Significance Of Vendor Due Diligence And Vendor Screening Program

Vendor Due Diligence

Why shouldn’t you take appropriate reasonable steps to avoid the commitment of offence or tort? To prevent committing tort or crime, you need to have a comprehensive due diligence mechanism. It not only reduces threats associated with your business and financial stability but also reduces compliance risks. Risks can’t be mitigated solely screening the background of your employees, and you need furthermore to test the third parties alongside. Third parties are areas that bear a threshold risk where their access to your system and confidential information can’t be ruled out. For these purposes, two types of background checking solutions: vendor due diligence and vendor
screening are suggested. Though both are distinctly different but works complementary to each other and safeguards your company in many ways.

Vendor Screening Program

A vendor screening mechanism not only checks the vendor company itself but also monitors the employees’ performance who work on behalf of the vendor company. Employees of the vendor company have access to your systems, facilities, and confidential information, which is the most critical concern to you. So, any negligence in checking the background of the employees of the vendor company can create a potential threat to your business. Since you cannot select or check the background of the employees of your vendor company, vendor screening mechanism will take care of your criteria for screening knowledge of the vendor company’s employees. Based on screening program that you have designed to check the background history of the employees of your vendors or suppliers should not remain limited to searching criminal report, drug test report, credit score report, education and employment verification report, but also ensure a safe and secure workplace for your employees.

Vendor Due Diligence

While vendor screening mechanism vets the people who will serve you, vendor due diligence examines the information of the company as a whole. Therefore, vendor vetting and continuous monitoring are two critical tasks for a vendor lifecycle. You will find here why due diligence is essential for your business:

  • It is a vital activity to manage third party
    risk. Collection of proper information on vendors can impact your vendor
    selection criteria immensely. It is a fact that everything looks beautiful when
    you see something in from the outside. Judging anything solely observing its
    glow signboard from outside may make you fool all on a sudden and immerge into
    a potential threat. So, it is highly advisable to comb your vendor before
    choosing it to fit.
  • It is a requirement that meets regulatory
    expectations. It is the business supervisory authority expects you to exercise
    the best due diligence practices within a structured policy and procedure to
    make sure the overall program is under a proper scanner. While applying for
    this program, it is more important to understand clearly the regulatory
    prescriptions and recommendations regarding due diligence. Alongside, it is equally
    essential to be aware and understand the requirements about other regulators
    attached to business in any way. All the regulators look business from a
    different perspective to compare each other to make sure the compliance notes
    are available on one page for the shake of greater and larger transparency of
    the business. Thus, your business is protected from a potential threat from
    outsourcing the third party.
  • It is not a mere checkbox mechanism. Due
    diligence is not restricted to in collecting and checking the documents and
    keep those on file as a reference. Factually, due diligence begins after the
    collection and verification of documents. You should feel a dire need to have
    an expert who can analyse and report to mitigate potential risk if any found in
    the process. Otherwise, merely collecting the documents and keep filing those
    on without examining the information may cost you more because in one beautiful
    morning you will find that you have got much information to act on, but you
    haven’t analysed those and immerged into the worse.
  • Exercising vendor
    due diligence
    helps you out to safeguard your company from potential risk
    exposure. The information you collect on your vendors are as useful as the
    analysis you performed as far as possible. You should take care of following
    two types of due diligence:
    • Due diligence at the beginning – the process of
      due diligence is executed before signing a contract with a vendor. Analise and
      verify whether or not the vendor personnel will meet your criteria for doing
      business with them. It identifies the risk and tells the vendor could achieve
      your strategic goals.
    • Due diligence ongoing – this is executed while
      you monitor the performance of the vendor whether or not meets your strategic
      goals following the contract signed. Frequency of such due diligence may be
      ascertained on the level of vendor risk, but you have to perform due diligence
      exercise on all vendors ongoing basis regardless of each vendor’s exposure to
      risk because things today found well may become worse all on sudden.
  • Due diligence creates a good business sense that
    brings you numerous benefits to manage third party risks prudently.
  • One of the easiest ways to exercise due diligence
    is to structure a due diligence questionnaire (DDQ). DDQ should be in-depth to
    fulfil your criteria and easy to respond to the vendors. This will provide you
    with all the necessary information that you require to analyse and mitigate
    vendor risks.

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