. These are some of the strong points we highlight here, but there are many others related to them. Operational efficiency, focus on core business, innovation, strategy, all of this has an impact on your company. When Should I Start Contractor Risk Management? The most objective answer would be when your supplier brings some risk. However, there are suppliers that do not bring risks or have very low risk, this does not necessarily mean that there should not be any monitoring, only that it should be evaluated how the process fits each situation. Here at Bernhoeft, we recommend starting third-party management as soon as your company starts to rely on external suppliers for products, services, or resources essential to its operations. This usually happens as the company grows and/or expands its activities. However, even for smaller companies, it is important to consider third-party management from the start, especially if there are plans to outsource certain functions or processes. Furthermore, if your company is already involved with external suppliers but has not yet implemented a formal management of these relationships, it is recommended to start as soon as possible. As we read earlier, third-party management helps ensure that the company is prepared to deal with the challenges associated with outsourcing. How to Implement Effective Contractor Risk Management? The way that generates the best results is: integrating technology, a specialized team, and a system capable of operating with a large volume of data. Having a partner makes this process easier and safer, since they have all the skills to deal with the essential steps of the project. And here we are talking about LGPD, information flow, management of contractors, and more. By combining experienced and qualified professionals, we can establish solid third-party management. This not only encourages suppliers to become increasingly involved in the processes but also alleviates the work of contract managers We have gathered some steps of the process: Define objectives and goals; Identification and selection of suppliers; Supplier assessment; Contracting of suppliers; Relationship with suppliers. How to Find a Good Partner for Contractor Risk Management Finding the ideal partner for third-party management is just as important as implementing it. Below we have gathered two points that we consider objective and essential for your company to observe when searching for a partner. Understand your real needs first Before you start looking for a partner, it is essential to understand your specific third-party management needs. Consider the types of services or products that will be outsourced, the compliance requirements, the risks involved, and your strategic objectives. Some questions can guide you at this time: What services does the organization need to outsource? What are the quality and performance requirements that the organization expects from its suppliers? What are the risks that the organization needs to mitigate? Research the market and seek references Conduct a detailed market research to identify potential third-party management partners. Understand the history of the chosen companies, check if they have the necessary qualifications to meet the needs identified in point "1", and if it makes you feel more secure, ask for references from other clients. Third-Party Risk Management x Bernhoeft We are the first company in Brazil to provide third-party management services. For over 20 years, the #WeLoveGRT movement has been running through our veins, driving innovation and the desire to do more and better. In Brazil, our work is already widely recognized and referenced. We were elected the best third-party management company in Brazil for four consecutive years, by the Inbrasc award 2020/2021/2022/2023. Now it's time to take on the world! Our team has over 650 qualified professionals to add value and make a difference in the lives of each of our clients. We work by helping client companies and their suppliers to reduce outsourcing risks, promoting greater security and compliance with current laws and regulations. To achieve this, we work on two fronts: Labor Analysis In labor analysis, we act proactively to ensure that outsourced workers receive their rights at the right time, reducing the chances of your company having to pay the severance pay of suppliers who have failed to pay or have not paid their employees correctly. If, even so, labor lawsuits arise, we will work together with your company's legal department, providing all information and documents for the preparation of the defense. Proving the values that have already been paid to employees and reducing your risks and those of your suppliers. Our differential is not to stay only in the analysis of the documentation, if any error is identified, we will work as a consultancy guiding the suppliers on the errors and how to correct them. Mobilization Third-party mobilization is a real challenge, as the documents vary according to the risk of the employee's activity. Each document has a different validity period to manage, and we need to be agile in releasing access quickly and without compromising the safety of the company and the outsourced employee. We work in the mobilization of outsourced workers and take on everything from the electronic receipt for analysis of occupational safety and health documents to the permission of access to your organization's entry control system. These more than 20 years represent a great growth in our operations, we feel ready to expand our work to the world. If you are interested and would like to receive a contact from a specialist consultant, simply click on the following link: Talk to a specialist
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While accounting procedures can sometimes be confusing and challenging for Brazilian investors, imagine the complexities involved for foreign companies. We often encounter questions about everything from opening a foreign company in Brazil to routine procedures, which is completely understandable given that it involves a different country, new legislation, and new processes. With that said, the goal of this text is to clarify and understand the specific requirements of Brazilian accounting standards for international companies. Specificities of Brazilian accounting for foreign companies It is common for companies to have operations in different countries. Understanding the specificities of each country is crucial for ensuring that the new unit complies with local legislation. In Brazil, accounting standards are based on the International Financial Reporting Standards (IFRS), but there are some specificities. It is important to understand that the goal of international accounting standards is not to fully standardize accounting practices across the globe, but rather to harmonize and make them more accessible. This makes it easier for any business owner to access financial statements and understand their meaning, not only for each item analyzed by their company, but also when reading reports from other companies. This process, known as accounting convergence, allows for easier comparison of financial statements from different companies and facilitates cross-border investment and business transactions. In Brazil, the process of convergence involves adapting international standards to the local reality, resulting in some specificities that differ from the requirements in other countries. 10 Key considerations for foreign companies accounting in Brazil Exchange rate risk Exchange rate variation is not just about converting foreign operations into the company's local currency, there are accounting accounts that are adjusted by the exchange rate on the closing date (a single date) and other accounts that are adjusted by the average exchange rate (period of dates) Transfer Price The value of goods/services transferred between countries must be calculated correctly to avoid abusive tax practices, considering that the negotiated values can vary significantly depending on the country. The Brazilian tax authorities closely monitor these values, as they view related companies as a single business entity, and they monitor whether the generated profits are directed to avoid paying taxes in regions with attractive tax rates, losing its share of taxation in Brazil. If the transfer price does not reflect the market price, tax authorities may consider that the company is transferring profits abroad and impose tax penalties. There is no direct formula for calculating transfer prices, and the following aspects must be considered: cost-plus method, comparable uncontrolled price (CUP) method, resale price method and future sale price method. Invoice Foreign transactions use the invoice document to detail the commercial transaction. It is necessary to verify that the transfer price indicated in the invoice is correct, as well as the taxes involved that will be described in this document. Intercompany loans Loans entered into between foreign companies must comply with the legal aspects of the countries involved. The points of inspection in Brazil are mainly present in the taxes on the interest of the operation and the transfer price practiced of the loan. Balance sheet consolidation In cases where a partner has interests in two or more foreign companies, they can verify the total result of these companies through the consolidation of balance sheets. This statement will provide a more realistic view of the result that was actually generated outside the economic group. POC (Percentage of Compliance) Accounting for POC allows revenue to be recognized in the accounting records according to the progress of what was agreed upon in the contract with the customer, and not just the recognition of revenue at the time of the invoice issuance. This use allows a product/service sold to be recognized in the company's results over time. In Brazil, POC is widely used in the real estate sector, providing an accounting view for recording according to the progress of the work. However, from a tax perspective, the accounting of taxes due must follow the issuance of the Nota Fiscal (invoice). Therefore, care must be taken in the accessory declarations to correctly evidence the POC adjustments for calculation based on the billing, in order to find the correct bases for the taxes due. Over the years, we have seen the growth of the use of POC in other business sectors, such as the IT sector. Leasing The lease contract has undergone considerable changes in its accounting treatment, considering that for many years it was considered a rental expense. However, with recent changes, it has come to be seen as the right to use, and therefore recorded as an asset in companies that are enjoying the benefits of use. This change has impacted the results of companies and needs to be controlled in the tax assessment in order to avoid the risk of erroneous taxation. Inventory/Cost Inventory accounts that will be taken to the result at a later date as a cost need to be controlled and reviewed by the accounting department to ensure that the inventory control method is following the practices used in Brazil (PEPS/Weighted Average) different from abroad where some countries allow the practice (LIFO). In addition to this control, it is important to emphasize the correct measurement of the values at which the inventory is recognized, being at its cost value or at its net realizable value (the lower of the two). Fixed assets Fixed asset control is necessary not only for asset monitoring and heritage control, but it has also been a major risk factor for companies in the tax aspect related to depreciation. Companies that have a high volume of fixed assets and use depreciation to reduce taxes on profit need to have detailed control of fixed assets, including by item (item class) identified. Intangible assets Accounting standards require detailed information about intangible assets, including the monitoring of research and development phases by the accounting department in order to obtain assertive control over what should be recognized in the company's results/assets. The definitions of definite/indefinite useful life also have implications for the accounting treatment of intangible asset amortization, which will also impact the company's results. Aspects such as technological obsolescence are mentioned in the accounting standard for technology companies, bringing with them a constant monitoring of market trends in order to avoid overvalued intangible assets in the accounting records. That said, it is essential to have secure and documented records of accounting transactions, thus bringing assertiveness and security to the results generated and distributed to shareholders, as well as in case of tax audits. Therefore, it is important for a foreign company to have well-informed and prepared accounting to face these risks and ensure compliance with Brazilian tax and accounting laws. In the tax area, the risks become high considering that the Federal Revenue Service does not adopt international standards and has its own aspects for calculating taxes. We can help you! Here at Bernhoeft, you will find a team of specialists in foreign companies, from opening to accounting routines. One of our differentials is that, in this cell, everyone speaks English. A great shortcut for everything to go well. If you understand that you need to count on a safe, assertive and experienced company, contact us!
SEE MOREThe globalization of businesses has brought with it the need for partnerships and collaborations among companies in different parts of the world. In the business context, third-party risk management and Due Diligence has become a crucial parts of business success and sustainability, especially in the United States, where the complexity of business relationships is evident. In this article, we will explore the importance of third-party risk management in the United States and how it has become an essential practice for organizations seeking to thrive in the American Market And also highlight the importance of an efficient due diligence process. Complex Business Environment The United States has one of the most dynamic and competitive business environments globally. Collaboration with third parties is often inevitable for both foreign and local companies. However, this interdependence also brings a host of challenges and risks that need to be effectively managed. Third-party risk management allows companies to understand and mitigate potential threats, ensuring a safer and more sustainable operation. Compliance and Regulations The United States is known for its stringent labor laws and clear regulations. Non-compliance with these laws can result in severe consequences, including substantial fines and damage to the company's reputation. For instance, when workplace accidents occur, the costs per incident range between $40,000 and $50,000 per accident and $1 to $2 million per fatality, according to NSC Injury Facts. By integrating a proactive approach to third-party risk management, including HSE, organizations can ensure that their partners align with local standards and regulations, thus mitigating risks associated with compliance. Reputation Protection A company's reputation is a valuable asset, and in the United States, where consumer trust is crucial, third-party risk management plays a vital role in protecting that reputation. Partnerships with suppliers or collaborators who do not adhere to the same ethical and quality standards can have a significant impact on the company's image. The proactive identification and management of these risks help preserve consumer trust and maintain a positive reputation in the market. Information Security Cybersecurity and information protection have become critical priorities in contemporary businesses, as the average global cost of a data breach per country exceeds $3 million, according to OSHA. Collaboration with third parties often involves sharing sensitive data, increasing vulnerability to cyber threats. Third-party risk management in the United States includes the implementation of robust security measures to protect confidential information while ensuring the integrity and privacy of data. Business Resilience Uncertainty is a constant in business, and a company's ability to adapt to unexpected changes is essential. Third-party risk management not only identifies imminent risks but also allows the development of resilience strategies. By anticipating and planning for potential challenges, organizations can maintain a more robust stance in the face of disruptions in the business environment. In conclusion, third-party risk management in the United States is an imperative practice for companies seeking to thrive in a complex and highly regulated business environment. By adopting a proactive approach to identifying, assessing, and mitigating risks, organizations can not only protect their interests but also build lasting and successful relationships in one of the world's largest markets. How can we help? Since 2003, we have been assisting service-receiving companies and their suppliers in achieving greater security through the provision of auditing services that cover all phases of third-party contracts. Given the North American scenario, it is crucial that companies turn to specialized third-party management. With a special focus on security, we monitor compliance with labor, social security, contractual, and legal obligations, as well as other elements that promote greater compliance and risk reduction for companies using our services.
SEE MOREAs companies expand their operations and extend their Vendor Relationship Management, effective third-party management becomes a vital piece in the puzzle of business success. In the United States, a complex and regulated business environment demands a strategic and proactive approach to mitigate risks associated with external partnerships. This article explores the challenges and opportunities faced by organizations when implementing third-party management in the United States. Third-Party Management: Understanding and Regulatory Compliance The first crucial point of successful implementation involves a deep understanding of U.S. regulations and compliance standards, particularly those related to the Occupational Safety and Health Administration (OSHA). Each industry and region may have specific requirements, and compliance is crucial to avoid legal issues. Hiring legal expert familiar with U.S. business regulations ensures that third-party management practices align with local laws, covering areas such as contracts, data protection, and industry-specific regulations. Customized Due Diligence Processes The second focus is on developing customized due diligence processes tailored to the U.S. business environment. This includes comprehensive assessments of potential third-party partners, considering factors such as financial stability, legal history, and ethical practices. Establishing a due diligence framework aligned with U.S. business practices ensures a thorough evaluation and helps mitigate risks associated with third-party commitments. READ MORE: Third-Party Risk Management: The Importance of Documentary Evidence Cultural Sensitivity and Communication Strategies Cultural foundations play a significant role in the U.S. business landscape. The third point emphasizes the importance of cultural sensitivity and effective communication strategies. Adapt your communication style to align with U.S. expectations, ensuring clarity and transparency in all interactions. Understanding and respecting cultural differences contribute to building strong, trust-based relationships with third parties. Comprehensive Contractual Agreements The fourth pillar highlights the importance of creating comprehensive contractual agrements to improve a Vendor Relationship Management. Clearly define expectations, responsibilities, and performance metrics in written contracts. Engage legal professionals to draft contracts that align with U.S. legal standards, providing a solid foundation for the relationship. Well-documented agreements not only prevent misunderstandings but also serve as essential evidence in case of litigation. Technological Integration for Efficient Management In the dynamic U.S. business environment, technology plays a vital role in efficient third-party management. The fifth pillar recommends integrating technological solutions for streamlined processes, such as adopting modern and coherent software specifically tailored for data management and performance tracking. Using compliance monitoring and continuous communication enhances the efficiency and effectiveness of your third-party management strategy. Continuous Monitoring and Adaptation The sixth pillar emphasizes the need for continuous monitoring and adaptation. The U.S. business landscape is dynamic, and market conditions can change. Regular evaluation of third-party relationship performance, compliance monitoring, and readiness to adapt strategies as needed are essential. In conclusion, the successful implementation of third-party management in the United States requires a holistic approach that considers regulatory compliance, cultural nuances, and effective communication. By customizing due diligence processes, establishing comprehensive contracts, integrating technology, and maintaining a proactive stance, companies can navigate the complexities of the U.S. market and build lasting, mutually beneficial relationships with third parties. How can Bernhoeft help? We are pioneers in Brazil in providing Third-Party Risk Management services. With over 470,000 active third parties, we have all the necessary expertise to implement and disseminate third-party manegement in the United States. Learn more at here.
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