5 Steps for Effective Implementation of Third Party Due Diligence
Risk management practices are key to the growth of a business, and that needs effective programmes and steps to detect new risks on a regular basis. This is where a proper monitoring programme of third parties, like suppliers, become crucial.
The relationship with a third-party can cause risks and problems if not observed properly. They should improve vigilance and the visibility of the process with the implementation of effective third party due diligence. There are certain steps that must be taken by businesses to strengthen the third party due diligence, detailed below:
- Integrate third-party information
- Whether you have a single third-party as your supplier or a large base, you need to keep a centralised database of their information. This information system having all the data related to their business details, associated business units, assessment results, background checks and more will help to know all the details related to negotiations and risk-mitigation activities, along with keeping a check on which other companies they work with.
- Screen third party during onboading
- Before entering into a contract, screen the third-party through an automated and precise process, which factors in detailed information related to business type, their accessibility to sensitive information, business continuity, dependency, and legal and financial aspects. A proper segmentation during this time helps to define the subsequent steps of due diligence process.
- Validate from outside data
- Screening based on internal information evaluation and risk assessment is highly important, however they must be validated by gaining insightful insights about the firm from an external source. Factor in sanction lists, credit history, adverse media and such sources to process a thorough assessment of the third party, through an automated and well-defined system.
- Monitor third party through an ongoing process
- There should be structured process for defining ongoing monitoring of the third party. And one of the best ways is by deriving risk tiers using the risk profile or segmentation score. These associated risk tiers can be then used to strategise due diligence with a specific set of rules for each of third parties. Automate this process for scheduling ongoing monitoring and improve the analysis process to take actionable steps.
- Accelerate the process
- Ensure that risk management is of highest frequency by creating an escalation framework that fast-tracks the process of decision making. This helps to correspond to the needs of identifying, evaluating, reporting and escalating the incidents.
Implement an effective compliance programme with structured due diligence that can be put in order with in-depth understanding of the third parties. Based on continuous assessment of the entire information, and a transparent and automated system businesses can improve risk mitigation.
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