Beyond the Checkbox: Rethinking Vendor Due Diligence

Why Vendor Due Diligence Must Evolve From a Check-the-Box Task to a Strategic Risk Management Tool

In today’s globalized supply chains, robust vendor due diligence is essential, not only to ensure compliance but to safeguard organizational resilience and protect brand reputation. Yet many organizations still approach it as a formality: a series of checkboxes during onboarding, rarely revisited unless something goes wrong. As forensic accountants, we regularly witness how this gap can open the door to self-dealing, kickbacks and fraud, all of which can often go undetected for years. As pressure mounts on organizations to prevent fraud, waste and abuse (“FWA”), ensuring that third-party risks are properly assessed and continuously monitored has never been more critical.

To effectively address vendor risk management challenges, clients should prioritize a multifaceted approach that incorporates several key elements. This includes proactive risk identification, leveraging data analytics and business intelligence to identify potential vendor-related risks, forensic analysis and utilizing forensic accounting techniques to investigate and understand the root causes of vendor risks. Additionally, implementing advanced technology, such as AI tools, can enhance risk monitoring and mitigation capabilities. It is also essential for clients to develop both industry and geography-agnostic strategies, allowing them to apply vendor risk management best practices across various industries and geographies. By focusing on these areas, clients can better identify, investigate and mitigate vendor-related risks, ultimately strengthening their overall risk management posture.

This article explores common gaps in vendor oversight, key tailwinds driving change and real examples of how our expertise can help organizations strengthen their vendor due diligence practices.

What Companies Should Be Doing — And What They Often Miss

Many organizations begin with the right intentions when it comes to vendor management, but their execution often falls short — particularly when the pressure is on to move quickly, stay within budget and meet operational goals. A common pitfall is the overreliance on system-based onboarding processes. Once a vendor is added to an onboarding system and cleared through basic compliance checks, they are rarely reviewed again — especially if the initial paperwork is in order and invoices for services rendered are within the department budget.

This “check-the-box” approach creates a false sense of security. Without ongoing review, companies may fail to detect outlier spending, unusual invoice patterns or shifts in the nature of the relationship between employees and third parties. Procurement teams often prioritize budget alignment and cost efficiency — but do so at the expense of broader risk visibility. This budget-first, risk-second mentality can leave organizations vulnerable to fraud schemes that are designed to exploit blind spots in the vendor lifecycle, especially in environments where internal audit or compliance functions are underutilized.

Vendor risk management needs to be viewed as a dynamic process, not a one-time checkpoint. Companies should be applying the same rigor to their vendor monitoring practices as they do to internal controls over financial reporting — especially in high-risk geographies or industries with complex supply chains. This includes continuously analyzing vendor-spend data, flagging exceptions, understanding the principals behind each vendor and conducting proactive risk assessments that consider FWA exposures.

Emerging Pressures and Tailwinds Pushing for Better Oversight

Organizations are facing a confluence of external and internal pressures that are reshaping how vendor management is prioritized and implemented. Under evolving regulatory landscapes, procurement practices have been increasingly scrutinized — particularly in sectors that rely heavily on subcontractors or engage in public procurement. Regulators are placing a renewed emphasis on integrity, transparency and anti-corruption compliance, pushing companies to reassess how they evaluate and engage external partners.

In a recent memorandum published by the U.S. Department of Justice Criminal Division (“DOJ”), the government explicitly prioritizes the pursuit of dishonest actors who exploit the federal government through FWA.¹ Corporations that contract with the government can help ensure they do not wind up in the government’s crosshairs by having robust internal controls that include comprehensive due diligence on subcontractors and third-party vendors. Corporations can play a critical role in preventing illicit activities, such as bribery and money laundering, by ensuring that their subcontractors and third-party vendors adhere to the highest standards of integrity and compliance. As a result, corporations are well-advised to conduct thorough risk assessments and implement effective monitoring and control measures to mitigate the risks associated with their vendors and subcontractors, ultimately protecting the interests of American taxpayers and maintaining the integrity of government programs.

In today’s business environment, procurement teams are under pressure to look beyond the initial price tag and consider a broader range of value metrics when selecting vendors. This shift is driven by two key factors: internal cost-saving imperatives and regulatory pressures. As a result, procurement teams are now evaluating vendors based on their reliability, compliance history and long-term performance, in addition to their pricing. Furthermore, environmental, social and governance (“ESG”) considerations are playing an increasingly important role in procurement decisions as companies seek to minimize their environmental footprint, ensure social responsibility and maintain good governance practices. Consequently, vendor due diligence is no longer a mere compliance exercise but a critical operational and reputational necessity that helps companies mitigate risks, ensure compliance and protect their reputation.

The convergence of these emerging pressures and tailwinds creates new opportunities for companies to integrate forensic-led reviews into their procurement lifecycle. From upfront risk-based vendor onboarding to ongoing spend analysis and performance monitoring, organizations are recognizing the need for a more sophisticated, data-driven approach to vendor oversight — one that can help mitigate fraud, waste and abuse while unlocking operational efficiencies.

What Robust Vendor Due Diligence Should Look Like

A robust vendor due diligence program requires a risk-based approach that segments vendors by exposure level and tailors diligence efforts accordingly. High-risk vendors — due to geography, services provided, payment structure or affiliations — should be subject to enhanced vetting and recurring reviews. Equally important is the integration of red-flag detection systems that can monitor transactional behavior and identify anomalies over time.

Recruiting a multidisciplinary team of forensic accountants, data analysts and business intelligence experts can bring a critical eye and scalable methodologies to examine large datasets, assess vendor-spending trends and flag inconsistencies that may otherwise go unnoticed. Whether identifying shell vendors, undisclosed relationships or patterns of pass-through pricing, these capabilities provide the depth and rigor needed to elevate vendor oversight beyond basic compliance.

Effective vendor due diligence is also inherently cross-functional. It thrives when compliance, procurement, internal audit and legal functions work in lockstep — sharing information, aligning on risk indicators and responding swiftly when issues emerge. In this environment, vendors are no longer treated as administrative entries in a system, but as strategic relationships with operational, financial and reputational implications.

How We Can Help

Companies should prioritize risk management to minimize the risk of vendor misconduct and ensure that their business operations are aligned. We are frequently called upon to lead or support independent investigations involving vendor misconduct — ranging from kickback schemes to procurement fraud and undisclosed conflicts of interest. Our experts also help companies proactively build or improve third-party risk management programs, ensuring they are equipped to meet rising expectations from regulators, stakeholders and shareholders alike.

At FTI Consulting, we bring together teams who seamlessly collaborate across jurisdictions and specialties. Our cross-border capabilities and local language fluency allow us to navigate complex regulatory and cultural landscapes — particularly in regions where opaque practices and limited transparency heighten fraud risks. As an example, our experts were recently enlisted by a Latin American subsidiary of a U.S. company to investigate internal allegations of financial misconduct. Through dozens of employee interviews and a comprehensive review of communications and financial records, FTI Consulting uncovered fraudulent activity and control failures. We also extracted and analyzed vendor data to identify trends and suspicious patterns and conducted background checks and public source reviews to support and validate our findings.

Conclusion

Vendor due diligence is neither a box to tick nor a one-time task — it’s an ongoing and strategic discipline that requires the right tools, people and mindset.

Organizations that approach vendor due diligence strategically are not just protecting against fraud, waste and abuse; they’re safeguarding their brand, ensuring business continuity and preserving their ability to operate with integrity in a complex global marketplace.

Footnotes:

1: “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime,” U.S. Department of Justice (May 12, 2025).