How to Ensure Vendor Compliance
Third-party involvement is a necessity in nearly every business. While some smaller organizations might work with only a handful of vendors, large corporations coordinate with thousands each year: Consumer goods company Procter & Gamble (P&G), for example, works with more than 60,000 suppliers, while retail giant Walmart utilizes more than 100,000.
However, greater third-party involvement often brings greater risks, requiring proper documentation, valid certificates of insurance (COIs), and compliance with company policies and government regulations.
To guard against non-compliance, it is imperative businesses conduct thorough risk assessments and evaluations; track relevant documentation, policies, and contracts; and proactively monitor for deficiencies.
What Is Vendor Compliance?
Vendor compliance occurs when third parties fulfill all predetermined policy and legal expectations in the business relationship.
When addressing a need, companies often contract third parties such as suppliers, manufacturers, distributors, and other agents to provide a product or service that benefits the organization. The work is often contracted, with terms and conditions agreed upon hiring—ensuring the third party delivers the expected goods and services to the consumer in the allotted time. To comply with regulations and requirements, the vendor also provides COIs and other documentation, all of which can be easily uploaded to streamlined software during onboarding.
There are two types of compliance: basic and regulated. Basic vendor compliance occurs in a non-regulated industry and encompasses a third-party policy, outlining requirements and including regular assessments. Regulated vendor compliance involves a third party and company in a government-regulated industry, such as finance, banking, and healthcare. Both must comply with mandated laws and regulations, as well as policy stipulations.
What Is the Cost of Non-Compliance?
Whether the third party in question has deficient COIs or fails to meet regulatory requirements, the costs of non-compliance are detrimental, often resulting in lost revenue, wasted time, and/or reputational damage.
In assessing the potential cost of non-compliance within your company, we suggest referring to the following framework:
- Strategy: A business usually has long-term plans in place to achieve its goals and mission. If a third party offers products or services that do not align with these visions, it will hurt the company’s return on investment (ROI).
- Reputation: Inappropriate recommendations, security breaches, violated laws and regulations, and poor customer service misaligned with policies can all wreak havoc on an organization’s reputation, public image, and trust.
- Operations: A company will generally integrate internal operations policies with third-party processes. However, out-of-sync operations can cause confusion and internal conflicts.
- Transactions: If the correct product does not reach the designated customer at the allotted time, the resulting dissatisfaction reflects poorly upon the company and tenant. Such failure may be a result of human error, fraud, technological issues, or lack of inventory.
- Credit: If a vendor fails to perform as agreed upon in the policy, this warrants the utilization of a performance measurement to assess the effectiveness of the project or service.
- Regulatory: Legal action can result from violating regulatory requirements, laws, rules, or adherence to internal policies.
5 Steps to Secure Vendor Compliance
1. Conduct Risk Assessments
Companies should perform multiple assessments of potential third-party risks, itemizing benefits, liabilities, costs, and more in a risk-and-reward analysis. Organizations must also consider internal costs, such as the creation of a third-party management position or the long-term financial implications of the relationship.
2. Evaluate the Vendor
Before selecting a third party, a company must exercise due diligence in reviewing all audited financial statements, annual reports, reputation stature, qualifications, and whether the tenant is currently in litigation. It is also worthwhile for businesses to note subcontractors, internal operations, knowledge of relevant applicable governmental laws, and insurance coverage.
Modernized software enables companies to broadcast automated requests for proposals (RFPs) for easy comparison of vetted, pre-qualified tenants with a few button clicks.
3. Create a Vendor Compliance Policy
A policy stipulates company expectations. For a third party to work with a business, it must legally agree to its terms, which may include legal mandates, operational guidelines, and detailed consequences if standards are unmet.
Some organizations may keep such policies on their websites for third-party reference. For instance, Barnes & Noble has an easily accessible policy and itemizes a few required government regulations, including the Consumer Product Safety Improvement Act (CPSIA).
4. Solidify a Contract
While the compliance program must be agreed upon by all third parties, a company should create a unique contract for each tenant to ensure specific goals and guidelines are met.
Contracts should include the scope of responsibilities for both parties, cost and compensation of services, performance standards, necessary reports, audit standards, confidentiality and security clauses, responses to customer complaints, resumption and contingency plans, default and termination clauses, dispute resolution clauses, ownership and license provisions, indemnification, and limits on liability, according to the Federal Deposit Insurance Corporation (FDIC).
5. Vendor Management
The assessments, analyses, and due diligence do not stop when a company and tenant sign a contract. Businesses should continue overseeing third-party operations, contract and policy alignment, regulation adherence, relevant licenses and registrations, financial condition, insurance coverage, audit reports, customer interactions, and other liabilities.
While companies can appoint internal management roles to maintain necessary full visibility, automated software is a welcome alternative to potential human error, oversights, and myriad paperwork.
Curbing Non-Compliance With COI Tracking
Few offerings match the full-scale COI tracking and monitoring Business Credentialing Services (bcs) provides, ensuring compliance with a number of automated capabilities:
- Certificate of Insurance (COI) Tracking: The platform collects, reviews, and corrects insurance and other documentation in a streamlined database, providing immediate alerts to return wayward vendors to compliance and mitigate liabilities.
- Document Management: Businesses can nix the mountains of paperwork usually associated with third-party management and migrate to a cloud-based platform, easily storing COIs, pertinent documentation, chat messaging, and more.
- Automated requests for proposals (RFPs): Easily broadcast RFPs to compare pools of pre-qualified applicants for your next job.
- Onboarding Tools: Seamlessly input new tenant information into the software or encourage self-onboarding through the vendor mobile app.
- Safety Pre-Qualifications: Ensure third parties and subcontractors are compliant with electronic medical records (EMR) and Occupational Safety and Health Administration (OSHA) data.
- Regulatory Screenings: Amid a plethora of regulations, bcs enables you to systematically screen third parties.
- Financial Evaluations: bcs assists with evaluating financial stability and creditworthiness, curbing risks of associating with tenants in poor financial standing.
While maintaining compliance has several moving parts, sophisticated software, such as bcs’s full-service and self-service solutions, handles the minutiae of document storage, review, correction, and more. Streamlined for easy reference and utilization, bcs optimizes COI tracking and builds safer third-party relationships so you can focus on what really matters: running your business.
bcs is the preeminent COI management solution on the market, offering self-service and full-service tracking to support your business in vendor compliance, risk mitigation, and so much more. The bcs App streamlines in-app onboarding, automated request for proposal (RFP) broadcasting, and integrated communication tools, among other cutting-edge capabilities.
Contact us today to learn more.
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