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The Penalties Of Inadequate Due Diligence

The Penalties Of Inadequate Due Diligence

Working a worldwide business immediately requires effectively managing a network of third-party partners that supply product elements, run operations in overseas markets, operate call centers, or act as outside consultants or agents.

The vast array of capabilities and specialized skill sets of a well-maintained third-party network makes operations easier for both the group and its customers. But many organizations, from small companies to multi-national companies, can rarely afford the time and effort required in-house to manage these usually complex third-party relationships.

Because of this, the risk of unethical business practices, bribery and different business corruption doubtlessly increases if inadequate due diligence is performed on third-party partners. The ramifications of a scandal related to a third-party partner can simply take down an organization, resulting in such risks as a damaged status and brand devaluation, to regulatory violations, legal proceedings and possible fines and jail terms for directors. The only way to completely protect the company's assets, subsequently, is through a powerful and viable third-party risk management program.

Building a third-party risk administration program is not a passive process. It requires time and effort on a continuous basis, as the risks related with third-party partnerships continually evolve.

Consider the occasions of this past summer season, during which the legislators of three separate nations signed new compliance rules and standards into law. Without a doubt, in case your group's third-party risk management program is unable to quickly adjust to those new rules (or is not designed to anticipate future legislative movements) your group is truly at risk.

Cutting corners: not definitely worth the risk

Still, far too many organizations are willing to tempt fate by chopping corners on development and implementation of their third-party risk management program. Actually, building a powerful risk administration program requires a significant investment of time and resources (each internally and from the outside), but the consequences of not doing it proper may very well be dramatically severe.

One way organizations try to cut corners is by relying on outdated or stagnant tools to monitor, detect and forestall risks. Almost always, hiring outside industry professionals with proven track records of successful due diligence experience is necessary.

Relying too heavily on "desktop" due diligence is one other dangerous shortcut. Desktop due diligence is a crucial initial step of the investigative process, involving background checks, lien searches, regulatory filing investigations and environmental reports. And while it is a vital part of any efficient due diligence program, it's not nearly enough to totally evaluate a third-party.

Truly understanding a potential partner's business requires a considerable period of time spent face-to-face with the outside group's leadership, operations management and even current customers. This "boots on the ground" process will detect potential risks which are often hidden from a distance, and undetectable by way of web-based discovery tools.

The "boots on the ground" approach additionally helps to determine a relational dynamic required for ongoing negotiations and provides clear perception into two of the fastest-rising points in third-party risk administration: bribery and labor management.

Bribery as a compliance issue

Anti-bribery and anti-corruption compliance is a fast-moving target. New anti-bribery laws and regulations are being decreed around the world at a relentless pace. Complicating issues additional, many international locations may have laws in place however lack the ability to adequately enforce them. When this is the case, the responsibility falls to your group's due diligence program to make sure detection and protection.

High profile investigations in recent years have contributed to the speedy emergence of bribery and corruption as a societal issue. Never earlier than has such a contrast been drawn so dramatically on a worldwide stage between those who engage in bribery and those who endure as a result. Any group that finds itself combined up in a scandal involving bribery has more than a legal mess to contend with. It has a long battle to win back the trust of its shareholders, staff, clients and the public.

Conducting sufficient due diligence surrounded by such varying factors is work that have to be conducted in person. Gaining insight into a possible partner's company tradition requires a level of immersion with the group's leadership, management and staff. When it involves evaluating bribery risk, some warning signs can only be discovered on-site.

If you're ready to check out more information about due diligence on an international level have a look at our own website.

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