How to reduce third party risks
Third party due diligence
Whenever your company enters into a transaction with a supplier, agent or vendor, it comes with statutory requirements as well as considerable risks. In order to ensure the longevity of the business, companies need to protect their brand and business by managing and mitigating third party risks.
In order to achieve third party diligence, companies need to have robust third party risk management processes, controls, audits and swift remediation processes as well as training controls, due diligence processes, audits, and swift issue remediation. All the processes need to be effective in order to achieve third party diligence.
Key components of third party risk compliance
The key components of a third party risk compliance are as follows:
- Risk Assessment
- Review Due Diligence
- Contract Structure Review
The benefits of third party diligence
No matter how careful your company may be, it will only ever be as good as the associated third parties. If the associated third parties fail to protect your data, engage in unethical practices, fail to maintain a safe and healthy working environment, or expose the business to unacceptable risks, your company will be exposed to similar risks.
When managed well, third party relationships can promote competition, provide diversity and encourage business development. However, failure to manage the risks can result in litigation, financial loss and reputational damage.
Unfortunately, many companies seem incapable of putting in place the necessary diligence measures to compete with the ever increasing complexity and size of the third party network, leaving the company exposed to risk.
Using technology to manage third party risks
Technology is increasingly being used to manage third party relationships effectively in order to mitigate risk. Having an automated risk assessment system has many benefits. It allows the compliance team to focus with strategic aspects.
Since incremental change can be done with minimal effort, this can be used to evaluate the impact of increasing risks.
Using an automated system provides consistency and demonstrates to regulators that the process is operational and in place. An automated system offers a clear audit system. In addition to this, it can be interrogated quickly allowing the company to respond to any regulatory requirements or requests from the Board of Directors.
Given the high costs of breaching the anti-bribery or corruption legislation, the costs of adopting and running a third party compliance management system pale into insignificance.