Vendor due diligence is an intensive process that involves research and study of the vendor’s organizational and operational structure. It provides the business with pertinent information like whether the vendor is ethically sound, financially stable and has sound compliance activities in place. Buyer reviews all relevant documents and interviews all senior people who will be involved in this third party relationship. Companies that are not performing due diligence reviews are exposing themselves to all kinds of compliance risks. If it is exposed that the vendor is not complying with the set standards, auditors and regulators can impose all kinds of penalties, take legal action against the company, even evoke one’s license to practice.
Vendor due diligence reports and reviews are typically performed by experts who review all documentation in a non-biased manner. Very process oriented, they have system through which they resolve all issues and approve the vendor. This in turn speeds up the sale process and sets the compliance standards right away. Today, there are independent vendor management consultants who carry out these reports and offer them for a price to multiple vendors. It not only saves the company money but also time and resource allocation which would have been otherwise needed. It allows businesses to focus on their core competencies and gives them the peace of mind when choosing the right vendor.
This stage is also important to identify and mitigate potential compliance issues that may interfere with business later on. All known material risks and liabilities are fully disclosed which offers the buyer a transparent view of the deal. With all pertinent information readily available, businesses and vendors can get to know each other better and faster. Every case is unique so a particular company’s standards, industry policies and specific regulatory regulations dictate the nature of the review. It is important that the vendor’s ethics should seamlessly integrate with the company’s core business processes. Failing to do so may result in reputation, operation and financial loss.
Initially, the Vendor due diligence report is introduced during the Request for Proposal (RFP) process. Most people think that this due diligence is required at the onset of a new third party relationship. While it is very important, it is equally necessary to monitor this relationship in a routine manner, throughout the lifecycle of the agreement. This constant check will validate that the vendor is fully compliant with all industry standards and there is no risk involved whatsoever.
Compliance Education Institute (CEI) offers their specialized expertise in regulatory compliance issues via comprehensive Vendor due diligence programs.
