Brazil comptroller body watching for expected increase in suppliers' pandemic-linked wrongdoing

Companies supplying the government with essential products during the pandemic must pay extra attention to their negotiations with public officials and avoid substantial price increases without justification — two moves on the radar of Brazil's comptroller body.

An increase in pandemic-linked corruption investigations is expected by national anticorruption officials in the coming months, especially because of the government’s temporary acquisition of goods directly from suppliers without formal bidding processes.

"In five or six months there will likely be a great number of companies being prosecuted," Victor Godoy Veiga, the leniency accord director at the Comptroller General of the Union, or CGU, said during a remote event yesterday.* "We’ve noticed a considerable injection of resources by the government [to fight Covid-19] in a short period. Certainly, there will be some public administrators willing to enjoy this moment to increase their own revenues, and companies, maybe with a limited short-term view focused only on cash flow, may put themselves in a risky situation," Veiga said.

"Our objective isn't going after companies during the crisis, but going after them will eventually happen," said CGU’s director of integrity promotion, Pedro Ruske Freitas.

Experts in the field have advised companies to strengthen their compliance activities to avoid prosecution by the federal police, prosecutors and CGU. But it's difficult for companies to think of compliance and its intangible benefits when they are mostly concerned about surviving the crisis.

Applying risk-management actions, however, could help them avoid consequences, Freitas said, highlighting the importance of companies carefully reviewing their contracts with the government and recording every step of the negotiation to prevent wrongdoing.

"Registering everything is important because that will safeguard the company in the future," Freitas said. "They must record everything to protect themselves in case they are questioned in the future."

On March 20, the government was allowed to make purchases directly from suppliers without the need to conduct bidding processes to acquire any goods and services during the pandemic — raising the risks of wrongdoing, including bribery payments, in negotiations between public officials and companies.

"Let's prepare for situations in which money deviations aren't a mere managerial dislocation, but a way to enable frauds," CGU's anti-corruption secretary, Joao Carlos Cardoso, said yesterday.

— More cautious —

Freitas cited some other precautions that companies must take during the Covid-19 pandemic, including honoring their contracts with the government and certifying that they can meet the demands before making a deal. "The company that will deliver the products must be sure that it is able to deliver them within the deadline agreed," Freitas said.

He also said companies must pay special attention to the prices they charge, avoiding "unjustifiable" increases that could later be scrutinized.

Before setting up their prices, he said, companies must answer some questions like "how did they get to that price? And what is the justification for charging that price?"

"Offer and demand, and how hard it was to import that product, must also be evaluated," he said. "Information backing up how the price was composed is very important and makes it easier for the company if it happens to be prosecuted in the future."

Freitas noted full disclosure and transparency of crisis-related donations are needed.

Strengthening compliance might be an effective strategy for companies now, because while the crisis will dissipate, any accounting fraud will leave traces for future investigations.