Due diligence investigations are usually needed when a company is considering a new partnership or buying a new business. Doing background checks on suppliers or other new business partners is essential in preventing future investigations. Due diligence investigations help companies protect themselves from fraud, bribery, reputation and financial risks. In 2022, it was found that 30% of employees who lie going into a role are never discovered. Today, they are also helpful in determining whether a new business agreement will leave an organisation vulnerable to cybersecurity risks. 

If a company or business associate has weak cybersecurity controls, this leaves all third-party data open to being stolen and distributed. 

Steps in carrying out due diligence investigations

The larger the company and the higher the risk in the industry they work in, the more likely they are to complete due diligence investigations. The type of investigation may differ, with hard due diligence focusing on numbers and data while soft due diligence focuses on the type of management that the company has. 

How do you approach due diligence investigations? These steps can be a good starting point: 

  • Plan the process
  • Research the business
  • Check for any signs
  • Analyse all information carefully
  • Respect limitations
  • Set an ongoing monitoring process

Plan the process

Just like any other investigation, a due diligence investigation needs a lot of preparation to be carried out correctly. Organisations need to know what they are looking for and to save time, they might put together a team to handle the investigation. 

The team may look at different areas including:

  • Financial: Whether the company they are trying to work with has good financial performance and accurate record keeping.
  • Legal: If they are complying with local laws and regulations and if they have gotten in trouble in the past for not doing so. This could also include environmental compliance.
  • Operational: This area relates to soft due diligence and looks at how the business carries out its daily operational tasks, what kind of management they have and who they work with. 
  • Other niche areas: Depending on what a business values, they might look at other areas such as social responsibility, environmental practices and how employees are treated. 

Once the company has determined the focus on the investigation they can prepare a plan with the tasks they will carry out next. Our clients use Polonious to assist them with this step. They can create consistent workflows and automate tasks and reminders. That way they don’t forget any important details and they stay updated on the progress of their colleagues and what they have found. 

due diligence investigation

Research the business

Once the plan is ready, the due diligence investigation can start. The company will have to look at different data to satisfy all areas including:

  • Financial records
  • Past performance
  • Employee data
  • Documentation of processes
  • Policies
  • Assets
  • Mitigation controls
  • Fraud and cybersecurity response plans
  • Company history

There is more documentation that each company will need to look at and this list will change depending on the type of partnership or acquisition. It’s normal for big businesses to have a few companies they are researching at the same time. That’s why it’s necessary that investigators are experienced in accurate record keeping.

Check for any signs

There are some early warning signs that could be considered red flags during a due diligence investigation. These could include the third party being unresponsive frequently, especially after requests for information, providing the wrong documentation or claiming that documentation has been misplaced. 

Another red flag could be that during meetings with the other partner, there isn’t a clear agenda. The meetings keep going around in circles without anything being achieved. This could be a sign that the business is hiding something, disorganised, understaffed or simply, they don’t respect other people’s time. 

It may also indicate that the company is dealing with inexperienced and unprofessional individuals. It may give them a good idea of what dealing with them in the future could look like. 

Analyse all information carefully

Once all necessary information has been collected, the investigators will hopefully include any red flags they noticed in the behaviour of management. All documents can then be analysed to determine whether the debt of the company is worrisome, whether their value proposition seems feasible in the future, what level of compliance exists within the third party and more. 

The business can use the documentation and notes they collected to decide whether the partnership or purchase of a business will be beneficial to them. 

Respect limitations

Certain countries have laws that limit how much information can be shared. Moreover, great record-keeping in companies is something hard to find. A lot of entities are disorganised to some extent. 

Due diligence investigations are a time-consuming process for all parties. While one has to constantly find and provide the required documentation, the other party will need to allocate resources to analyse the documentation to ensure it’s authentic. Then there will be a lot of back and forth when it comes to questions, which makes the whole process very expensive.

This is one of the main reasons our clients rely on Polonious during any investigation. We help them with task sorting, prioritisation as well as audit and record keeping. We also give them peace of mind that any information stored in our system will remain secured for as long as needed. 

Set an ongoing monitoring process

If this is a due diligence investigation for a partnership, it is recommended that the company sets up a monitoring system to detect whether there are any abnormalities. Company A may require Company B to share with them any changes in their cybersecurity policies, work health and safety policies or even environmental policies. 

Company A may also set up transaction monitoring between the two companies to spot any suspicious activity. Especially when it comes to bribery and corruption, businesses will need to set clear processes on how invoices are tracked, checked and stored. This will prevent any wrongful deals from being made.

Due diligence investigations: It doesn’t stop there

When it comes to creating a successful partnership, the due diligence process doesn’t stop there. There are many changes that could happen to a company over time, including the introduction of new business executives, new acquisitions or new policies introduced. A successful partnership requires effort from both parties in order to remain successful. 

If you are starting a due diligence investigation and you are looking to save time and money, contact us! We will be happy to give you a free demo and show you how our system works!