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Policy & Compliance


Supplier risk assessment


BIFA and the TT Club have been collaborating during 2018 on providing guidance on risk, whether it be for forwarders taking steps to ensure they receive payment from their customers, or in the TT Club’s case placing greater emphasis on supplier assessment. In this article the TT Club examines certain key aspects of supplier assessment, which largely reflects the contents of the BIFA Good Practice Guide, which was written after both entities had met to discuss the issue


In a global supply chain it is not possible to retain control over every aspect of a transaction. Hence, it becomes important to carry out due diligence to ensure those to whom you entrust certain elements operate appropriately. Due diligence is of utmost importance in all business undertakings. Primary objectives are to protect your business from non-payment for services, and to ensure that the customer you are acting on behalf of is legitimate and is not itself partaking in fraudulent business activities. A prominent risk that has been highlighted, particularly in the digital age, is mandate fraud. By purporting to be a legitimate trading organisation and implementing effective strategies, ordinarily through email correspondence, perpetrators are able to convince an individual or organisation to amend a direct debit, standing order or bank transfer mandate.


A less obvious objective is protecting your business from falling victim to fraudulent activity through the appointment of service providers and sub-contractors.


Due diligence is of utmost importance in all business undertakings Due to the nature of their role, freight forwarders have traditionally relied on the services of sub- contractors to facilitate trade, as is common for all stakeholders in the international supply chain. It is therefore vital that the company you are contracting with is a known entity and adequate due diligence has been undertaken in appraising its ability to act on your behalf. It is recommended that all stakeholders implement procedures identifying the initial


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evaluation steps, how the supplier will be approved, and what ongoing and periodic monitoring is required to ensure that the expected performance is maintained. There will likely be some elements of sub- contracting that hold greater risk than others and some which could be considered business critical. The procedures surrounding the initial stages of due diligence should seek to identify the extent to which a particular service provider needs to be validated. Essentially, a risk assessment should be performed for each service provider considering the following items. • The activity you wish it to undertake and whether that is or may be business critical,


• The potential financial, operational and reputational risks its failure poses to your business,


• The values of any cargo you are entrusting it to carry,


• The terms and conditions it trades under, including evaluation of exclusions and limitations,


• Their competence to perform the activity – consideration of training records, particularly for regulated activities such as handling dangerous goods. Identifying the correct information is only the first stage. Once the relevant information about a business has been collated there should be an effective escalation process in place to ensure that somebody with sufficient knowledge and authority verifies the data and formally accepts the service provider. Thereafter it is recommended that periodic checks are undertaken with a view to identifying any key changes to a service provider’s business and


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fully evaluating its performance. The fundamental purpose of the process is to


ensure that the service provider can meet your requirements and expectations, and where applicable any national or international regulatory obligations. Secondary benefits to the application of a robust due diligence process will be to reduce incidence of cargo theft, reduce incidence of fraudulent activity, and to minimise the likelihood of your business being subjected to fines and other costs. Where applied, such a process will reduce the likelihood of losses, but may not eliminate them entirely. A primary objective is for the checks to act as a deterrent to a service provider who intends to undertake fraudulent activity or steal a cargo. It will demonstrate that your business is aware of such risks and therefore is not a vulnerable target. This heightens the risk to the fraudster and will likely be sufficient to deter it from using your business to facilitate its activities.


Where applied, such a process will reduce the likelihood of losses Where the risk assessment concludes that the risks to your business are minimal, it may be


December 2018


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