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Legal Audits (Vol 2, Pt 2) – Examples

Patrick Lim
Partner at Raj, Ong & Yudistra

Failing to conduct regular contract audits can expose a company to a variety of risks, as outlined in our previous article. These risks can include non-compliance with laws and regulations, disputes over the terms of contracts, inefficiency or ineffectiveness in contracting, and the risk of litigation.

In general, it is important for companies to conduct regular contract audits to ensure that their contracts are in compliance with relevant laws and regulations, accurately reflect the terms of the agreement between the parties, and are optimized for the company’s business needs. This can help the company mitigate risk and avoid disputes or legal challenges, and can also help the company identify opportunities to improve its contracting processes and negotiate more favorable terms.

There are many examples of companies that have faced risks or challenges as a result of not conducting legal contract audits. Here are a few examples:

  1. In 2018, a UK-based defense contractor was fined £5.2 million (about $6.7 million) by the UK’s Serious Fraud Office (SFO) for failing to have adequate systems and controls in place to prevent bribery and corruption. The company had not conducted regular contract audits, which allowed employees to engage in corrupt practices without detection.
  2. In 2016, a US pharmaceutical company was sued by the US Department of Justice (DOJ) for violating the False Claims Act by paying kickbacks to physicians in the form of speaking fees and other benefits. The company had not conducted regular contract audits, which allowed the kickback scheme to go undetected for several years.
  3. In 2015, a US technology company was sued by the US Federal Trade Commission (FTC) for violating the Children’s Online Privacy Protection Act (COPPA) by collecting personal information from children under the age of 13 without obtaining parental consent. The company had not conducted regular contract audits, which allowed the violations to go undetected.

Overall, these examples demonstrate the risks that companies can face if they do not conduct regular legal contract audits. Failing to conduct these audits can expose a company to legal challenges, fines, and damage to its reputation. It is important for companies to conduct regular contract audits to ensure compliance with laws and regulations, and to identify and mitigate potential risks.

In the next article we will be taking a look at why the lack of consistent legal contract audits may lead to contract breaches.

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