Due diligence in IT manager vendor selection and ethical business practices

¶ … humans, information technology (it) managers are prone to performing corrupt dealings in how they choose the suppliers and vendors of products and services. With the increase in number and size of corrupt dealings between manager and vendors, there is a call by organizational bodies to look into how it companies evaluate their relationships with vendors. The lack of observing due diligence by a company's agents, vendors and suppliers, mergers and acquisition partners, could lead to doing business with fraudulent companies or organization with numerous adverse consequences, including a tarnished reputation, civil lawsuits and even criminal charges.

Consequences of Unethical Decisions

Introduction

Everyone exercises poor judgment from time to time, of course, and the nature of the human condition means that everyone will also make mistakes from time to time. These eventualities are recognized and accepted by the business community even if they are expensive and create significant problems for the stakeholders involved. When professionals intentionally engage in deceptive and duplicitous practices that are designed to unjustly enrich them at the expense of others, though, there are far more serious consequences involved that can range from a loss of goodwill, tarnished reputation, civil lawsuits and even criminal charges against the perpetrators. To gain additional insights concerning what types of unethical decisions can produce these undesirable outcomes and what can be done to prevent them, this paper provides a review of the relevant literature followed by a summary of the research and important findings in the conclusion.

Review and Discussion

Overview of Due Diligence

Organizations of all types and sizes must exercise due diligence in carrying out their business activities in an effort to ensure that collusion between their agents and vendors does not take place. According to Black's Law Dictionary, due diligence is, "Such a measure of prudence, activity or assiduity as is properly to be exercised from, and ordinarily exercised by a reasonable and prudent individual under the particular circumstances" (1999, p. 457). This definition may appear nebulous, but it contains the essence of what is needed to ensure that business transactions are above-board and conform to accepted industry standards (Bing, 1999). Indeed, the need for the exercise of due diligence is needed in virtually all business relationships. According to Bing, "Due diligence will be involved in almost every type of business transaction and all business persons, including the professionals representing them or otherwise involved in the transaction, should be interested and concerned about conducting proper due diligence" (p. 29). On the one hand, consistently exercising due diligence can have a number of positive consequences, but on the other hand, the failure to exercise due diligence can have some profoundly adverse consequences. In this regard, Bing emphasizes that, "Proper due diligence rewards a cautious person and increases the opportunity to avoid a problem situation. Failure to conduct proper due diligence could lead to other implications, such as liability to third parties or criminal liability" (1999, p. 29). Indeed, even otherwise neutral third-parties may be adversely affected by a lack of due diligence oversight by companies with the same adverse consequences resulting. As Bing points out, "Attorneys, accountants, broker/dealers, appraisers and other professionals may also find themselves being sued by their clients or by third parties asserting the failure to have conducted proper due diligence" (1999, p. 29). Therefore, there is a need from the outset of all types of business relationships to conduct appropriate due diligence and identify the relevant issues that may be involved (Bing, 1999). By taking the time and effort needed to conduct appropriate levels of due diligence, companies stand to gain in a number of ways, including ensuring that their business transactions are legal and can pass ethical muster, providing a sound basis for business negotiations, as well as serving as a legal defense in the future (Bing, 1999).

Likewise, Crissey (1973) also cites the need for the exercise of appropriate levels of due diligence from the outset of business relationships. In this regard, Crissey maintains that, "In order to curb the relationship dilemma, initial due diligence is required. These mean doing business with an entity prior to establishing a relationship and assessing the risks at that point in time" (p. 37). In addition, there is also a need for ongoing due diligence; in other words, companies must constantly evaluate and oversee their business relationships to discern any and ties to any illicit activities that may be associated with corruption. Ongoing due diligence will also include a comparison of companies to help validate the relationships between it firms and their vendors.

Purchasing Manager Responsibilities and Due Diligence Activities

Although the opportunity exists at all levels of an organization to engage in unethical practices, purchasing managers are in a particularly sensitive position by virtue of their responsibilities. Purchasing manager can be generally defined as those employees who have the responsibility for buying or approving the purchase of goods or services required by their organizations to achieve their mission (Whitford, 2005). Although every organization is unique is some aspects, purchasing managers' responsibilities typically involved the oversight of the acquisition of software, hardware, general supplies for office and facilities, equipment and technology contracts. Other common responsibilities that characterize the purchasing management position include searching for vendors or suppliers who are reliable and that can provide quality goods at reasonable prices, price; in addition, many purchasing managers engage in contract negotiations, determining quantity and timing period of supply of products, evaluating which products or services are best suited for the organization's needs and selecting the suppliers or vendors of the product or services.

Other responsibilities typically assigned to purchasing managers include the following:

1. Implement procurement strategy and policies.

2. Forecast procurement needs.

3. Build and develop relationships with key suppliers and customers.

4. Prepare purchase requisitions, approve and issues purchase orders in accordance with company policy and negotiated terms and conditions..

5. Discuss defective or unacceptable new goods or services with users, vendors and others to determine cause of problem and take corrective and preventative action.

6. Ensure supplier compliance with site and company requirements for safety.

7. Manage vendor relationships and assist in building effective partnerships.

8. Assist department in developing and implementing purchasing strategies for products.

9. Develop and review purchase requests and ensure authorization as necessary to facilitate the timely purchase of new food products.

10. Help to lower the cost and secure agreements.

11. Liaise with accounts payable department to ensure accurate and timely payment of invoices, as necessary for the business with the supplier (Key duties/responsibilities of purchasing manager, 2011, para. 2).

In order for the it managers to effectively perform these myriad responsibilities, Allan (2010) provides some useful guidance. In this regard, Allen suggests that, "He must study the inventory levels of the current stock, identify the suppliers both foreign and domestic and keep well informed with the adverse change in the market" (2010, p. 12). To assist them in their market search for needed products and services, it managers typically review catalogs, industrial periodicals, directories, internet sites and trade journals from time to time. This process should include the due diligence element of comparing companies. For instance, Allen adds that, "[Purchasing managers] research in depth the reputation and history of the suppliers and indulge in advertising anticipated tenders or purchasing action in order to get bids" (2010, p. 12). In addition, appropriate due diligence at this early point would also involve evaluating bids and in many cases, providing top management with recommendations concerning the best bidder (Allen, 2010).

Other steps that can be taken by purchasing managers to ensure the due diligence requirement is satisfied is to attend trade fairs, showcases and conferences or visit suppliers' plants and distribution centers. In addition, they undertake the responsibility of examining the products and services, assess the vendors' production and distribution capacities, and discuss other factors such as technical and business considerations that influence the purchasing decision. Once all the necessary information has been collected concerning the suppliers and vendors, orders are placed and contracts are awarded with those firms that satisfy the organization's requirements.

Financial crisis pertaining outsourcing it projects

Fraud can affect organizations in a number of negative ways, including diminished bottom-line profits, negative publicity and the erosion of customer goodwill and shareholder confidence (Neural Technologies- the Home of Risk Management, 2010). An increasingly prevalent practice involves so-called "phantom vendors" that persuade purchasing managers that they offer they most competitive prices for superior products and services. Phantom vendors may even convince purchasing managers that they are already working with other large it firms and have a proven track record of reliability and trustworthiness. Without exercising due diligence early on, purchasing managers may be swayed by such presentations and award a bid (Podgor & Ellen, 1999). Once the bid is approved, the phantom vendors demand a hefty down payment and then simply disappear with their profits. Another version of phantom vendor fraud that can have enormous financial implications for it firms involves the purchasing managers themselves. In some cases, purchasing managers have fabricated vendors on paper and awarded contracts to these firms. Thereafter, invoices are processed as normal but the purchasing manager pockets the profits and the organization never receives the contracted goods or services (Podgor & Ellen, 1999).

Yet another way purchase managers can become involved in fraudulent practices involved product substitution. In those cases where vendors have paid bribes to purchasing managers to secure a contract, they may attempt to cover their costs by providing organizations with inferior goods or services that do not meet the contract specifications. In the case of software vendors, they may provide software that is replete with errors and technical difficulties to the extent that it is unusable. A vendor that involves in fraudulent activity means his business is also not in