How to successfully mitigate your organization’s third-party risk
DEFINITIVE GUIDE TO THIRD-PARTY RISK MANAGEMENT
DE FIN IT I V E GUI D E S E R I ES
DEF IN I T I V E G U I D E S E R I E S
DE FI N IT I VE GUI DE S E R IE S
The Definitive Guide to Third-Party Risk Management is a comprehensive resource full of insight, advice and examples to help organizations recognize and address their third-party risk. A strong third-party risk management program will help your organization make smart choices when it comes to engaging with business partners. It will also protect your organization from the risks that third parties can present.
This guide is divided into three main sections: PLAN, IMPLEMENT and MEASURE. In these sections
you’ll find the information and tools you need to develop a risk-based strategy, define third-party
risk and a standard due diligence process, implement continuous monitoring of third parties and
identify areas in which you need to improve your program’s effectiveness.
ADDITIONAL RESOURCES 25
ABOUT NAVEX GLOBAL’S THIRD-PARTY RISK MANAGEMENT SOLUTIONS 26
Why Is Third-Party Risk Management Important? These are turbulent times for today’s organizations, particularly when it comes to managing third-party risk.
How does your organization screen and monitor third parties? If you don’t have a robust program in place, you could be putting your organization at significant risk.
There are many important reasons why your organization
should pay attention to third-party risk now.
»» Growing Reliance on Third Parties
The number of vendors, suppliers and other
agents with which organizations engage is growing
dramatically—along with the risks they represent.
According to a NAVEX Global Benchmark Report,
30 percent of organizations expect an increase in
third-party engagements in 2017.1 More and more
organizations use third parties for critical operations.
Outsourcing to third parties, however, poses
regulatory and reputational risk—and managing
this should be a top priority for leadership.
»» Increased Globalization
As markets expand and organizations seek to
compete, increasing globalization is inevitable.
For many organizations, competing in new
markets means working closely with third parties.
Yet, according to the Organisation for Economic
Co-operation and Development's Foreign
Bribery Report, intermediaries pose the single
greatest bribery risk for companies, concluding
that 75 percent of foreign bribery schemes are
executed through an agent or other third party.2
»» Increased Enforcement
In the past few years, the U.S. Department of Justice
(DOJ) and the Securities and Exchange Commission
(SEC) have made Foreign Corrupt Practices Act
Who Are Third Parties?
Consultants: Auditors, lobbyists,
Contractors: Temporary employees,
Agents: International intermediaries,
domestic agencies, local advertisers
and marketers, resellers and
Vendors: Data vendors, maintenance,
on-demand service providers, offshore
Suppliers: Branded, white-branded or
third-party branded material suppliers
and manufacturers, as well as those
Distributors: Dealers and resellers,
foreign distribution firms and their
Joint ventures: Partnerships,
international joint ventures (factories,
manufacturers, dealers), franchisees
NAVEX Global | The Ethics and Compliance Experts 2
(FCPA) enforcement a top priority. To back it up,
they have requested additional staff. In 2016 alone
the SEC requested 93 additional staff members for
investigation, litigation and intelligence gathering.
And as reported in the NAVEX Global 2016 Third-
Party Risk Management Benchmark Report,
respondents saw a 50 percent increase in legal
regulatory actions in the past three years.1
Regulatory agencies view third parties as a direct
extension of your organization. You are expected to
safeguard against risks facing your entire organization
—including the increasingly complex network of your
What Is Third-Party Risk Management
& Third-Party Due Diligence?
Third-party risk management is the process of
assessing and controlling reputational, financial and
legal risks to your organization posed by parties
outside your organization.
Third-party due diligence is the investigative process
by which a third party is reviewed to determine any
potential concerns involving legal, financial or reputational
risks. Due diligence is disciplined activity that includes
reviewing, monitoring and managing communication
over the entire vendor engagement life cycle.
The Risks Are Real
As we see in the news too often, lapses in leadership
around managing third parties have damaged
organizations by exposing them to massive fines and
penalties. According to the 2016 Benchmark Report,
one-third of respondent organizations have faced legal
or regulatory issues that involved third parties, with 50
percent of these involving average costs per incident
of $10,000 or more.1
Even if the financial penalty can be managed, the
reputational impact can have far-reaching consequences
for many years.
Third-party risk management is a top concern of
compliance leaders, but many organizations are still
coming to terms with how best to manage their third
parties to limit risk and develop programs based on
organizational risk assessments. The 2016 NAVEX Global
benchmark report found that many organizations think
they could be doing a better job of third-party risk
management. Only 58 percent reported that they do a
good job of complying with laws and regulations, and
less than 25 percent rate their overall program as Good.1
Organizations may be diligent with their ethics and
compliance programs, but for many the risk their third
parties represent is a Wild West over which they feel
like they have little control.
Benefits of a Strong Third-Party Risk
Managing third-party risk can make a big difference in
how well your organization can identify, manage and
limit the liability a third party can represent. Your third
party’s risk is your risk. You should have confidence
that your program is minimizing that risk for you and
“Over 70 percent of FCPA
investigations involve the actions of
Chief of the SEC’s FCPA Unit
1. NAVEX Global (2016). 2016 Ethics & Compliance Third Party Risk Management Benchmark Report.
2. Organization for Economic Co-operation and Development (2014). OECD Foreign Bribery Report: An Analysis of the Crime or Bribery of Foreign Public Officials.
3 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
Having a strong third-party risk management program—
including continuous screening, monitoring and risk
mitigation of third-party relationships across the
enterprise—can help your organization in multiple ways.
»» Avoid Fines, Regulatory Enforcement Action
& Legal Costs
A strong third-party risk management program
helps your organization avoid legal action and
fines. But it may also reduce penalties and mitigate
regulatory action. Notably, in 2016 the SEC declined
to pursue charges against Harris Corporation for
FCPA violations related to the actions of a subsidiary
party because of its strong compliance and FCPA
due diligence program. This result demonstrates that
the U.S. government may temper regulatory actions
against organizations that can show that they invest
in and take self-directed action to aggressively limit
their FCPA and third-party risks.
»» Promote Your Organization’s Culture
The FCPA advises that organizations must
demonstrate that they are promoting their culture
of ethical and responsible behavior both internally
and with their third parties. A clear pathway to
accomplish this is through requiring your third
parties to understand and abide by your Code
of Conduct, attend your third-party ethics and
compliance training, and attest to your policies
through a policy management solution.
»» Produce a More Accurate Picture of Risk
A comprehensive third-party risk management
program—integrated with your ethics and
compliance activities across the enterprise—can
provide holistic data on where the organization is
most exposed to risk and where it is well-protected.
This kind of insight not only is helpful in making
training, policy and hiring decisions but also can
point to where immediate action may be needed
and resources should be allocated.
»» Promote Continuity
Disruptions in third-party relationships can be
detrimental to the continuity of business practices.
Third-party failures can result in legal or regulatory
actions that require significant disruption and
resources to resolve. In the worst cases, thirdparty
failures can threaten the viability of the
organizations with which they are engaged.
»» Protect the Organization’s Reputation
As we see in many high-profile cases, a single thirdparty
failure can deeply affect the organization’s
trust and relationship with its clients and customers.
Ensure that your organization will be thriving for
many years to come by ensuring that you are
working with vetted third parties.
One Size Does Not Fit All
Many compliance program leaders worry that they don’t
know where to start on a third-party compliance program.
The good news is that organizations do not need legions
of compliance personnel and unlimited budgets to meet
the standards recently outlined in a Resource Guide to
the U.S. Foreign Corrupt Practices Act (FCPA Guidance)
provided by the DOJ and the SEC.
In 2016 only 22% of U.S. companies
monitored all of their third-party relationships.
NAVEX Global 2016 Third Party Risk Management
NAVEX Global | The Ethics and Compliance Experts 4
A risk-based approach to third-party risk management
involves aligning your third-party risk profile with your
organizational risk profile and building a program that
FCPA Guidance makes it clear that a risk-based due
diligence process will be considered when assessing
the effectiveness of a company’s compliance program.
Fortunately, it says “the degree of appropriate due
diligence may vary based on industry, country, size and
nature of the [third-party] transaction, and [the] historical
relationship with the third party.”3 So one size doesn’t
have to fit all—that is, your organization can build a
program commensurate with your level of third-party risk.
The obligation is on your organization’s leaders to
make sure that they understand the qualifications and
responsibilities of the third parties your organization
engages. FCPA Guidance states that “the degree of
scrutiny should increase as red flags surface.”3
Almost every organization has some elements of an
effective third-party compliance program. In the next
sections, we provide recommendations and templates
for identifying what you already have, determining what
you need to develop to best address your gaps, and
developing plans and implementing the right strategy
for your organization.
As reliance on third parties continues
to grow, so does concern about the
number of headline stories depicting
regulatory action and reputational damage
arising from third-party actions. These are
driving many organizations to reconsider
how they approach the identification and
management of the risks posed by third-parties.4
Deloitte Third Party Governance
and Risk Management Report
3. U.S. Department of Justice (2012). A Resource Guide to the U.S. Foreign Corrupt Practices Act.
4. Deloitte (2016). Third Party Governance & Risk Management: Addressing the Challenges of Decentralisation.
5 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
NAVEX Global | The Ethics and Compliance Experts 6
Define Your Goals & Create a Strategy
Whether your organization engages with a handful of
local consulting firms or thousands of manufacturers
around the world, those engagements are relevant
to your organization and their failure could affect
your organization’s ability to function effectively.
The third-party universe is multidimensional, often
with complexities that can surprise even the most
sophisticated organizations and leadership.
This section explains how to set up a standard
process for third-party risk management—from initial
identification of third parties to your due diligence
process and continuous third-party monitoring.
Critical Components to Include in Planning
Top-down support. Before, during and after a due
diligence program is implemented, it is critical to have
the full support of senior executives and the board
of directors. Your program needs to be structured to
work with your managers and executives to help them
partner with responsible, professional companies. Your
organization’s leadership should regularly communicate
about the third-party program, making clear to everyone
in the organization that relationships with third parties
will be subject to risk-based due diligence to mitigate
potential corruption risks.
A unified approach. There may be multiple divisions
and locations within the organization that engage with
and manage third-party relationships. It is critical that
all key stakeholders, including those on the front lines of
engaging with third parties, are aligned to use the same
third-party relationship management systems, including
the risk management solutions you pursue. A siloed
approach can greatly increase an organization’s exposure
to risk if, for example, your procurement department is
unaware of information uncovered by your compliance
department related to a third party. A key component
for ensuring program consistency is a distributed
Automated, continuous monitoring. Manual thirdparty
screening and monitoring processes—or an
approach to monitoring some but not all vendors and
third parties—is no longer a viable approach to effective
Use a Standard Process
Identify and prioritize. Identify your universe of relationships and prioritize
them by risk.
Assess. Conduct due diligence on a risk-adjusted basis to uncover and assess risks.
Mitigate. Take steps to mitigate any risk that was uncovered.
Monitor. Conduct continuous monitoring to keep third-party information current
and to ensure that policy compliance is in force.
7 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
risk mitigation. You will never be able to predict whether
any particular third party you work with will engage in
unethical behavior. Instead a systematic, holistic and
rigorous approach to due diligence must be in place to
ensure that your company is kept informed and the right
information is delivered when an issue arises.
Adequate resources. Everyone deals with capacity,
resources and budget issues. Beyond the time and costs
involved in the initial screening of third parties, there
are additional costs to keep in mind as you set up your
program. Consider the operational and business costs
»» The frequency of ongoing monitoring, which is
determined by your risk profile and your third-party
»» The number of third parties to monitor—and which
ones you need to monitor more often than others
»» Your contingency plans for when a third party fails—
how to disengage and limit repercussions
»» To what level you’d need to disengage. Would it
require full disassociation or partial? Would it have
an impact on all business units or only on those
»» The specific assurances you need to reengage with
a failed third party and how long the reengagement
process would take
»» Your expected costs in terms of lost productivity,
downtime, open time of the relationship, and
rescreening, reengagement or finding a replacement
vendor when a failure occurs
»» Effective, automated solutions that can save on
resources (including full-time employees), increase
productivity and drive down operational costs
Third-party due diligence vendors can help you make
a compelling business case if you are facing internal
resistance to assigning adequate resources to
Appropriate translation and cultural outreach.
Many high-risk third parties reside in emerging markets
where English is not the native language. In many cases
third parties find the scrutiny of the due diligence
process to be both high stakes and confusing, especially
when the information being communicated is not in
the third party’s local language. Providing notifications,
instructions and interview questions in the third
party’s local language can make the third party more
comfortable with the process and help answer important
questions, such as Why is the process important? and
How will our information be used?
Third-party training. Organizations should consider,
where appropriate, extending organizational compliance
training (especially on codes of conduct) and policy
attestation (available in NAVEX Global’s PolicyTech®
solution) to their agents, contractors and suppliers.
Decisions about when and in what form to offer training
support should reflect the third party’s risk profile and
the degree of corruption risk in the relationship. A
top-tier ethics and compliance training program offers
customizable training for third parties and can be
easily added to your ongoing compliance training.
Identify Your Third Parties
The landscape of business partners continues to expand
in breadth and complexity for most organizations. As
organizations look to grow, there is an abundance of third
parties with deep expertise and broad capabilities that
can extend the organization’s ability to succeed. When
faced with a build or outsource decision, trends show
that many organizations opt to work with trusted third
parties to take on processes they lack the resources to
accomplish on their own. These days many organizations
are actively expanding their business capabilities through
their third-party engagements, with or without a riskbased
third-party risk management program in place.
Your immediate supply chain and distribution channels
represent direct relationships between your organization
and the third party, yet it is increasingly common these
days to see your direct third parties engaging on your
behalf with outside specialty consultants, agents and
contractors with whom your organization has no direct
relationship. When your third parties have a network of
indirect third parties—sometimes called fourth parties—
they need attention, too.
Source: NAVEX Global
The Landscape of Business Partners
9 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
Your Third-Party Risk Profile
After identifying your universe of third parties, it is
important to be forthright about the implications of your
engagements for your organization’s success. This means
not only defining the depth and breadth of your third
party engagements but also understanding the costs
of your program’s success or failure. It means defining
measures of success and planning for all the possible
Evaluate your risks by defining the following:
»» The regulatory environment and industry in which
your organization operates
»» The number of third parties with which your
»» The number of those third parties that are critical to
»» The types of third parties with whom you are working
(suppliers, resellers, distributors, manufacturers) and
where they are located
»» The financial and reputational risks to
When assessing your position, consider the regulatory
environment in which your organization and your third
parties operate. Some industries are more regulated
than others, and some types of third-party engagements
draw more legal and regulatory attention. To best protect
your third-party program and your organization, start
by knowing the threats and opportunities present in the
environment in which you operate.
The number of third parties with which your organization
engages is one indicator of your level of risk. It can help
you define your challenges—much more so than the size
of your organization in terms of employees or revenue. In
fact, the proportion of third parties to your organization
size is a clearer indication of your risk level than total
numbers. For example, there are global manufacturing
firms that facilitate manufacturing through large thirdparty
networks while directly employing very few staff,
and there are huge multinationals that work with very
few third parties.
Part of your risk profile is defined by how deeply your
third parties are integrated into your organization. When
considering how many of your third parties are critical
to your business performance, keep in mind how much
When to Conduct Due Diligence
The best practice is to conduct due diligence before entering into a new business
relationship with a third party. Organizations should also ensure that their current
third-party relationships do not pose significant corruption risks. To do this,
organizations may decide to perform a general review of their existing third parties,
using a list of key risk factors to identify those that may be high risk, and develop
appropriate mitigating plans in the context of existing contractual agreements.
NAVEX Global | The Ethics and Compliance Experts 10
of an impact it would make if you had to rapidly reduce
or ramp up your engagement with a third party or a
set of third parties or to disengage from them entirely.
While you have the ability to directly manage your
organization’s internal ethics and compliance program,
you have less visibility into your third party’s programs—
no matter how deeply engaged you are. Therefore the
capacity of a third-party’s failure to affect your ability to
operate is a question of risk.
When reviewing the potential for financial and
reputational risk to your organization, it is important to
keep in mind your organization’s ability to adequately
manage and mitigate third-party risk. In some cases,
the risks of doing business with a third party outweigh
the potential benefits. You need to set the criteria for
that decision well in advance or define a program
champion who has the authority to veto or approve
Though it seems cliché, your organization should
objectively evaluate third parties regarding their
trustworthiness and the risk they represent to your
business. In some cases, factors like geography,
industry and line of business might feel good or
bad in your gut but require factual analysis to fairly
evaluate what’s good for your organization.
There have been many cases in which an organization
becomes misaligned with its actual risk, preferring to
go with their gut and place trust in third parties that
don’t deserve it. Best practices advise screening and
monitoring all of your third parties, independent of
traditional or assumed risk factors.
The adage Trust but verify is apt in terms of thirdparty
risk. Use data, tools and an active third-party
risk management program to define your actual risk.
Define a Third-Party Due Diligence Process
Develop a consistent, structured process for assessing
and assigning risk to each third party. While process
consistency delivers efficiencies, a risk-based third-party
risk management solution requires that you assess each
third party based on your relevant risks and the distinct
risks the third party represents.
It is helpful to start by looking at all the current pieces
of your third-party due diligence process. In many cases,
a picture of the process, such as a diagram, is worth a
thousand words. Creating a Third-Party Due Diligence
Process Map (or tailoring the one on the next page) will
help you get your arms around due diligence processes.
Questions to ask:
»» Which departments in the organization complete
»» Are we duplicating efforts?
»» Which components require input from external
»» What approvals are required from whom and at what
point in the process?
“Under many legal frameworks,
organizations may indeed be held
liable for acts of corruption by their
third parties, i.e., their agents, consultants,
suppliers, distributors, joint-venture partners,
or any individual or entity that has some form
of business relationship with the organization.”5
World Economic Forum
Good Practice Guidelines on Conducting Third-Party Due Diligence
5. World Economic Forum (2013). Good Practice Guidelines on Conducting Third-Party Due Diligence.
11 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
terms approved by...
and reference checks
Input from internal
third party by...
full audit trail
Sample Third-Party Due Diligence Process Map
NAVEX Global | The Ethics and Compliance Experts 12
The following are basic components of a due
diligence process to use as a guide. Because a due
diligence process should be designed to address
your organization’s unique risk profile and operational
structure, there is no standard Third-Party Due Diligence
Process Map. The yellow arrows at left show examples
of how to identify which operational units contribute
to which stage.
Identify Elements That Can Be Automated
Use Technology to Streamline Processes
Third-party due diligence providers are increasingly
leveraging technology to automate due diligence
processes and procedures. The reduced complexity
and time and the cost savings are significant. More
importantly, automation forces you to set clearly defined
standards. Enforcing adherence to those standards in
turn helps organizations avoid bias and error.
Identify processes that could be automated by
considering the following questions:
»» What third-party due diligence processes require
input from multiple people, such as approval by
»» What third-party due diligence processes
require information from external parties, such as
questionnaires from potential business partners?
»» How are updates conducted, such as checking thirdparty
business partners against watch lists, politically
exposed persons databases, and other resources?
Additional areas to consider for automation are
organizing and archiving documents; certification of
acceptance of policies (using an automated policy
management system such as NAVEX Global’s PolicyTech®
policy and procedure management software); data
collection from potential third-party business partners;
and document access (taking your processes off email).
Use your Third-Party Due Diligence Process Map to think
about each component of your current approach step
Who Should “Own” the Third-Party Risk
Planning and implementing the third-party risk
management program should be a collaborative and
inclusive process that involves representation from
a number of departments, including compliance,
legal, human resources, internal audit, security, risk
management, procurement and IT. Stakeholders need
to partner to ensure that the program is implemented
smoothly and that all departments effectively get what
they need from the program.
According to best practices, the responsibility of the
risk assessment and due diligence processes should lie
with those in the organization who are looking to enter
into a third-party relationship in consultation with key
experts in the organization—usually the compliance
and legal departments. The people responsible for the
risk assessment should document the rating process in
reasonable detail and renew the assessment periodically
(e.g., once every three years).
13 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
NAVEX Global | The Ethics and Compliance Experts 14
Manage Your Third-Party Risk Management Program
Implementing your organization’s third-party risk
management program should follow a continuous
process of onboarding, screening, monitoring and life
cycle management. Alongside these activities, you should
include ongoing communications with management
and other key stakeholders about program processes,
successes, performance and anticipated changes.
When you implement your plan, be transparent,
communicate well and ensure that all relevant parties
are on board. Work closely with your third parties
on education and enforcement of your ethics and
compliance standards. Informing and training your
third parties on your code of conduct and behavior
expectations up front and continuously can protect
you and the third party from conduct and compliance
breaches throughout the life of the engagement.
Communicate About the Program
One of the most critical aspects of managing your
program is communicating a clear, written policy about
third-party risk management. Make sure that the thirdparty,
procurement and supply-chain policies clearly
state the current organization’s third-party policy. Policies
should be reviewed regularly, updated as necessary and
included in regular compliance training.
An organization should make clear to managers and
employees that any abuse or disregard of the third-party
due diligence process may lead to disciplinary action,
including termination in appropriate circumstances.
Strong compliance programs incorporate secure,
accessible channels through which employees and third
parties can raise concerns and report unethical behavior
without fear of reprisal—most often as a hotline or web
reporting program. Organizations may want to inform
third parties about these channels and encourage
them to seek advice when questions arise and to
report suspected wrongdoing.
Once you have identified and defined your risk-based
third-party due diligence processes, make sure you
effectively manage your program toward mitigating risks.
This does not mean you must have a fully constructed
program in place before you get started, but it does
mean that your objectives, milestones, basic success
metrics and fail-safes are set to your risk profile and
agreed on by your stakeholders.
Many of the program initiation elements can be done
in-house before engaging any third parties. These initial
steps may include defining and sharing objectives,
structuring program parameters, identifying stakeholders
and program champions, putting a management system
in place and acquiring a budget, among other items. This
initial program setup may take months to get to the point
at which your first third-party onboarding and screening
Particularly when organizations work within a complex
third-party landscape and assurances on program
efficacy are critical, stress-testing your processes
and capabilities through a limited early-adopter
program can help ensure program success and
A structured program should usher third parties through
a set sequence of events that ensure cradle-to-grave
process consistency. Your program should include
standardized documentation and practices managed
through a centralized system with a well-defined chain
of command for any program changes, exceptions or
enhancements. This ensures that when changes are
made, everyone in the organization can be equally
informed of them.
Onboarding & Initial Screening
Develop clear expectations of each third party based on
the work to be done. Clearly define individual executives
and contacts by name and by role, service-level
agreements, performance expectations, specific criteria
for termination and who can take actions to pursue
termination, and under what conditions other actions
should be taken. Though it may be simplest to identify
contacts by name, be sure to identify key roles as well,
to be prepared for inevitable personnel changes.
Your third-party onboarding processes should be
familiar and standardized so that you do not miss any key
requirements—and so your third parties can easily move
through them. Be sure to include third-party education
on your key policies and requirements. Using a policy
management solution to acquire third-party attestation
to your policies is a best practice.
Every organization will have a few unique reporting needs
or assurances, but the core steps of onboarding a third
party, including initial due diligence inquiries, are likely
to be similar. Process and document standardization
will help you address and include steps that may not
be obvious to you when initially defining your
Though you will define the timeline and your organization’s
particular requirements to formally onboard a new third
party, at some point you will need to conduct a deeper
screening of the third party. Screening can include
financial and reputational background checks, multiple
internal review channels and multiple experts
engaging with and conducting independent research
on the third party and its officials. The outcome of a
screening process should be an approval, disapproval
or deferment of the engagement.
Screening & Monitoring Third Parties
Screening third parties typically involves doing initial and
informal research, sending a detailed questionnaire to the
third party and scoring the outcomes of their responses,
and conducting deeper reputational research.
Though initial internal screening may reveal cursory
results and some third parties may be quickly cleared
or rejected, we highly recommend conducting deeper
screening. With deeper screening, we see two primary
levels of research. Keep in mind that beyond your initial
screening, similar research and monitoring should
continue throughout the life of the engagement.
At a minimum you should screen against reputational
indicators that may be pathways to deeper research and
»» Adverse Media
Look for reports or stories in published media
that mention the third-party organization or its
»» Sanctions Watch Lists
Check governmental reports for organizations on
which official sanctions are placed and the reasons
for doing so.
»» Politically Exposed Persons
Seek resources that reveal the political connections
of executives and individuals associated with the
third party and their implications.
NAVEX Global | The Ethics and Compliance Experts 16
Financial background checks are also advised because they can reveal details about a third-party organizational’s
history, performance and business practices. In many cases, financial screenings may inform other screening criteria.
Although organizations may conduct initial third-party research on their own, best practices advise employing outside
screening organizations to conduct due diligence research. By doing so you can be confident that the right details are
captured and the reporting is consistent.
When selecting a screening organization, look for an organization with the following qualities.
Is independent and can
deliver unbiased reporting.
Has global reach. Even if your
third parties are local, their
third parties may not be, and
you need to know with whom
you are working.
Is reliable and uses reputable
sources for their reporting,
including adverse media.
Is flexible enough to meet your
unique organizational risk-based
requirements. Do they deliver
data and insights as you need
them, or do they force you to dig
through data on your own?
Provides filtering capabilities
that allow you to see only
Includes ongoing monitoring,
which delivers continuity and
consistency in reporting and will
alert you to any changes in your
current portfolio, allowing for
proactive risk management.
Has an option for human analysts
to review your information,
creating a first line of defense
against false positives.
17 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
Additional Due Diligence
Though standard screening should capture the vast
majority of your reporting requirements, there will be
occasions when deeper dives are warranted. Depending
on how your risk-based program defines your thirdparty
assurances, you may find that 10 to 20 percent of
your third parties require additional due diligence after
standard screenings, before doing business with them.
Organizations should have the freedom to develop
multiple filtering frameworks that configure the results
of their screening efforts to meet specific risk tolerances,
which can differ due to the size and nature of a contract,
geography and industry groupings. In essence, you
should be able to screen high-risk clients from one
jurisdiction against all available data; high-risk clients
from another jurisdiction against another subset; and,
still further, low-risk clients against a smaller data set.
This filtering significantly improves the quality of the
alerts returned, substantially enhancing both relevance
and materiality for each level of risk.
As outlined in FCPA Guidance, an aggressive risk-based
approach is recommended where there are higher levels
of risk. Based on factors such as geographic location,
type of third party (e.g., agent), contract value and
government interaction, enhanced due diligence can
deliver the assurances you need.
When engaging in these higher-risk relationships, it is
important to identify beneficial ownership concerns—
which can involve multiple layers and complexities—
uncover litigation records and conduct interviews of
former associates, regulators and partners of the third
party. Further, you should identify any possible risk
factors, which can range from bribery and corruption
to child labor, environmental crimes and human rights
violations, to ensure that your bases are covered.
An automated system can help you properly stratify
your risk and guide the processes that will ensure that
proper due diligence reveals any potential risks across
According to FCPA Guidance, a guiding principle of
third-party due diligence is that “companies should
undertake some form of ongoing monitoring of thirdparty
relationships.”3 Continuous monitoring may
involve periodic rescreening of existing third parties or
rescreening driven by an alert about a change in the
third party’s status. Things change. With any effective
compliance program, one of the critical factors is
regular monitoring and auditing to ensure that you are
made aware of anything new that surfaces that might
change a risk profile.
»» Updating previous due diligence regularly
»» Ensuring that the contract provides for audit rights
and for exercising audit rights when appropriate
»» Providing or ensuring that the third party is receiving
periodic training on your company’s policies on
anti-bribery and corruption, gifts and entertainment,
and accurate recordkeeping
Red Flags & Rejections
When you have a risk-based third-party risk management
program in place, you can continuously assess your third
parties against the criteria you’ve predefined. There will
be occasions when your evaluation criteria will result
in a third party's receiving a yellow flag or red flag or
otherwise being rejected for a business engagement.
NAVEX Global | The Ethics and Compliance Experts 18
When this happens you must have a preexisting, welldefined
and agreed-upon process for escalating and
resolving the yellow or red flag. An individual within your
organization must decide what to do about the yellow
or red flag and be able to support and stand by their
decision. It may require the actions of a committee or an
escalation up the chain of command to the compliance
or legal department. When implementing your program,
be sure that these risk mitigation processes are in place.
A Centralized System
Your organization’s reputation is critical to the growth
and profitability of your business. It’s not enough to
screen and monitor your third parties. You must have
a standardized system, including a centralized risk
assessment, that evaluates and tracks the due diligence
process. This will help you respond efficiently and
appropriately to reports and limit the potential liability
associated with illegal and unethical conduct.
A damaged reputation will have an impact on sales, limit
your ability to grow and to attract and retain top talent,
and affect your shareholder value and stock price. Given
the extensive array of reputational risks facing companies
globally and the perceived cost of monitoring them, the
challenge facing organizations is where to start. This
requires the ability to conduct risk assessments, manage
and adhere to policies, evaluate and track the due
diligence process and monitor and report—all from
one centralized system.
A sophisticated third-party risk management solution
allows your organization to centrally document every
third-party issue, as well as the actions you have taken
to investigate each issue; the final disposition of the
investigation; and the nature of any disciplinary or
other resulting corrective action.
Do You Need to Automate?
The DOJ and the SEC have already made clear that
automation is expected. For example, look at the
following language in A Resource Guide to the U.S.
Foreign Corrupt Practices Act, issued by the DOJ and
the SEC in 2012, regarding gift, meals, entertainment
and travel compliance programs.
“For example, some companies with
global operations have created webbased
approval processes to review
and approve routine gifts, travel,
and entertainment involving foreign
officials and private customers
with clear monetary limits and annual
limitations. Many of these systems
have built-in flexibility so that senior
management, or in-house legal
counsel, can be apprised of and, in
appropriate circumstances, approve
unique requests. These types of
systems can be a good way to
conserve corporate resources while,
if properly implemented, preventing
and detecting potential
U.S. Department of Justice (2012). A
Resource Guide to the U.S. Foreign
Corrupt Practices Act, p. 58.
3. U.S. Department of Justice (2012). A Resource Guide to the U.S. Foreign Corrupt Practices Act.
19 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
There is little doubt that automation is the future of many third-party due diligence processes. The volume of
information available makes it increasingly impossible to stay on top of everything. Complexity, training and information
management remain challenges, especially for many organizations facing a lack of resources and processes. One area in
which third-party risk management programs could achieve greater efficiencies when it comes to addressing these kind
of concerns is by adopting automation.
Compliance is rapidly embracing automated, technological solutions. In the next five years, every organization’s
compliance program will need to automate key parts of its processes to ensure that they remain effective (with
an emphasis on effectiveness as defined by DOJ and SEC guidelines).
This underscores the fact that the DOJ and the SEC recognize that different companies require different compliance
processes to make their programs “effective.” There is no one-size-fits-all approach. In addition, the DOJ and the
SEC are conveying that they expect to see companies integrate technological solutions as they become more
effective and feasible.
In evaluating the cost/benefit ratio of automation, consider how much time and money your organization spends on
third-party risk management. Automation allows you to rebalance the equation, trading monetary resources to save
time that may be better spent elsewhere.
Questions to ask:
How well are we protected from risk related to all of our third parties and vendors—not just a select few?
Are our processes being adequately documented so that records can be easily obtained if a government
Do human errors result in a slower or inaccurate process? What is the cost of this over time?
Do logistical delays caused by manual processes hinder the speed of business?
NAVEX Global | The Ethics and Compliance Experts 20
Benefits of Automation
An automated approach to third-party due diligence
is a critical risk mitigation tool to help employers
avoid lawsuits, the dismissal of key personnel, and
eliminating a supplier or vendor or receiving a fine
from a government agency. The following are three
key benefits of automating your third-party risk
management screening and monitoring.
The time from initial interaction with a third party
to approval or denied status should be consistent,
efficient and uniform across the organization.
People engage with third parties to solve a business
problem, and a long delay—due to inconsistent
processes, collecting evaluations, paperwork,
global distances and time zones—can push the
engagement back months or longer, testing
patience and allowing the original problem to go
unaddressed. An automated program allows for
efficient evaluation timelines, processes,
workflows and documentation.
Another key benefit of automation is the
comparative review of all third parties affiliated
with the organization. By screening and monitoring
the records of all third parties, an organization can
respond to actual risk—not simply react to educated
guesses based on instinct. Having access to realtime
data gives organizations insight into where
their greatest exposures to risk lie and where to
take action. A key part of an automated risk-based
program is being able to use reporting data to
appropriately apply resources to better mitigate risk.
»» Organize & Categorize Your Policies
Categorize documents by departments, topics,
regulatory guidelines or any other structure you
use to delineate access to your documents. As your
business changes, simply update the taxonomy or
categorization without breaking folder hierarchies,
directories or links.
»» Immediate Notification
Another value of an automated monitoring program
is to have 24/7/365 alerts in place. An automated
program can report violations and risks more
immediately than people typically can. In some
cases, a 12-hour lag in learning about a serious
violation is fatal to a company. Automation can
enable near-real-time notifications.
21 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
NAVEX Global | The Ethics and Compliance Experts 22
Track & Improve Your Program’s Effectiveness
The overall purpose of measuring your third-party risk
management program’s effectiveness is to ensure that
the program is meeting its goals and your organization
is well protected from risk.
Measuring effectiveness is often unique to each
organization based on its industry, its geographic
location and the type of third parties engaged. There
are multiple ways to measure the effectiveness of
»» The scalability of your unified and centralized solution
»» The speed and accuracy through which you can
onboard new third parties
»» The consistency and actionability of your
»» The time frame and costs associated with
remediation of screening and monitoring alerts
Alternatively, you can compare your program
performance with an earlier state through:
»» The improved quality of your third-party
engagements in terms of the number of red
flags you’re seeing
»» Your ability to more accurately identify third-party
characteristics that represent increased risk to
»» Your ability to better manage or mitigate associated
risks, including swapping out poorly performing third
parties for more responsive partners
»» The relative business costs of onboarding, screening,
monitoring and life cycle management, as well as
the impact of your solution to shorten downtime
and reduce the related costs
Beyond that you may be able to demonstrate the value
of your solution by contrasting the relative number of and
costs associated with legal and regulatory actions that
your organization saw prior to and after putting a wellconstructed
solution into place.
Ultimately, when you review your program performance,
you must take into account the initial risk assessment
you undertook. The risk assessment you pursued
when planning your program can inform your return on
investment. When you calculated your risk based on the
regulatory environment, the number of third parties with
which you engage, their criticality to your organization
and the financial risks your third parties represented, you
created a risk score.
That risk score can be contrasted against the goals of a
third-party risk management program and your progress
on them. Those goals are:
»» Avoid fines, regulatory enforcement action and
»» Promote your organization’s culture
»» Produce a more accurate picture of risk
»» Promote continuity
»» Protect the organization’s reputation
23 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
Where your program helped the organization avoid
fines, improved defensibility and drove program
precision through documented processes, protocols
and outcomes, you can link it to a reduced risk score.
Every organization should have processes in place
to monitor the third-party due diligence process;
periodically review its suitability, adequacy and
effectiveness; and implement improvements where
needed to adapt to the changing circumstances of the
organization. In particular, the compliance department
should conduct spot checks to ensure that the due
diligence process is properly applied and to deter
any potential abuse.
If you use a third-party risk management vendor, you
will have access to strong reporting tools so that you can
effectively detect problems, analyze trends and automate
the program without relying on in-house staffing and
reporting. The best, most effective reporting programs
are ones that take advantage of the data and use it to
gauge the success of interventions, assess the need for
additional training, track trends and evaluate the overall
health of third-party relationships.
To measure overall ethical health, your organization
should benchmark your third-party activity against that
of similar organizations. NAVEX Global’s 2016 Ethics &
Compliance Third Party Risk Management Benchmark
Report provides insight into how almost 400 organizations
are funding, staffing and executing their third-party risk
management program. Download the full report at
NAVEX Global | The Ethics and Compliance Experts 24
An effective third-party risk management program is in your best interest. Not only can you more
confidently engage with a growing network of vendors, suppliers, resellers and distributors; but when
done effectively, you can have a positive impact on the effectiveness and efficiency of your broad
ethics and compliance program.
NAVEX Global research has shown that organizations pursue strong ethics and compliance programs
for myriad reasons, but at the top is a desire to cultivate and maintain a culture of ethics and respect.
A strong third-party risk management solution helps organizations realize that objective through
engaging with third parties that abide by codes of conduct, that are transparent and communicative
and that you can be proud to do business with.
Effective third-party risk management is an emerging demand as more organizations understand
its place in a strong ethics and compliance program. As this paper has shown, an effective program
requires commitment, focus and structure. You too can better manage your third-party risk. It does
not necessarily require a large budget or staff, but you do need to have a program in place that is
reasonable for the level and types of risks your organization faces in its dealings with third parties.
In the end you want to be able to answer the two questions the government will ask if an
investigation is opened:
»» What kind of due diligence review did you conduct to identify red flags?
»» How did you assess and resolve any red flags relating to the third party?
A strong third-party risk management program—especially one that offers automation of key tasks—
helps your organization protect its people, reputation and bottom line.
25 DEFINITIVE GUIDE: THIRD-PARTY RISK MANAGEMENT
NAVEX Global offers many valuable resources related to your third-party
risk management program. Visit our resource center at
www.navexglobal.com/resources to find these tools and more:
»» 2016 Ethics & Compliance Third Party Risk Management Benchmark Report
»» White paper: A Prescriptive Guide to Third Party Risk Management
»» Blog post: If Things Have to Be Risky for Your Third-Party Risk Management Program to Be Valuable,
You’re Doing It Wrong
»» Webinar: Benchmarking Your Third-Party Risk Management Program in 2016
»» Partner Publication: The Association of Corporate Counsel's Top Ten Tips for FCPA Compliance
NAVEX Global | The Ethics and Compliance Experts 26
RiskRate™ Enterprise Due Diligence
NAVEX Global’s RiskRate platform gives you the flexibility to carry out deeper levels of due diligence to meet your
unique compliance needs. With multiple report levels, analyst reviews and enhanced investigation options available,
you can be confident that your third-party risks are uncovered and mitigated as quickly and efficiently as possible.
ABOUT NAVEX GLOBAL’S THIRD-PARTY
RISK MANAGEMENT SOLUTIONS
NAVEX Global’s comprehensive suite of ethics and compliance software, content and services helps organizations protect
their people, reputation and bottom line. Trusted by 95 of the FORTUNE 100 and more than 12,500 clients, our solutions are
informed by the largest ethics and compliance community in the world. For more information visit www.navexglobal.com.
Copyright © 2017 NAVEX Global Inc. All rights reserved.
5500 Meadows Road, Suite 500
Lake Oswego, OR 97035
United States of America
+1 (866) 297 0224
EMEA + APAC
Boston House, Little Green
Richmond, Surrey TW9 1QE
+44 (0) 20 8939 1650