HP audit raises quesions over reseller's conduct

UAE reseller Seven Seas may have breached its contractual arrangements with HP after an audit carried out by the vendor indicated possible misconduct.

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By  Andrew Seymour Published  June 18, 2007

UAE reseller Seven Seas may have breached its contractual arrangements with HP after an audit carried out by the vendor indicated the possibility of misconduct occurring in relation to sales outside of designated territory, the usage of market development funds (MDFs) and record retention.

HP authorised the independent audit - which began in 2006, but officially closed last month - to verify compliance of its terms and conditions with Seven Seas for business work conducted during 2004 and 2005.

Channel Middle East can exclusively reveal that following the audit both parties have reached an amicable settlement, but acknowledged in a joint statement that some misconduct in terms of record retention, the use of MDFs and the sale of products outside the UAE "may have occurred" during the period specified.

As part of its channel programme, HP requires partners to maintain a comprehensive archive of information about the business they do with HP products and the way in which they manage MDFs allocated to them by the vendor. Seven Seas - one of HP's largest sales and service partners (SSP) in the region - was not able to provide the auditors with the full record of activities requested by HP for that timeframe.

"HP does due diligence and takes the position that if something cannot be proven to be right there might be something wrong that has happened," explained Salim Ziade, solution partners organisation (SPO) manager for the Middle East at HP. "That is simply the reality of what happened. Nothing was really proved wrong, however Seven Seas could not deliver 100% of the documents required by HP."

Ziade - who stressed that Seven Seas had fully co-operated with HP on the audit - says that while HP had failed to uncover evidence confirming Seven Seas had sold products outside of the UAE, the vendor had not been provided with "enough proof" to suggest otherwise.

"Seven Seas is only allowed to sell in the UAE and HP - along with other IT vendors - is very strict about the territorial coverage of each contract given to any partner so we ask the partner to provide the proof that it has sold a product to its designated end-user in that territory," said Ziade.

Seven Seas continues to protest its innocence and accused the auditors - understood to be KPMG - of "changing the goalposts time and again" during the course of the audit.

Nayagam Pillai, commercial director at 250-strong Seven Seas, said: "What we are saying is that it [sales outside the UAE] has not occurred. But the auditors see things from a different angle - they say you are guilty until the time you prove yourself innocent. There are a lot of things that can't be proved because of stuff that has been sold to a customer who has not used it himself - and probably sold it somewhere else - and I'm not able to get documents from him. The customer is not liable to give me any documents so there are certain grey areas where I would say it's more to do with the practicalities of business rather than people not co-operating."

HP also claims that, in some instances, Seven Seas was unable to provide it with the full proof of activity documentation it requires to substantiate MDF claims. Seven Seas, on the other hand, said it was unwilling to provide the auditors with access to certain transactional records because its contract with HP does not stipulate that it has to do so.

Following the conclusion of the audit and subsequent dialogue between senior management at both parties, the pair expressed - via a joint statement - their commitment to "sound and ethical business practices", as well as further developing their relationship.

Seven Seas is currently making a series of investments to enhance its relationship with HP and has agreed to carry out improvements to ensure full compliance with the vendor's terms and conditions.

"The agreement is to do with process re-engineering, documents transparency and systems openness,' revealed Pillai. "Due to this, we are going ahead and investing US$500,000 in a fully-fledged ERP system. The company has also grown. We were a small group of companies with 100-plus people and now we are 250-plus people. I think the need of the day is also to put certain policies and processes in place to take the company to the next level."

Ziade at HP is adamant there will be no further issues with Seven Seas as the reseller - which also works with vendors such as IBM, Cisco, Microsoft and Symantec - now understands the depth of record retention and archiving required to fulfill any future audit from HP.

"Seven Seas is definitely an extremely important player in the UAE market and an extremely valuable partner to HP," said Ziade. "There is no question about how solid the relationship is and how committed each of the two companies is to the other."

According to Ziade, HP's growth during the past few years, coupled with its stringent business practice policies, has led the company to carry out more partner audits than previously. "There is a full team of auditors going around from partner to partner and it is an ongoing activity. It is not an activity that comes and goes in cycles. We have, at any point in time, at least one ongoing audit with a Middle East partner."

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