How To Conduct Third-Party Due Diligence: Effective Tips

By: Beaconer, Oct 25, 2023

How To Conduct Third-Party Due Diligence: Effective Tips


Businesses across the globe engage in some form of outsourcing their activity to bypass the need for necessary labor and infrastructure. This lets the business focus solely on its core business activities and compete internationally. But this comes with the cost of enhanced risk as third-party connections can expose businesses to various threats, including cyber threats, reputational damage, and corruption.

Large organizations can have tens of thousands of third-party connections and are exposed to vulnerabilities. Organizations must take certain measures and implement third-party due diligence in their network’s framework to manage third-party risk effectively. This helps minimize and avoid these risks, ensuring a more secure and reliable business ecosystem.

What Is Due Diligence?

Due Diligence is an essential aspect of business risk management as it allows businesses to pinpoint potential risks and take necessary measures to mitigate them. It evaluates and assesses risks associated with third parties like vendors, suppliers, contractors, and partners, following good practice guidelines on conducting third-party due diligence. This framework ensures that businesses have a systematic and thorough approach to understanding and managing the risks their third-party relationships pose.

With effective due diligence, it is verified that a third party is a reliable and admissible business partner.

Effective Tips On Conducting a Third-Party Due Diligence

List Of Third Parties

First, the process is understanding the organization’s universe of third-party relationships. The next is identifying which third parties should be considered for risk-based due diligence. When building a list of all the current vendors and other third parties, it’s strongly advised to base the list on the vendor’s level of risk.

Third-party due diligence practices should enfold in its compass the third parties contracted in both sales and supply channels. While past data shows that sales intermediaries like agents and distributors are more frequently abused than suppliers when relaying corrupt payments, suppliers are also more likely to be used corruptly.

Risk Assessment

Once any organization has recognized the number of third parties in scope for risk-based due diligence, the further step is to expound the risk and look for appropriate levels of due diligence for each entity. Avoiding third-party risk management compliance mistakes is crucial at this stage. The results of a risk assessment process must guide the proper amount of due diligence. The suggestion is to base third parties as high, medium, or low-risk third parties. This risk assessment should be made for a third party or group of third parties. High-risk third parties are then subject to a detailed due diligence process, as the level of risk will eventually decide the amount of due diligence that needs to be performed.


Right Due Diligence Tools

Since performing third-party due diligence is a monotonous and time-consuming process, the right due diligence tools can make the process simple and more efficient.

Businesses can use innovative solutions and features that streamline and automate the third-party due diligence process. The process includes risk assessment questionnaire templates, automated risk assessment scheduling, vendor knowledge base, security assessment workflows, etc.

Post-Approval Risk Mitigation

Once the business is sure that they have sufficient robust information about the proposed third party and the specifications of the business relationship, it is at the discretion of the business whether to proceed with the business transaction or not. The organization then can clearly document its due diligence efforts and explain the rationale for its decisions. If any risk is exposed during the due diligence process, businesses should identify and implement the due diligence process.

A strong partnership between businesses and third parties is required for the approval and post-approval processes. Departments at the level of senior executives responsible for compliance with anti-corruption laws will also be taken into the loop.

Third-Party Risk Management and Tracking

A comprehensive security questionnaire is warranted to conduct third-party due diligence. A security questionnaire will involve questions designed to assess a third party’s risk level across various criteria. When assessing a third party’s cyber security risk, it is pertinent to assess the third party’s financial posture, risks to the supply chain, management, and reputation, and risks associated with the third party’s location.

An audit-ready paper trail is vital throughout the third party’s due diligence. You do not want to look for the papers and documents at the time of audits. Moreover, with a well-structured third-party risk program and a solid paper trail, you will always have evidence to show that you have conducted proper due diligence.


Businesses depend on third-party networks as they outsource some of their tasks. This network’s capability, viability, and agility will determine the success and fruitful outcome for all. This dependence on third parties opens businesses to harsh realities of inherent risk as the accountability for non-compliance of third parties lies with the organization.

The proactive due diligence of a complex third-party network is a vital risk and a necessary measure for the third-party risk management ecosystem. The third-party due diligence program includes screening, onboarding procedures, ongoing monitoring, risk assessment, and preventive actions.

Beaconer uses its cloud-native artificial intelligence platform to provide solutions to your third-party network architecture. It specializes in third-party risk management, offboarding, and onboarding clients. Beaconer has developed comprehensive due diligence programs for businesses that strengthen and solidify the relationship between businesses and third parties. It brings the element of transparency to the network’s ecosystem.

Author Bio

Nagaraj Kuppuswamy

Nagaraj Kuppuswamy is the Co-founder and CEO of Beaconer, an esteemed enterprise specializing in managed third-party risk using the cloud native AI based solution. With an extensive portfolio of accolades and industry certifications, Nagaraj stands out as a seasoned expert, boasting over 16 years of dedicated involvement in the field of Cybersecurity. Throughout the course of their career, he has predominantly focused on elevating the realm of third-party risk assessment.


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