Due Diligence and its Purpose

Due diligence is an investigation that a business or person is expected to undertake before entering into an agreement or contract with another party. This action may also be conducted as a monitoring activity to ensure integrity is implemented in a supply chain.

Purpose of due diligence

  • Fraud Prevention to avoid dealing with entities or individuals who have shown poor integrity in previous circumstances
  • Risk Mitigation to avoid losses by correctly assessing reputational issues
  • Compliance to Anti-Bribery Management Systems
  • Due Diligence defence to show that reasonable care was taken. This can be used as a defense against breach of regulation charges

Reputation risk

  • Reputation is the most valuable asset of a business that must be protected from any possible risk that could emerge from business relations with other parties whose integrity is unknown. 
  • Reputation risk due diligence seeks out relevant background and business intelligence information on potential partners, intermediaries and other project parties
  • Reputation risk due diligence identifies integrity data points (red flags), such as past violations, sanctions, fraud and corruption convictions, investigation, and credit issues. Integrity offers Reputational Due Diligence that can be tailored to your needs, namely standard due diligence and enhanced due diligence.

Social Risk

  • Social risk pertains to the social issues in the community where a company operates, which can have an impact on the sustainability of the company’s business. Inability to manage social issues in the company’s business can lead to the disruption of operations, legal issues, as well as reputational damage.
  • Social risk arises from negative perceptions of an organization’s impact on the community. The social risks of a venture depend on the specific issues associated with an organization’s operations, the industry sector and the geographic context.
  • Social risk due diligence assesses four components in combination: an issue, a stakeholder or group of stakeholders, a negative perception about an organization, and the means to do damage.

Political Risk

  • Political factors can severely impact a business in emerging markets where legal and political institutions are often underdeveloped and relational capital between businesses, bureaucrats and political elites are still the norm. Such business-politics nexus usually affects various industries in different ways.
  • Political risk due diligence investigates the personal connections and networks in the political environment that can create major risks in business.

Security Risk Management

  • Crime has been a constant threat to business operations, especially to those operating in high-risk areas. Crimes may lead to enormous financial losses to companies if not properly addressed.
  • Security risk due diligence assesses the potential security threats to a business at its premise or along its operational routes. It helps the business develop and implement counter or prevention measures.

Corruption Risk

  • Interaction with companies involved in corruption and bribery activities 

Fraud Risk

  • Embezzlement by managers setting up third parties to interact with the principal company 
  • Conflict of Interests

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