5 Gaps In Your Vendor Compliance Checklist

by Ashley Poynter

Content Manager

5 Gaps In Your Vendor Compliance Checklist

Do you have a dusty, worn-down vendor compliance checklist? Maybe you don’t have one at all. I know this: you need one, and it should be accurate and current.

Without it, you’re putting your organization at risk for non-compliance – and the fines, penalties, and embarrassment that come with it.

Building a vendor compliance checklist can seem daunting. You have to consider local, state, federal, global, and internal mandates. You have to think about all the different teams and people involved in complying with regulations and requirements. And you have to drill down to each and every task tied to those requirements.

It’s a lot.

But if you want to protect your organization from fraud, penalties, and the risk of losing your insurance coverage, you need to get this right.

We can help.

Why You Need a Vendor Compliance Checklist

—Regulatory roadmap

—Risk management and mitigation

—Tailoring the Checklist to Manual Processes

What’s Missing From Your Vendor Compliance Checklist?

#1. A documented vendor management process

#2. A communications plan

#3. The right controls

#4. Continuous sanctions checks

#5. Automation

Get Ready for Vendor Management Appreciation Day 2024

Want Help Aligning Teams On Strategic Vendor Management?

Interested in Regular Tips On Strategic Vendor Management?

Want Personalized Guidance On Strategic Vendor Management?

Why You Need a Vendor Compliance Checklist

A vendor compliance checklist is not optional. Ensuring your organization doesn’t violate local, state, federal, or global rules and regulations is critical. Additionally, it underpins operational resilience.

Organizations that still heavily rely on manual processes should pay special attention. A solid vendor compliance checklist is not just a guide to staying compliant; it’s a key part of your risk management process as well.

Let’s look at the critical elements your checklist should cover.

Regulatory roadmap

Your vendor compliance checklist should be a comprehensive roadmap. In other words, it should list all the relevant regulatory requirements you and your vendors are bound to (GDPR, KYC, PCI, etc.). Pay special attention to unique regulations that apply across different jurisdictions and industries.

Risk management and mitigation

Risk is an inherent part of any organization – and it gets more complicated when outside vendors are involved. A vendor compliance checklist helps identify potential risks at the outset. In addition to honing in on financial risks, it can help uncover reputational risks and potential cybersecurity concerns.

This checklist helps avoid risk and should nest into your vendor risk management framework. Together, they can transform reactive firefighting into a proactive stance on risk management.

Tailoring the Checklist to Manual Processes

If your vendor management operations still rely on manual tasks, a vendor compliance checklist can help you rest easier at night.

Simplify and standardize

Create a vendor compliance checklist to simplify and standardize vendor assessments. In other words, ensure it is clearly defined, actionable, and easy to execute. Remember, they should be simple but robust enough to ensure comprehensive vendor evaluation and monitoring.

Document and keep records

A vendor compliance checklist is a tangible record of your organization’s process for keeping things secure and compliant. It serves as guidelines for the vendor desk on how to document vendor verifications, compliance certifications, and any issues or remediations. Additionally, it provides a verifiable trail of compliance efforts, which comes in handy during audits or in the event of a dispute.

A vendor compliance checklist isn’t just a tool; it’s a lifeline. Next, we’ll look at what might be missing from yours.

What’s Missing From Your Vendor Compliance Checklist?

#1. A documented vendor management process

If you’re ready to get started on a vendor compliance checklist but don’t yet have a vendor onboarding and management process documented, stop right there.

Effective vendor onboarding and management practices are crucial for businesses to mitigate risks and protect their operations. What’s more, you’ll need a documented process to get any level of insurance protection in place as a backstop. Christopher Arehart from Chubb Insurance recently shared an actuary’s POV:

I’ll say it again for the (manual-process-based) folks in the back: if you’re manually collecting, verifying, entering, and securing data, you need a documented process. Without this, getting any type of insurance coverage is nearly impossible. And guess what—insurance coverage might be part of your vendor compliance checklist.

Good news! We have a template to get you started.

What to include

From a high level, your documentation should cover:

New Vendor Onboarding Documentation
- Roles and responsibilities: First, you will define and establish the roles and responsibilities for positions responsible for the collection, verification, and inputting of vendor data into your financial system. Segregation of duties is imperative to prevent opportunities for insider-assisted vendor fraud.
- Collecting and vetting vendor information—categories and tools: List the internal and third-party tools your team uses for the vendor onboarding and change management process.
- Required data to onboard: List the minimum data required to input vendor information into your financial system, paying close attention to what is required by vendor type, e.g., a business entity vs an individual, foreign vs. domestic.
- Optional data to onboard: Outline optional vendor data (conflict of interest, COIs, etc.) and what specifically will trigger the collection of this data.
- Process for data collection, approval workflows, and tracking.
Existing Vendor Change Management Documentation
- Roles and responsibilities: (Document if different from onboarding roles and responsibilities)
- Tools for collecting vendor information changes: (Document if different from onboarding tools.)
- Data collection, approval workflows, and tracking: (Document if different from the onboarding process.)
Audit Process Documentation
- Define ownership for documentation and enforcement of the process.
- Define time frames for auditing existing roles, tools, and workflows.
- Define reporting, tracking, and ownership for auditing.

The other benefit to a documented process? Better inter-departmental communication and coordination.

When it comes to vendor management, most organizations rely on institutional knowledge handed from one person to another. It’s easy to see how this can become a problem. Without documentation, all it takes is one sick day or vacation to throw the whole process into disarray.

Communication is key, which is why it’s #2 on our list.

#2. A communications plan

Do you view communication as a “given?” Many organizations do. As a result, many teams under-communicate. Keeping disparate teams on the same page regarding who owns what and how you will all track the work you’re doing is a key facet to staying compliant.

Whether it’s a flow chart, a waterfall list, or some other documentation, your vendor compliance checklist needs a communications plan. Let’s talk about why.

Let’s start with approvals. These are a big part of the vendor onboarding and management process. Yet, so often, they are tracked outside of the ERP via spreadsheets and email with no clear approval workflow or auditing trail. This is trouble when an audit occurs, and it can lead to non-compliance if the right people are in the wrong loop.

Now, let’s talk about data security. Emails and spreadsheets are not very secure. Anyone in an approval role is likely seeing all vendor info, not just what they need to see. If you’re not using an automated platform with fine-grained permissions for specific roles, you might not be compliant.

Without a proper communication plan, things tend to fall through the cracks. Your team spends time paper chasing instead of keeping a close eye on how requirements and regulations may have evolved. Listen to Sharon Loosman, Director, Procurement & Business Services, from North Carolina State University, talk about what this looks like at a large, decentralized organization:

#3. The right controls

A lack of business controls leads to fraud and compliance risk. If your organization doesn’t have auditable business controls, you face unnecessary risk. You should have both preventative and corrective controls to properly manage risk.

You know this. In fact, you’ve probably lost sleep over it. Vendor compliance is a stress-inducing process. Without the right controls, it seems nearly impossible to master compliance and all the rules and regulations. Moreover, you’re not dealing with a static list of vendors. Vendors are constantly changing, and internal folks may also have shifting responsibilities.

Start by documenting your compliance process (Hey, look! We have a template for that).

Before you carve your vendor compliance checklist in stone, outline your compliance procedures according to global, federal, state, local, and internal parts. This can help you get everyone on the same page about all requirements enforced by your country, state, city, and company.

This should include a process around continuous sanctions monitoring, insurance, diversity documents, and any other items relevant to your organization.

#4. Continuous sanctions checks

Vendor sanction screening is a critical part of your vendor compliance checklist. That said, it is not a box you can check and forget. It is a continuous process that requires continuous checks – not just at the time of onboarding.

To clarify, sanctions lists are dynamic databases that are regularly updated. New security concerns emerge, and new people, businesses, and entities are added. Ideally, your organization should be able to run checks against debarred and sanctions list lists in real-time to ensure that none of your current, active vendors appear. Most organizations can’t do this.

Unfortunately, this inability to keep up can put organizations at risk for non-compliance. A systematic approach is best, but many organizations just don’t do this. As a result, non-compliant organizations face fines, fees, and penalties. They also put themselves at risk for reputational damage (they were doing business with who?!?)

Let’s not forget perhaps the worst-case scenario. Law enforcement may freeze an entity’s assets on one of these sanctions lists. If they turn out to be your supplier, it can throw a really big wrench into your operations.

Continuous sanctions checks require extreme vigilance. Without the right tools and automation, it can be very, very difficult for organizations to keep this box checked on the vendor compliance checklist.

#4. Automation

A vendor compliance checklist is a necessity for every organization. That said, you can greatly simplify your checklist with a little automation. Vendor compliance is fraught with potential pitfalls and things to overlook accidentally. Moreover, if a reactive stance has your organization battling non-compliance risk on its heels, automation can change the game.

Automation streamlines the compliance process, helping you move from manual, error-prone processes to a seamless, efficient operation. Automated platforms can ensure that every step taken aligns with regulatory requirements and industry best practices.

One of the most significant benefits of automation lies in its ability to mitigate human error. From automating sanctions checks to real-time risk assessments, automation provides a level of precision and consistency that manual processes can scarcely hope to achieve.

Automating repetitive tasks like data entry, verification processes, and compliance checks significantly reduces the likelihood of errors that could lead to non-compliance penalties or, worse, fraud.

And here’s an added benefit: automation frees your vendor management team from the drudgery of clerical work so they can focus on more strategic aspects of vendor relations.

Information can change in the blink of an eye. Automation ensures that your organization keeps pace with these changes, whether it’s a change in a vendor’s compliance status or an update to sanctions lists. Automated platforms provide immediate alerts so your organization can respond swiftly to maintain compliance and mitigate risks.

In short, automation can help secure vendor onboarding, ensure compliance, reduce the risk of fraud, and streamline payments—all without the need for manual intervention. It’s not just an upgrade; it’s a strategic overhaul. Are you ready?

Get Ready For Vendor Management Appreciation 2024

The party continues all year long! We’re still celebrating Vendor Management Appreciation Day (VMAD) and we highly encourage you to join us!

Why? Because there’s no expiration date on honoring one of the most important, under-recognized roles across industries: vendor management.

VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

We’ve released gifts each month to help you supercharge your vendor management efforts. We’re also planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

Learn more here, and grab some free vendor management goodies.