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Tips for effective due diligence

05 August 2016 Rudi Kruger, LexisNexis
Rudi Kruger, General Manager of LexisNexis Governance, Risk and Compliance Division.

Rudi Kruger, General Manager of LexisNexis Governance, Risk and Compliance Division.

When it comes to the well-being of your business, it should never be taken for granted that the companies you aim to do business with are above board. Due to strict laws, heavy penalties, reputational risk and financial loss, businesses should be protected from negative third-party exposure at all costs. Whether it is an acquisition or supplier, in-depth examinations of prospective business associations should be undertaken to identify risks and assist in making informed decisions. To this end, due diligence deserves a systematic effort from start to completion.

General Manager of LexisNexis Governance, Risk and Compliance Division, Rudi Kruger, offered the following tips on due diligence best practices.

• Time allocation

The number of steps in due diligence and each level of intricacy means that a lot of time would be required during the process to ensure that all uncertainties are explored. A proper timeframe will ensure that you are able to thoroughly evaluate each area and identify liabilities, threats and hidden costs. “In the case of mergers and acquisitions, liabilities such as environmental risks, employee legal claims and other forms of instability may only occur after the deal is processed,” said Kruger. “Other costs can also go undetected if future financial commitments were made but not yet accounted for on financial statements. Time should be allocated regularly to monitor suppliers, clients and other entities upon which the business relies, thereby ensuring ongoing financial health,” Kruger added.

• Leadership evaluation

The reputations, practices and transactions of leaders have an effect on the value of the business, public perception and market reaction. “It is worth evaluating the top individuals of a company, particularly the directors to determine their track records, associations and conflicts of interest such as personal business interests and external sources, should you choose to do business with them,” said Kruger.

• Checklists

A checklist keeps progress in perspective. The basic due diligence checklists entail legal and tax; finances and sales; business operations and industry and business assets, expenses and debts. “Further checklists can be drawn up to satisfy the investigations into each area where necessary,” said Kruger.

• Expert assistance

External experts can bring a wealth of expertise to the due diligence process, however there are more cost effective ways to achieve thorough results. The use of online research tools are designed to enhance your due diligence efforts. One such tool is LexisDiligence, a risk management solution from LexisNexis Governance Risk & Compliance Division, which brings together all the intelligence businesses need in one place to conduct consistent enhanced due diligence checks in-house on individuals, clients, partners and suppliers.

Users can select a prospective third party, perform a company or person check, explore associated entity interests, check against sanctions, check for red flags and politically exposed persons data, search for negative news, check the litigation history, assess country risk and confirm as partner/ supplier/ distributor. LexisDiligence also enables compliance officers to review data from the UK, EU, US and selected Asian jurisdictions. Lexis Diligence is a comprehensive database of more than 40 years of global archived news and data, designed to help a company perform the necessary due diligence in the areas of risk, compliance and fraud. This makes it a valuable tool for meeting anti-bribery, corruption and anti-money laundering requirements, such as those set out in the UK Bribery Act 2010.

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