Five Tools for an Enhanced Due Diligence by Sheila Latiff

Due diligence a term used for a variety of concepts involving investigation of a loan prior to signing a contract, or an act with a certain ‘standard of care’. To ensure high standards of these standards of care, here are five tools that every service provider doing due diligence should be using:

1. Smart analytics

Analytics is reviewing data and drawing meaningful conclusions; Smart Analytics is going beyond the financials provided and look into synergies in the data BEHIND the financials. The reason this can be done, is as experts, the analyzer is forensically searching for links between financial data and how that data can lead to areas needing improvement. Termed as Predictive Analytics or Big Data Analytics, the result can predict future performance based on current and historical data, returning greater efficiencies.

2. Scoring technologies-Ratings/Grades as an approved 3rd party DD provider for RMBS securities

Measuring the DD efforts in a consistent or measurable way such as scored audits makes for a defined industry standard, such as those aligned with ratings agencies. Any time you are evaluating multiple factors in combination, the precision of each element becomes more important. Basing a model on multiple measured correlations, yields a better outcome than basing a model on multiple judgmental assessments – each contributing its imprecision to a watered-down result.

3. Stratification and Sampling Techniques

Allowing the buyer to focus on the execution of the deal rather than going through the minutiae of collateral data, or dealing with improperly prepared data tapes demands stratification of pool data according to characteristics of the assets. An aptly structured stratification will lead to a having a suitable sample with a common set of measurements; and a correctly defined sample will lead to correct results.

4. Interactive Portal Document/Data Exchange

Having an interactive document portal which aggregates all the available docs and data improves visibility into selecting correct source documents to accurately review the asset. Conclusions can then be drawn for the buyer of the loans. How it is it done? Once due diligence is in process, buyers simply ask for access to a target’s MIS, ERP, CRM, accounting software, i.e., all components of the system of record, to gain knowledge and information that before was either not previously requested or simply not addressed.

5. Integrated compliance and fraud detection engines

Compliance engines within a vendor’s system will produce integrated results and when reported will provide risk ratings for the overall review.  Fraud detection tools can   cover unknown risks giving decision makers reliable intelligence about the unknown conditions, so they are able to devise stop-loss tactics and minimize the adverse impact to the execution of the business strategy.

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