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How Organizations Can Strengthen Third-Party Vendor Oversight and Compliance
Organizations that rely on third-party vendors for critical operations face unique challenges in managing vendor risks. These external relationships are essential for operational success, but can also create vulnerabilities if not properly assessed and monitored on a regular basis.
Overlooked risks in vendor management often include compliance with federal and local procurement guidelines and the effectiveness of internal controls. Many organizations struggle to keep track of vendor vetting, procurement processes, and payment compliance while ensuring risk mitigation. It is essential for organizations to have a clear understanding of their vendor landscape and the risks each partnership introduces.
Identifying Overlooked Risks in Vendor Relationships
According to the Association of Certified Fraud Examiners’ “Occupational Fraud 2024: A Report to the Nations” one of the most common behavioral indicators of fraud is an unusually close relationship with a vendor or customer. Additionally, it was noted that billing was the second highest occupational fraud scheme in government organizations.
Vendor relationships can expose organizations to significant risk if internal controls are weak. Proper vendor onboarding ensures that vendors are vetted and documented correctly and that organizational policies are enforced. Compliance verification includes checking that vendors adhere to standards for IT governance, data security, and other operational protocols. When these areas are not consistently addressed, organizations increase their exposure to fraud, regulatory issues, and operational disruptions.
Tailoring Risk Assessments to Organizational Needs
If sufficient resources are available, we always recommend a comprehensive risk assessment. This assessment should cover all stages of the vendor lifecycle including bidding, onboarding, payment, and compliance. Key elements include:
- Procurement Process Evaluation: Assessing the uniformity and effectiveness of procurement policies and procedures
- Vendor Onboarding Review: Ensuring that vendor onboarding documents, such as Forms I-9 and signed contracts are thoroughly reviewed for fraud or inaccurate documentation
- Internal Controls Assessment: Evaluating the effectiveness of internal controls in preventing and detecting fraud
- Compliance Verification: Ensuring that vendors comply with organizational policies including IT governance and data security protocols
For organizations with limited resources a targeted approach may be more practical. This approach focuses on high-risk areas and provides practical recommendations to address specific concerns. Targeted assessments may include reviewing procurement processes identifying red flags in existing vendor relationships and verifying critical compliance requirements.
Challenges of Conducting Risk Assessments In-House
Conducting third-party vendor risk assessments internally can be difficult. Many organizations lack sufficient personnel time or expertise to perform a thorough evaluation. Internal teams may not have specialized knowledge in areas such as procurement compliance, fraud detection, or information security controls. In addition, assessments conducted in-house can be influenced by organizational culture or existing relationships which may reduce objectivity. These factors can prevent organizations from identifying potential vulnerabilities or implementing effective mitigation strategies.
Benefits of Independent Third-Party Assessments
Engaging an independent forensic auditor / investigator or consulting firm, like Guidepost Solutions, to evaluate third-party vendor risks provides clear advantages. External professionals bring expertise and experience that internal teams may not possess and can offer a broader perspective across multiple departments including procurement, finance, and information technology. Independent assessments are objective and unbiased, helping organizations identify risks that might be overlooked internally. In some cases, an external review also adds credibility to risk management initiatives, especially when organizational compliance or training efforts have historically been limited. In addition, independent third-party assessments can be a valuable internal resource for ongoing monitoring efforts, understanding risk exposure levels, and helping implement risk mitigation strategies.
Whether the focus is updating policies, training personnel, or analyzing complex vendor relationships, an outside expert can provide actionable insights and recommendations that strengthen overall risk management.
Salvatore Ubaldini CPA, CFE
Managing Director
Mr. Ubaldini, managing director at Guidepost, is a New York Certified Public Accountant and Certified Fraud Examiner with over a decade of experience in forensic investigations, auditing, regulatory compliance, and public accounting. He specializes in the complexities of corporate institutions as they pertain to regulatory compliance and professional standards, including ARPA and other SLFRF programs.
MAGELLAN MonitorshipEmpire/Liberty Review