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Example sources to consider when developing policy and procedure.

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Example risks to consider when selecting external providers.

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Example case-studies on the benefits of due diligence.

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The following examples are provided for illustration purposes only.  Details have been changed to protect confidentiality.

Scenario

Due diligence outcome

M&A due diligence

A client considering acquisition of an established sales team (covering a new geographic market) wanted to form a view on legacy relationship risk in the target portfolio.

  • A portfolio review assessed sample transactions and sales team compliance with gifts & entertainment policy.
  • An unexpected related party transaction was identified.
  • The client decided to go-ahead with the acquisition.
  • The related party transaction was considered in contract negotiations by the client's legal team.
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Agents in transactions

A client seeking commercial funding for a strategic project was concerned about legitimacy of an individual's credentials, particularly as to whether he was an official agent of a European investment fund. 

  • The individual was not an authorised representative of the investment fund.
  • The individual was found to be named in U.S. media reporting, as a close associate of a convicted fraudster.
  • The client decided to discontinue its relationship with the 'agent'.
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Undisclosed debt

As part of pre-employment screening the client sought independent validation and challenge, of information presented by prospective employees.

  • A management candidate did not disclose details of a County Court Judgment ('CCJ').
  • The candidate had an undischarged CCJ linked to unpaid invoices on domestic building work.
  • The client decided to defer recruitment for 30 days, during which time the candidate paid the outstanding debt.
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CV innacuracy

A gap or anomaly in a person's CV could be a red-flag, indicating a concealment or lack of transparency, about career experience, professional qualifications or educational standing.

  • A candidate's CV included professional qualifications and periods of employment with various companies.
  • The CV was submitted by a recruitment agency that did not validate candidate credentials.
  • Research identified the CV contained inaccuracy, embellishment and omission, including where the candidate had been dismissed from previous employment.
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Fit-and-proper certification

The Senior Managers and Certification Regime requires regulated firms to take reasonable care to ensure, that employees who perform a ‘significant harm function’ are certified (by the firm), as fit and proper to do so.

  • The client commissioned a credentials review of staff in 'significant harm functions'.
  • Staff completed proforma questionnaires, also authorising independent enquiry, to validate career profile and standing.
  • The client used findings to support reasonable grounds for opining on suitability of post-holders. 
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Know your risk

Pre-employment check, supply chain review, due diligence and audit, all help to assess risk associated with potential (or existing) employees, suppliers and vendors, agents and intermediaries, transactions (and parties associated with them).  
Risk assessment could identify a material red-flag or risk which, if the relationship is to continue, may require risk-mitigation and monitoring to be implemented, to inform senior management risk-appetite.

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Influences

Research scope
A combination of generic and targeted research may be appropriate, depending on the overall objective (i.e. define the rational, purpose and intended use of due diligence findings).  

Research Benefits
Findings of independent research or assessment activity can inform internal risk-awareness and appetite (e.g. whether to progress a new (or maintain an existing) business relationship). 

Limitations
Research findings are influenced by the availability of accurate and reliable information sources - Important considerations when determining research scope.