Right Approach for Third-party Due Diligence and Compliance

The corruption is a growing concern across the world so the anti-corruption laws have been bolstering to fight this menace. Governments are formulating strict laws to combat bribery and fraudulent practices especially during business transactions. The enforcement of laws is visible along with tough penalties and has their reach across the border now. It simply means that companies functioning at international level can be prosecuted for violations of anti-corruption laws.

Companies are now allotting more resources and time to better their infrastructure and formulating policies to combat corruption. Companies are not only improving the compliance within their organizations but throughout their supply chain as well. The special area of focus in this matter is the prevention of indirect corruption which comes through third-parties.

Companies responsible for Third-parties Actions

There are number of legal framework which says clearly that a company should be held accountable for corruption performed by third parties associated with them. So it has become essential for companies to take precautionary steps before entering into any contact with third-party vendors. This will help companies to set aside any potential risk of corrupt practices. It is significant that companies should run due diligence on third-parties and evaluate them to deter the risks.

Need for Third-Party Due Diligence

Under the regulations, all third-parties, distributors, vendors and joint ventures must be screened for due diligence. The economic downturn, government effective policies, and more focus on enterprise risks are forcing companies to ensure due diligence and compliance.

Companies which already have due diligence programs functioning now need to upgrade their programs. They would be left open to risk if they fail to do so, especially in the areas of corruption and anti-bribery. They must be worried on the cost of this upgrade of due diligence program and also on how much documentation will be needed for the compliance.

Here we are going to elucidate on how to build third-party compliance and due diligence plan that aim to address the risks associated with third-parties. Commonly the purpose of the due diligence is to screen the operational and financial position of the third-party. It is usually carried out during the process of taking them on-board.

There are few solid steps through which a company can ensure compliance and third-party due diligence:

Consistency:

Presenting and empowering the procedure of due diligence of third-parties particularly those abroad and rising standard screening options will help companies in driving reliable compliance policies across the organizations. A dynamic platform will help companies manage an updated due diligence plan more efficiently and effectively. The best to achieve third-party compliance is to have a similar system which everyone can use on regular basis.

Right Approach:

It is important that management actions and determination should cope with third-party due diligence. The management should have this realization whether they are using the right approach to practice the due diligence plan. If they realize that their approach is not proper then they must have an assessment of the shortcoming and chalk out a plan to overcome it.

Fairness and Objectivity:

Companies must ensure that their due diligence programs are performed in a transparent way and with fairness. The program should be objectively run and must not include the requester in carrying out due diligence programs as may cause conflict of interests. Every assessment of due diligence must be separately performed with its own case files, analysis findings, statements, remediation engagements, distributor, partners and others. Having a well-defined case management workflow which integrates people, processes and technology can be specifically resourceful to pledge an objective and fair process.

Rationality:

Company with restricted resources and using a risk-based method for due diligence of third-parties will help management to earmark the resources carefully. The rational question a company may raise is that: “How much is enough for an effective due diligence program?”

In your attempt to avoid doing business with fraudsters and wrongdoers a practical and well-thought-out compliance approach is needed.

Conclusion:

The above mentioned few points are very important for a reliable, risk-based analysis of vendors which are associated with your company. Corporate departments have their own separate due diligence programs which they can deploy as per need or on perceived risks.