What was agreed against what was performed
A substance review confronts three records that in most companies do not reconcile: what the instrument stipulates, what the accounting recorded and what was actually performed.
Where there is divergence, there is contingency.
Identified in time, a contingency still admits a decision. The engagement is delivered as a report of findings graded by severity, with the exposure quantified and a remediation route —contractual, accounting and tax— assigned to an owner and to a date.
A counterparty is not screened once; it is monitored for as long as the relationship subsists. Restricted-party lists —those issued by the Financial Intelligence Unit, by the Office of Foreign Assets Control and by the sanctions committees of the United Nations, among others— identify persons and entities that concentrate significant risk in money laundering, terrorist financing and corruption. Consulting them on the day of onboarding and never again is not due diligence: it is the record of a single date.
Seven reviews that hold each other up.
Tax audit.
Comprehensive review of compliance with federal and local tax obligations: verification of the determination and the payment, identification of contingencies before the authority identifies them, and application of the tax benefits to which the entity is entitled and is not exercising.
Effective contract performance.
Reciprocal obligations performed, penalties and rebates never claimed, annexes executed without being formalised and services rendered outside the contracted scope. What was stipulated, set against what was performed.
Economic substance of the transaction.
The counterparty's technical, material and human capability, traceability of the benefit received, and consistency between price, scope and result. Absent demonstrable substance the contingency is latent, and the burden of proof falls on the taxpayer.
Compliance programmes and risk assessment.
Design and implementation of prevention models for anti-money-laundering, anti-corruption and personal data protection, built on the entity's own risk assessment and on the obligations that attach to it as a person carrying on vulnerable activities, not on a template.
Compliance audit.
Periodic assessment of the effectiveness the established programmes actually achieve: review of policies, training of personnel, transaction monitoring, filing of reports within the applicable periods, and verification that the written procedure and the performed procedure are the same one.
Recurring counterparty screening.
A monthly, bi-monthly or half-yearly cycle under a Risk-Based Approach, with a documented false-positive protocol and a defined escalation path. Lists are updated every month; the file should be too.
Internal control and certification for transactions.
Review of internal controls and certification of information for special purposes: acquisition due diligence, transfers of shareholding and processes before third parties that require certification by an independent party.
Eight fronts on every counterparty in the portfolio.
Criticality is determined by economic exposure, operational criticality, regulatory exposure and the nature of the relationship. It governs the cadence and depth of the review. Move around the dial to see each front.
No matter is resolved within a single discipline.
Do you have a matter to review?
Describe your situation in three lines. We will tell you frankly whether it is a matter we can take on.
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