Business growth is a loaded term that involves a lot more complexities underneath the revenue boost and brand visibility. Small to medium firms often delegate tasks to external resources to save time, and money, and boost growth opportunities. However, this comes at a cost-sharing sensitive data adds unprecedented risks. But thanks to the due diligence questionnaire, it is possible to mitigate these risks.
In this article, we help you understand what due diligence is in compliance, and what it includes, and illustrate a few examples of DDQ.
Contents hide
What is due diligence in compliance?
What is a due diligence questionnaire (DDQ)?
How does due diligence questionnaire help organizations?
What does a vendor due diligence questionnaire include?
Examples of due diligence questionnaire
Conclusion
FAQs
What is due diligence in compliance?
Vendor due diligence is the process of assessing a service provider’s security controls, relevant experience, and operational stability. This is a crucial step to filter out third-party services with inadequate or ineffective security practices, policies, and controls.
Some key metrics used to evaluate potential vendors include security certifications from authorized bodies, their understanding of applicable regulations, and feedback from real customers.
What is a due diligence questionnaire (DDQ)?
A vendor due diligence questionnaire is an evaluation factor to gain a comprehensive understanding of the vendor’s security posture and practices. It helps organizations to make an informed decision and avoid buyer’s remorse.
How does due diligence questionnaire help organizations?
Due diligence questionnaire is a crucial process for vendor selection. It offers numerous benefits that include:
- Helps to gain deep visibility into vendor practices to identify potential risks.
- Helps to understand how well your business goals and objectives align with vendor practices.
- Helps to verify the authenticity and claims the concerned third party offers.
- Helps both parties to set clear goals and expectations to avoid conflict of interest in the future.
- Helps to visualize unforeseen scenarios and unwanted possibilities that may hamper growth.
Also read: How to manage compliance risk
What does a vendor due diligence questionnaire include?
Vendor due diligence questionnaire process includes reviewing policies and components that can affect your business growth such as company records, audit feedback, financial data, and certifications. Consider assessing the following factors:
Proof of legitimacy
Every service provider tries to show themselves as the best in the industry. This makes your investigation harder – especially if the vendor is a new player in the market. Try to gather data on their listings, certifications from the right bodies, history of conducting business, operational structure, compliance knowledge, and other necessary protocols.
Risk assessment and business continuity
If your service requirement involves sharing sensitive information with third parties, a robust risk management process is mandatory. Potential vendors should have an effective system to manage end-to-end risk elimination capabilities. This includes categorizing risks based on their level of severity and strategically secure systems based on their importance.
Adherence to compliance
No matter the type of industry and size of business, government or industry-specific regulations to all organizations. When you partner with third-party vendors who handle your data, these laws extend to them by default. So ensure that the vendor due diligence questionnaire covers elements to understand the vendor’s familiarity with applicable legal requirements.
Security posture and measures
Security protocols to maintain the confidentiality, integrity and availability of data includes technical, physical, and administrative controls. Common measures include encryption, access control, two-factor authentication, antivirus software, data backup, firewall, and more. The system should be equipped to detect vulnerabilities, prevent threats from entering the system, remove risks once it has been infected, and have a strategy to recover from the disaster.
Also read: Guide to security posture
Networkevaluation
Review the process and tools utilized by the vendor. A good practice is to check the level of visibility they have into the network, monitoring processes, reporting capabilities, and the strategy to operationalize network management system.
Examples of due diligence questionnaire
Many organizations offer a pre-filled questionnaire template to streamline the process of onboarding new service providers. Some popular ones are listed below:
PRI hedge fund DDQ
Principles for Responsible Investing (PRI) helps investors understand, evaluate, and assess how hedge fund managers approach responsible investment. The questionnaire can be used during RPF processes, to review managers, or client meetings. It covers the following areas:
- Policy and governance
- Investment process
- Stewardship
- Reporting and verification
- Additional information
Limited partners DDQ
The Limited Partners’ (LP) Private Equity Responsible Investment Due Diligence Questionnaire (DDQ) is a part of the Institutional Limited Partners Association’s (ILPA) DDQ.
It helps investors evaluate and gain visibility into the processes a general partner (GP) uses to incorporate material environmental, social and governance (ESG) risks in their investment practices. It covers areas such as
- Policy
- Fundraising
- Pre-investment
- Post-investment
- Reporting & disclosure
- Climate change
- Additional information
Correspondent banking DDQ
Created by the Wolfsberg Group, this DDQ lists more than 100 questions for financial investors who engage in cross border or high risk correspondent banking. The Wolfsberg Group recommends using it for new and existing customers as part of their periodic reviews. It reduces costs, improves financial crime compliance, adds efficiency to know-your-customer (KYC) utilities, and mitigates decline in correspondent banking.
MISC business relationship DDQ
Malaysia International Shipping Corporation business relationship DDQ is a moral questionnaire that seeks to prevent bribery and corruption. It also aims to minimize risk exposure as a part of activities that MISC conducts on behalf of their clients.
IPO due diligence checklist
Initial Public Offering DDQ ensures that companies meet the necessary requirements before going public. It assesses the financial, legal, operational, regulatory, and structural issues. It covers the following areas:
- Organizational Data
- Licensing and Taxation
- Board and Employee Information
- Financial Information
- Customer/Service Information
- Company Property
Conclusion
Vendor risk assessment is a crucial aspect of security compliance. Effective vetting and management helps to assess and monitor their compliance.
The Sprinto solution empowers you to track vendors based on the type of data shared with them and the selected compliance framework. Add any number of vendors, create assessments, calculate risk profile based on level of threat, and edit the auto calculated risks. Additionally, you can upload multiple due diligence for every assessment, edit assessment, and triage the risk profiles. Get a free demo today!
FAQs
What are the 4 Ps of due diligence?
The 4 P’s of due diligence are:
People: assesses the experience and expertise of those managing the portfolio.
Philosophy: focuses on whether the plan makes sense and is likely to generate a high return on investment.
Process: assesses how well the plan is implemented and managed.
Performance: analyzes how well strategies work in the long term.
What is the due diligence questionnaire for security?
A due diligence questionnaire for security assesses the security controls and relevant experience a service provider has before partnering with them.
