If you help oversee your company’s due diligence and compliance functions, you’re constantly shoring up your battlements to minimize risks that could damage the business. You’re helping make your organization less vulnerable to fraud, noncompliance fines, and loss of reputation. And as you know all too well, these essential duties have increased in frequency and complexity.
Take compliance. Whether your company has to deal with data privacy rules such as HIPAA, or various state, federal, and overseas requirements regarding environmental or financial reporting, it can be all too easy to lose track of changes in regulations, especially across multiple jurisdictions. Some regulatory requirements aren’t always easy to meet. For instance, companies in some investment-related businesses need to make sure that certain employees meet regulatory requirements, such as disclosure of outside business engagements, litigation, and bankruptcies.
Your company also may be involved in making sure new customers, employees, and vendors are who they say they are, and that they are worthy of your company’s trust. In the digital age, that has become a critical task. According to PwC’s 2022 global economic crime and fraud survey, the top external fraudsters companies faced in 2020 were customers (the source of 26% of all fraudulent activity), hackers (24%), and vendors/suppliers (19%). And they’re growing more and more sophisticated in their use of digital weapons. If your company can’t thoroughly vet a potential employee, customer, or vendor, it could be making itself vulnerable not only to fraud but also to legal liabilities.
An insight report released in May by Forrester Research examines how companies are using Thomson Reuters CLEAR ID Confirm and Risk Inform to address due diligence, compliance, and fraud prevention. Based on interviews with corporate compliance and due-diligence decision-makers, the insight report identifies four common challenges that companies are facing in these areas. It’s likely that you and your company have had to handle at least one of these challenges as you strive to improve your own compliance reporting and your onboarding processes.
It’s essential to address all of these issues, not only to protect your company and its reputation but also to keep your diligence and compliance teams happy and productive. Failing to protect your company from noncompliance, fraud, and other problems related to incomplete due diligence can damage the organization’s reputation, and thus its business.
The Four Biggest Due Diligence Challenges
- Due diligence work is perceived as being too labor-intensive – Interviewees in the Forrester insight report said that their processes to perform due diligence and prevent fraud require too much employee labor. The manual methods and legacy solutions that many employees use have become inefficient and unsustainable, especially as an organization grows. And more and more time is needed to train new team members—no simple task.
- The available data is unreliable – Employees often don’t have confidence in the data they have access to. Data can be out-of-date, duplicative, or even incorrect. Needless to say, this lowers the accuracy of their work and hurts the team’s confidence in their jobs, which can slow down the due diligence process even more.
- The available data is unclear – This isn’t quite the same as data being unreliable, but it can be as much of a problem for a company’s compliance teams. Data can lack the details or context needed to make it truly useful. A related problem: Many employees don’t fully understand information relating to legal infractions. They have difficulty determining the severity of these infractions, especially when comparing them across jurisdictions. Not having an understanding of these issues can open up a company to potential legal liability.
- Meeting changing compliance and reporting obligations – Every business wants to reduce the risk of missing compliance requirements. But it can be challenging to keep up with compliance standards. One key reason: Backlogs, which absorb a lot of compliance employees’ time. These staffers also can have plenty of other kinds of work on their plate, which takes their focus away from staying current with regulations and requirements.
Keep Your Team Together
As the Forrester insight report notes, all these challenges will become larger as companies grow—and their diligence and compliance teams need to grow with them.
No business wants to have unhappy employees. The competition for talent is too keen, and expertise in these areas isn’t always easy to come by. The loss of institutional and process knowledge as team personnel changes can set your compliance efforts back—and thus leave your company more vulnerable to fraud and legal liabilities.
By being aware of these four challenges and understanding why they crop up, you’re taking the first step towards successfully improving your risk management processes in our increasingly complicated world.
