How to create a due diligence report: A guide for compliance professionals
Due diligence is a mission-critical process for any organization. A due diligence report consolidates all the information you uncovered during that process so you can make strategic decisions about potential vendors, third parties and even mergers and acquisitions. Understanding how to create an in-house due diligence report is an important step that helps your board make better decisions.
Here we aim to help you better understand the following topics:
- What a due diligence report is
- Who provides due diligence reporting
- What a due diligence report should include and how to write one
- The difference between reports completed by in-house compliance teams and those provided using due diligence technology
What is a due diligence report?
A due diligence report is a summary of the due diligence process. In it, risk and compliance teams will detail the research they completed, the information they uncovered and recommendations for how to proceed with the business relationship.
Based on this due diligence report definition, a thorough report will give executive teams the insights they need to make a strategic decision about the new entity. This can help your organization avoid breaches, leaks and exposure to bribery and corruption.
Essentially, every time you complete due diligence, you should also complete a report. The report's contents may vary based on whether it’s for a merger or acquisition, a third party or, increasingly, for data privacy.
Who can provide a due diligence report?
There isn’t one group or team responsible for due diligence reports when you’re creating them inside your organization. The risk and compliance team is typically involved, but different teams within the enterprise should lend their expertise to ensure the report is as thorough as possible. For example, if you’re completing cyber due diligence, you should include your cybersecurity teams, as they’ll know what to look for.
Many organizations also outsource their reports to external advisors or services.
What should your report include?
A due diligence report aims to recap the process and help your organization use that process to make a strategic decision. With that in mind, most data from due diligence should be in the report. This includes:
- Financial information: Compile the company’s financial statements, tax returns and relevant documents from its accounting team, as well as any loans or debts.
- Employee information: Focus on in-depth information about the third-party, relevant details on vendor contacts or profiles on key leaders involved in a merger or acquisition. This is more important than it may seem since 90% of successful deals effectively identified and targeted essential employees.
- Asset information: Describe anything the organization owns, from property and machinery to intellectual property.
- Partner information: Include information on any vendors or third-party partners that the organization works with. Their supply chain can introduce risks to your organization, so you must cover as much detail here as possible.
- Legal information: Explain any potential legal issues. This includes lawsuits and any existing contracts, permits or licenses.
What should a due diligence report look Like?
There is no single standard for what a due diligence report should look like. The appearance of your report may vary based on the type of due diligence you’re performing, as well as the nature of the business relationship.
Understanding the structure and content of a due diligence report by reviewing a template or examples can help investors better understand the structure and content of these reports. Thus, aiding the preparation for their own due diligence investigations or reviewing reports prepared by others.
Viewing sample due diligence reports can also contribute to identifying critical areas of risk and opportunity associated with an investment opportunity, which can help investors focus their due diligence efforts on areas that are most likely to impact the success of their investment.
How to prepare your report in 5 steps
A due diligence report organizes and presents the information from due diligence in a format accessible and useful to the C-suite. Many organizations follow a checklist.
To prepare a due diligence report, start by collecting all information and documentation from due diligence, then complete the following steps:
- Write an executive summary: This should explain the company you investigated and the process you followed, as well as key learnings from the process.
- Include documentation: Provide documentation that supports your investigation. This can vary based on the type of due diligence but may be legal documents, corporate reports, financial statements, etc.
- Complete a SWOT analysis: Analyze the business agreement alongside information collected during due diligence to provide strengths, weaknesses, opportunities and threats associated with the partnership.
- Explain any legal information: Focus on any legal issues that could impact the partnership. This includes any existing debt, liability or financial responsibilities.
- Provide statistics: Data can provide a brief snapshot of the due diligence process. Include any surveys, analyses, market research or key data points you uncovered during your investigation that might help your CEO make an informed decision.
Can due diligence tools enhance your reporting?
In short, the answer is yes.
While certain aspects of due diligence reports can only be completed in-house, for many compliance teams, the task of completing due diligence and creating and maintaining accurate, up-to-date reports can be time consuming and risky.
Oftentimes organizations find themselves in at least one of the following scenarios:
- Inadequate resources for vetting large numbers of third parties
- Inaccurate or incomplete information due to an over-reliance on self-disclosures and manual searches
- Reports lack depth in areas where the largest risks are posed
The good news is technology can help overcome these challenges to provide more comprehensive information with greater reliability for improved risk analysis, which translates to better business decisions.
Build a more effective due diligence program
Due diligence should be reliable, scalable and effective. Yet, the sheer amount of information and the number of teams involved in both due diligence and its reports can make it difficult to coordinate this effort — even with a thorough due diligence report process in place.
Due diligence services can streamline this process for you by offering a global team of analysts and investigators, risk-based assessments and critical business insights that can be difficult to uncover on your own.
Due Diligence Services from Diligent deliver the intel you need in a format customized to your business, all of which includes real-time insights using Global Database Check (GDC) and comprehensive online research.
