What comprises effective third party due diligence?

Third party due diligence is an essential step and procedure that is recommended for any business owner who is looking at a merger or an acquisition. The third party due diligence program reduces the risk of bad payments and fraud situations, ISO standards and best practices are reviewed and in general the owner of the business breathes easy.

Here is what an effective third party due diligence program is made up of:

A risk based approach
This is the first stage of the program and it performs a risk assessment of the third parties, and the classification is usually into low, medium and high. The risk tiers help to define as well as determine how much or how intense the investigation should be. Factors like deals with government persons, politically exposed persons, unclear ownership, perceived corruption risks and type of business relationship, to name a few, are weighted.

Consistency above everything else
The consistency of the organization receives a boost with the automation of control activities and development of templates for the section of third parties. For those companies that have decentralized departments, or which lack integrated GRC software, this is especially important. All agents should also receive training on trade policy and anti-bribery policy.

Involvement of the management
The commercial executives of the company need to be involved when the third party due diligence program is implemented. They help to identify action plans and risks. There should also be a workflow that enhances smooth escalation of approvals, remediation plans, and all the more important when some particular risks cannot be avoided at all. Involvement of the management will involve the sales, compliance, legal, finance, export, as well as the data privacy departments.

Reliability, scalability and efficiency
The validations and the controls have to be reasonable enough so that the risks can be thought out and action be taken due to a well-thought out manner. Some of the specific procedures could be questionnaires of due diligence, memorandums on business justification, targeted training, financial and background checks, review of sanctions and so on.

During the process of third party due diligence, both external and internal information needs to be processed and used. Risk information gathered from outside the company like sanctioned lists, and lists of politically exposed and government persons, adverse media and credit ratings are very handy and essential to the whole process.

Netrika has a complete third party due diligence process to offer with highly trained executive professional who are much experienced. Customizable monitoring, a flexible management information reporting and dashboards, Vendor screening and supplier screening are some of their strengths.

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