In current economy, business reputation is the key factor to get recognized in the fast paced business arena. Every business who wants to reach the highest point of development is outsourcing their tasks to third party i.e., Vendors.

According to a recent global study, corporate fraud increased 32% over the last two years, despite significant investment in internal corporate controls in the wake of Sarbanes-Oxley Act, FCPA and other corrupt practices acts. The study also noted that most corporate frauds were detected by accidental means.

Reality Bites:

Recently Business Today, mentioned a news on April 6, 2012 about corruption and vendor mismanagement in Indian Airlines. The news says that Cash-strapped Air India is losing millions of dollars due because they outsourced their repairs to an overseas vendor for its engineering department. Indian government owned airline has been made to shell out huge sums of money for repair of aircraft engines as the engineering department has failed to push through warranty claims properly and, at times, deliberately delayed follow-up action to allow the warranty period to expire.

That entire massacre happened because they didn’t follow proper procedures in selection of the vendors. This whole scenario had led the airline in losing the trust of travelers and most importantly the overall reputation.

Another story from India Today (14th Oct, 2011), mentioned news at the end of last year, when Pakistan Railways was trying to rent Indian locomotives. The reason behind reaching to India instead of friendly China, because Pakistan Railways had purchased 150 engines from China for 8 billion Pakistani rupees (Rs.4 billion) in 2003, but they proved to be substandard.

If Pakistani Government had taken serious measures of vendor credentialing and vendor due diligence, they would have saved one of the once most profitable industry of Pakistan. Due to continuous negligence in screening vendors, they are on the verge of destruction.

Startling Statistics:

• The Association of Certified Fraud Examiners reports that a typical organization can lose up to 5% revenue annually and that there are red flags to be on the lookout for. Here, vendor screening can become your watch dog.

• A recent study results defined that 92% of the employees may have a criminal record, with approximately 50% having some kind of misdemeanor record or a history of drug abuse. Astonishingly, these figures are based on companies who actively carry out vendor verification and other background checks. Imagine where they’d without these critical measures in place.

These astounding facts give a reminder that Vendor due diligence, vendor compliance and vendor screening is a critical business procedure that needs to employed when considering contractors, potential partners, investors or vendors.

Vendor Non-Compliance Can Create a Huge Risk!

Checking a vendor’s credibility, as well as those of its principals, is an essential business practice before providing a vendor access to your business assets, facilities, and workforce. Without proper vendor verification process in place, small mistakes can have big consequences like:

1. Lawsuits and Litigation liability.

2. Potential Financial fraud and abuse problem.

3. Financial failure leading to unfulfilled contractual obligations.

4. Serious Reputation Damage.

How to Save Your Business and Reputation by Employing Vender Selection Process and
Vendor Verification!

Vendor Verification Process Must Include:

• Bankruptcy, Lien, Collections, & Judgment Check

Insurance Verification / Certificate Management

• Professional License Verification

• Government Watch List Verification

• Better Business Bureau

• Conflicts of Interest Verification

• Reputational risk inquiry includes the retrieval of company filing, directorship details, annual tax returns.

• Local and international online and offline fraud search.

• Online and Offline media check of the company and individuals

• Address verification to check the existence of the company, size of the business.

• Reference Checks to inquire previous partnership details and reputation.


If you haven’t already, now is the time to find a trusted advisor, understand your risks and put intelligent plans in place to deal with vendor fraud risks, or any other factors that will interrupt your business and hurt your reputation, because reputation is the only thing which once gone, means it will never come back to you again.

With a proper understanding of the risks and rewards involved, a vendor due diligence and Vendor verification process can add value to a business in a very great manner. It can save time, money and in some cases the deal whilst being the best shield against transaction risks.

Author's Bio: 

Muhammad Saad Khan is a Writer, Social Media and Business Management Thought Leader. His current research is about vendor verification process and how it’s extremely helpful in minimizing vendor fraud risks and reputation risk from an organization. He is a brand ambassador of RiskDiscovered.