Tatyana Piskareva
Head of Accounting Department BDO Unicon Outsourcing
RISK ONE. FINANCIAL
A company, which may seem reliable at the first sight, as it has lots of employees, an ambitious director general, and long-term designs, may appear to be unable to fulfil its contractual obligations.For example, having filed a claim for debt collection, one of our customers found out that its partner had been recently registered, had the minimum required authorized capital, no balance-sheet property, and next to no assets.
Moreover, several other claims had already been filed against the company, and our customer did not stand almost a slightest chance to demand performance by it.
However, our customer might have prevented such situation, if it had looked into the publicly available web resources, where one may get information on the financial condition of a company, its affiliates, and judicial proceedings.
RISK TWO. TAXATION
Unreliable partners may cause financial and reputational, as well as tax risks.The enforcement of Art. 54.1 of the Russian Tax Code on 19 August 2017, which, in the first range, aims to prevent deliberate tax optimization by commercial organizations in order to gain an unjustified tax profit, confirms that business partners have to be checked thoroughly.
Moreover, Art. 54.1, para. 2 of the Russian Tax Code provides for a new requirement to confirm the actual performance of a transaction by a partner or any other person, with which the partner has appropriate contractual relations.
Pursuant thereto, it is not enough to confirm the actual performance of financial operations to account expenses (receive tax deductions). It is necessary to confirm that the person, with which a contract is entered into, performed a transaction.
Hence, now you need to worry, whether you can confirm that your partner in fact performed a transaction, rather than whether it pays taxes.
Before entering into a contract on a certain type of services, check, whether your partner has a license for rendering thereof. Before signing a large contract, check, whether your partner has resources required for fulfillment thereof, or – if the required production equipment is absent in its balance sheet – a confirmation of the actual lease (or any other type of outsourcing) thereof.
Before concluding a real-estate lease contract, check, whether your lessor has a title to the leased property, or whether it is duly authorized by the title holder.
One of our customers rented an office from a company, the title to the real estate of which had not been released yet. The customer completed an expensive renovation when it came clear that the lessor failed to obtain the title. The customer put lots of efforts to enter into a new lease contract with the initial owner. It bore a great risk of losses for the amount it had spent for the renovation.
This is another proof that one needs to choose a business partner thoroughly. You may spend a bit more time checking a partner and assessing the risks, though you will be sure that the risks are as low as they may be.
We have another real example: the manager of a large company signed a contract with a cleaning company, the prices for the services of which were 20% lower than those of its competitors. The company was rendering the services within a year until a tax inspectorate checked the company and found out that it did not have the required number of employees for such scope of services.
The tax inspectorate doubted the fact of servicing and excluded the expenses for purchasing of cleaning services from the taxation base. Our customer could have prevented such troubles if he had checked in due time, whether the cleaning company had the number of human resources required for the service rendering.
WHAT SHALL BE DONE?
Risk management is the responsibility of the financial and safety department of a large company, or of the accountant of a small or medium company. However, it is wrong to pass the responsibility to the accountant if a partner appears to be unreliable.If a company does not have approved and mandatory for observation procedures, particularly, for the audit of business partners to confirm that transactions are real and concluded for a business purpose, its management is already exposed to a material risk.
Companies have to start auditing their business partners in order to develop a company auditing procedure setting out the provider selection criteria and the obligations of the employees responsible for the audit of partners comprising preparation of business partner files with the minimum required information and regular update thereof.
It is worth underlining that even a due diligence of business partners does not ensure a complete risk prevention. However, in the worst case, the lack of control at the time of selecting a partner may increase the risk of financial losses and claims filed by tax authorities.
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