By John S. McClenahen A computer hardware manufacturer and an audio components company recently discovered they were losing millions of dollars as a result of misplaced trust in self-reporting relationships with other businesses, relates KPMG LLP. Those two companies, which depended upon partners to provide them with financial and other measures of business activity, apparently aren't unique. What's more, a report released by the professional services firm on March 8 suggests the problem can involve every facet of a supply chain. "Misreporting financial or other information in these relationships is usually not deliberate but often the result of management's wrongly interpreting complex agreements, unclear lines of responsibility, computer system weaknesses or just plain clerical errors, causing certain aspects of the reporting between the companies to be inaccurate," says Robert S. Pink, a partner in KPMG's Risk Advisory Services practice. According to KPMG, even companies with effective corporate-governance safeguards can take steps to reduce risk. Among those actions:
- Do a comprehensive review of a prospective partner's internal controls before beginning a self-reporting relationship.
- Determine whether sufficient two-way communication and continuing reporting mechanisms exist.
- Involve all parts of the company in managing the performance of self-reporting relationships.