Due Diligence in the Procurement process

Welcome

Welcome to the third and final module of the course!

In this third module we will see how the overall evaluation must be expressed when the card is
completed and who is responsible for approving it. We will have a look at the types of preventive
action that can be implemented to mitigate the risk in case of a very critical situation.

The approximate duration of this module is 30 minutes.

OK, so were ready to start! Select next to proceed.

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 Due Diligence in the Procurement process

How is the final evaluation issued and who approves it (1)

Once the Due Diligence card has been compiled, the person that is in charge of it, in liaison with
his or her Manager, assigns an overall evaluation that depends on whether the risk is negligible or
high.
If there is no risk, or the risk is negligible, no action is required and the card will be flagged green;
on the other hand, if the risk is critical the card will be flagged yellow or red. In the next page we
will discuss the meaning of these colours.

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How is the final evaluation issued and who approves it (2)

Lets take a deeper look at the meaning of the colours used to flag the final evaluation. Click on
each colour for more information.

The final evaluation is flagged green if, after the analysis of the vendor/candidate company, no
critical aspects, that would otherwise make it impossible to continue the business relationship
with eni, emerge.

In this case the assessment is approved by the Manager of the person responsible for compiling
the Due Diligence.

In case the vendor analysed is a Covered Business Partner, the approval is subjected to a specific
authorisation escalation path as follows:
for activities managed by the Procurement functions of eni spa, the Manager of the relevant
procurement operating function or the Senior Vice President in charge of the relevant
procurement unit, and the Manager of the vendor management function;
for activities managed by eni spa subsidiaries, the Procurement Manager (PM) and the
Manager of the relevant Vendor Management unit, or, in case the latter doesnt exist, the second
approval shall be provided by the head of another function to be appointed by the Managing
Director (MD) or an equivalent manager of the Company, based on the company specific
organisational structure.

The final evaluation is flagged yellow if the analysis of the vendor/candidate company reveals
critical aspects but not such as to preclude the relationship with eni, and that can be mitigated by
appropriate actions.

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For all vendors/vendor companies, yellow due diligences require the approval of the following
company position holders:

for activities managed by the Procurement functions of eni spa:

the Manager in charge of the relevant procurement operating function or the Senior Vice
President in charge of the relevant procurement unit,
the Manager of the vendor management function;
for procedures managed independently by the subsidiaries of eni spa:
the Procurement Manager
the Person in charge of the vendor management unit if any, otherwise, by another executive
position holder appointed by the Managing Director (MD) or an equivalent manager of the
Company, based on the company specific organisational structure

The final evaluation is flagged red if the analysis of the vendor/candidate company provides
evidence of serious critical aspects that would preclude the continuation of the business
relationship with eni. As anticipated in module 2, such evidences may consist in an unclear
shareholding structure, a critical economic-financial situation, or proven serious offences by
one or more representatives of the vendor company.

As a general rule, the vendor/candidate company shall be excluded. In case the vendor or the
company are considered to be irreplaceable for motivated and critical business reasons and
the business relations with them must continue, the Due Diligence is subject to a specific
authorisation escalation path, which implies first of all that the requesting unit shall duly
motivate the necessity to get involved with the vendor/company.

In this case the Due Diligence is subject to a specific authorisation escalation path, and the
procurement function in charge of it shall perform previous additional verifications and analyses,
if necessary, the outcomes of which, including any anti-bribery control and recommendations
from the Anti-Corruption Legal Support Unit, are attached to a standardized specific Due
Diligence Authorisation Form and submitted:

for activities performed by the Procurement functions of eni spa, to the authorization of:
the reference Area Manager, after having obtained the the assessment on potentially
alternative market solutions issued by the Manager of the reference procurement operating
function and eni spa Procurement Manager, and by the reference Manager from the Legal
function; sand for activities managed by the subsidiaries of eni spa, to the authorization of:
the Managing Director (MD) or equivalent organizational function within the subsidiary,
after having obtained the assessment on potentially alternative market solutions issued by
the Procurement Manager (PM) and by the reference Manager from the Legal function.

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In case of green evaluation

OK. Now lets assume that the Due Diligence checks concerning a particular candidate company
have been completed and the resulting evaluation is green. This means that there has been no
evidence of critical aspects.

The assessment is approved by the appointed managers, by means of a release in the system in
use, if any, or by signing the paper copy of the due diligence card.

The approved card shall be saved and stored in the dedicated systems together with any relevant
attached document.

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In case of yellow evaluation (1)

If even just one of the fields of the due diligence card is critical, then the overall assessment
shall be necessarily at least yellow. Here are some critical situations you might come across
(of course they are only examples, that represent just a part of the situations that may occur,
but provide useful suggestions). Click on the risks that can be detected to find an example of a
mitigation action that could be applied.

NEGATIVE EQUITY:
Ask the vendor if the loss was covered with the injection of new capital.

HIGH DEFAULT RISK, POTENTIAL INTERRUPTION OF ACTIVITIES/SUPPLIES PROVIDED BY

VENDOR MIGHT IMPACT SEVERELY ON THE BUSINESS:
Mitigation actions must aim at providing protection from the risk, with appropriate warranties: for
example, the headquarters issue a Parent Company Guarantee that binds the company to the
execution and completion of the contract.

THE SHAREHOLDING STRUCTURE IS NOT TOTALLY CLEAR:

Contact the vendor directly to request corporate disclosure.

ONE OF THE COMPANY TOP MANAGERS IS LISTED AS A PEP:

Politically Exposed Persons are physical persons identified through specific database consultation,
who have or had important public roles, at international/national/local level, as well as their direct
family members, or anyone with which these people have close ties.

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First of all check if the result is a false positive, as for example in case of name coincidence. If there
is a correspondence with the name, date and place of birth, the next step is to determine which
political office is held by the subject to determine whether the position held is or is not directly
connected with the subject of the procurement proceeding.

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In case of yellow evaluation (2)

Lets suppose that the card compiler has come across some criticalities that have been mitigated
by the actions that he has put in place, so that the business relationship between eni and the
vendor/candidate company can continue.

Mitigating actions shall be mentioned in the note field together with the evaluation of the
acceptability of the associated risk.

the assessment is approved by the relevant managers by means of a release in the system in use,
if any, or by signing the due diligence card

The approved card shall be saved and stored in the dedicated systems together with any relevant
attached document.

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In case of red evaluation (1)

If the card compiler assessment confirms the presence of severe obstacles for the continuation
of any business relation with eni the due diligence card will be red, however if there are business
reasons that justify the involvement of the vendor/company he or she can put in place an
escalation path for the approval of the card, as described at the beginning of the module.

The escalation path process is adopted if there are no acceptable alternatives on the market or if
there are particular critical aspects related to the business -for example, if the vendor is exclusive
or single source; there is just one vendor sole source - or a limited number of vendors etc. in the
market.

If the requesting unit explicitly confirms the need to engage a specific vendor, notwithstanding a
red due diligence, the procurement unit activates the escalation path for the approval of the card.

The assessment is approved by the appointed managers by means of a release in the system in
use, if any, or by signing the due diligence card.

The approved card shall be saved and stored in the dedicated systems together with any relevant
attached document.

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What is required from the card compiler?

The assessment of the information collected is formalized in the final evaluation which, in fact,
is not the result of a mathematical calculation, nor is returned automatically by a software
application. Its the card compiler that in close coordination with his or her manager assesses the
information gathered, within the context of the proceeding he is processing and formalizes a final
evaluation.

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Red Flags

In the final evaluation dont forget to consider Red Flags. What are they? Red Flags are generally
circumstances which would raise a concern or put somebody on the alert that an illegal or
improper conduct has occurred or may occur.

Annex F to Anticorruption MSG, Anticorruption Due Diligence form, which is available in nemos
and the e-procurement portal, provides a definition of Red Flags: they are warning signs that
must be taken into consideration during the performance of Due Diligence, because they may
represent risk factors and indicators of potential corruption or bribery.

The presence of one or more Red Flags does not mean that improper conduct has already occurred
or will occur, nor that business relations must immediately stop: however, it implies the need to
investigate further before going ahead, either with the business relation or with the implementation
of safeguarding measures.

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Examples of Red Flags

Annex F to the Anti-corruption MSG provides a list of potential Red Flags. Please bear in mind that
the list is not exhaustive. Lets see some of the most relevant ones. Click the boxes to know more.

IDENTIFICATION OF THE COUNTERPARTY

Counterparty has been selected or introduced in non-standard and unusual circumstances.

GEOGRAPHICAL LOCATION OF THE COUNTERPARTY AND/OR OF THE ACTIVITIES TO BE

PERFORMED BY THE CONTRACT
In this case the counterparty runs its business in a country or in a line of business that are well-
known for bribery and corruption, or is registered in a so-called tax haven or country with a high
level of corruption.

BACKGROUND OF THE COUNTERPARTY

The counterparty performs a business that does not appear to be compliant with the contractual
performance as established in the relations with eni;
Has an unusual company structure or has just been established;
Has poor or no experience with reference to the contractual performance as established in the
relations with eni;
Has no adequate financial resources to support the contractual service this is the case for
example of when capital invested and business volume are inconsistent with the value of the
contractual performance;
The counterparty is in conflict of interest or has a questionable reputation or has been charged,
indicated, convicted, or has been interdicted or inserted in the reference lists.

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RELATIONSHIP WITH PUBLIC OFFICERS

The counterparty is owned by a Public Officer or by a Public Officer family member. Another
Red Flag is when the counterparty involves in the contractual operation/activity a Public Officer
or a public entity or a Business partner with a questionable ethical reputation, especially with
reference to corruption.

BEHAVIOUR OF THE COUNTERPARTY DURING THE DUE DILIGENCE ACTIVITIES

The counterparty refuses to provide the requested information, or refuses to guarantee compliance
with Anti-Corruption Laws, or does not have an adequate internal control system nor adequate
procedures for preventing or identifying corruption crimes and refuses to implement them

METHOD OF PAYMENT
A clear Red Flag is when the counterparty requires that payment is made cash/or to a person
other than the partner/or into a bank account registered in a Country that is not where the
partner resides/or into a numbered bank account. Another warning sign is when the counterparty
requires an unjustified increase/a discount of the amount due while dealing with issues other than
modification of contract conditions or requires to adopt an unusual operation structure, to include
incorrect or unnecessary cost items or provides false documents.

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Most common critical aspects

What are the most common critical aspects you may come across with when drafting the final
evaluation of the Due Diligence card?

This page shows some of the most common situations.

Click on each case to consult the associated pdf form. If you wish to consult them again later on,
remember that the cards can also be downloaded from the Resources area.

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Summary

Weve now reached the end of the course

We will end this module by summarising the topics we have gone through.

The due diligence card compiler assesses the information and formalizes a final evaluation, in
close coordination with his or her manager and based on the criticalities detected during the
assessment. The due diligence card outcome is given a color: green when there is no risk, yellow
when there are critical aspects but not such as to preclude the relationship with eni and red in case
of serious risk.

The card outcome is formalized and released for the authorization of the relevant manager from
the appropriate hierarchical level, that vary depending on the type of vendor and on the color of
the due diligence.

Weve also had a focus on

What are red flags, with some examples
What are the most common critical elements you may come across and what are the
mitigation actions to be taken

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Conclusions

Great! You have gone through this third and final module.

Click on the button Exit in the layout and go to back to the table of contents to launch the final
test.

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