How to Avoid the Pitfalls of Vendor Non-Compliance
Today’s demanding tenants and residents means that portfolio managers and owners are having to respond quicker than ever to their concerns. To keep these high-value customers satisfied, delivering needed repairs, finishing property improvements and handling all types of complaints, puts even more of an emphasis on the importance of keeping up with credentialing vendors.
The responsibility of credentialing typically falls on various roles such as an executive, a property manager, or an accountant. Keeping clients happy while balancing the finer details of managing risk to your portfolio is a tedious yet vital component for averting financial loss. Homeowner associations and manager-owners of commercial and residential properties are especially vulnerable for liabilities stemming from credentialing non-compliance.
The Most Common Vendor Pitfalls
The peril frequently lies within the vendor on-boarding and credentialing practice. What typically happens by moving swiftly to get things done is that you may inadvertently be exposing your company to unnecessary risk. There is a direct correlation between financial loss and not having adequate resources to perform a complete vendor audit for Certificates of Insurance (COI’s), W-9’s, state and local vendor licensing checks and the like. Most companies don’t have the time, the software tools or enough capable staff to investigate and perform the required due diligence every time, for every single vendor requirement that is pertinent to avoiding risk.
Some of the top pitfalls that can jeopardize large sums of money occur with events that befall contractors from accidents or gain media attention as a result of known sexual or criminal predators dwelling on site. Many of the worst incidents take a life of their own with follow-on litigation. Insurance claims can be flat-out denied because of a relaxed vendor credentialing program or one that may be championed at the main office is handled inconsistently across satellite locations.
Surprises In Store for Non-Compliance
Very often, when a vendor’s insurance carrier hasn’t been fully vetted, it may be a surprise to find a lack of reserves or a lower than expected financial rating by state regulators. This hampers the ability of the carrier to pay out claims filed for loss of life, medical expenses or property damage.
On the other side is the policyholder’s goodwill and forthrightness. Unknowingly to the HOA or property company, a vendor’s insurance renewal may not be up-to-date, their policy has lapsed for non-payment or simply no required insurance coverage exists at all.
If an organization is not in control of their vendor on-boarding process, it is likely someday to control them with liability and risk. If (and when) an unfortunate event occurs –an organization may not be able to withstand the outcome. Organizations who used to skate by with limited vendor compliance tactics find that it’s no longer acceptable -- especially when there are major advances in technology and experts to help.
7 Popular Vendor Compliance Steps -- Sound Familiar?
Are you one of the companies who handles your vendor compliance this way?
- “Yes, we hand the vendor application off to accounting once it comes in…”.
- “Well, we put our vendor info into the big binder, where we keep all of the files like that in our office.”
- “I don’t know what everyone else does outside of this branch, but we keep it in a drawer, here.”
- “Yep, we glance at the vendor details to make sure they filled it out, and we shred it when we’re done.”
- “Oh, the person who usually collects our vendor details normally just checks the box in the vendor package for us.”
- “We get the information from our contractors we hire, but we don’t really act on it or review it once it gets here.”
- “Well, I know someone is supposed to check the insurance once a year, but we’re so busy, I’m not sure it actually gets done.”
We Haven’t Had Any Vendor Credentialing Issues (Yet)
If your organization is not fully addressing your vendor on-boarding process, any of these recent events could soon hit closer-to-home than you realize:
- A roofing vendor provided a certificate of insurance, which had actually lapsed for non-payment. His work resulted in damage to a building. Later it was discovered that cert he provided was invalid and no insurance was in place.
- A two-man tree-trimming outfit was clearing trees over a pool. One of the men fell, impaling himself on the picket of the fence. He sued the association for millions of dollars for workman's comp. His company did not carry the coverage. Regardless of size and state law requirements, vendors need to carry workers’ compensation insurance.
- An arborist was hired to snip a few tree limbs. He accidentally clipped a power line and was killed. There was no insurance, so the client’s policy paid out the death claim – resulting in significant increases to the premium and deductible for the life of the client’s policy.
- While painting an inside hallway, a painter placed his hand on an electrical panel, and lost his thumb. It actually blew off when it made contact. The client’s insurance paid out $2.5 million dollars in claims. The client saw their premium rates and deductible go up because the painting firm was operating without proper workers’ comp coverage.
- A non-licensed contractor was performing electrical work and caused extensive property damage. The client’s insurance carrier denied the claim, due to the contractor being unlicensed.
Four Steps to Improve Vendor Compliance, Right Now
If you see yourself or your company at risk from non-compliant vendor credentialing and onboarding, you may benefit from taking the following steps:
Gather your stakeholders together and have a frank discussion about your exposure to risk. Define who, what, where and estimate how frequently the rate of occurrence is today. Make a projection based on planned growth for each line item on your list.
Temporarily assign oversight of the current process and perform an initial random audit of your vendor documents. If you have multiple offices, pull a sampling from each one, to see if any differences in the credentialing process appear. Bring your findings to your next planned stakeholder meeting and see how close your preliminary audit results align to your original estimates.
Consider partnering with a team from Enterprise Risk Control (ERC). The credentialing-rich business acumen from ERC is highly specialized. ERC helps companies evaluate their vendor on-boarding and credentialing procedures. They identify all of the key attributes necessary to collect in the compliance process for each vendor scenario. Notably, ERC support team members do carry an active insurance license so that they are able to converse fluently with vendors’ insurance carriers. By coupling ERC’s hands-on knowledge with their impressive and proprietary software tools to inform, act and flag compliance exceptions, your risk exposure will be greatly minimized. ERC can automate the compliance process and prevent common pitfalls, so you won’t have to worry.
If you feel that you can go at it alone with getting a handle on updating your vendor process, be sure you are mitigating true vs. perceived risk, and ask your stakeholder team to support your efforts. One way Enterprise Risk Control helps is by performing an independent expert analysis of current vendor on-boarding standards and gaps. With their insurance licensure (as stated, we are all not licensed), and customizable technology platforms, Enterprise Risk Control is adept at determining what’s necessary to manage risk successfully and what’s not. At Enterprise Risk Control, they are able to further inform your stakeholder team the steps you might need to take to protect your company and your property investments from threats due to vendor non-compliance.
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Enterprise Risk Control brings to market one of the most advanced, feature-rich vendor management solutions in the industry. Our technology, coupled with our unparalleled service, allows you to automate the collection of vendor information based on their risk exposure. This information is continuously evaluated against your criteria, thus reducing your exposure while giving you the tools to effectively manage your vendor database. ERC services all sizes of business across all business verticals. Small oversights can have enormous consequences; let ERC provide you with the peace of mind that comes from knowing that you are proactively protecting your business with our accurate, intuitive and customizable compliance solution.