Background check – what is it?

A Background check is an assessment of risks presented by third parties, based on relevant, reliable information and, preferably, conducted independently, based on as much information as possible. It is essential that the company carries out this assessment before starting any relationship with third parties, in order to identify the potential risks arising from such an association.

In order to identify possible risk factors related to third parties, that is, individuals and legal entities with which the company intends to do business with, whether as an investor, contractor, customer, supplier, or partner, it is important to access as much relevant information as possible, from a variety of sources and types, and analyze them critically and independently.

Imagine if your company hires a supplier that works with child labor and/or slave labor or that is responsible for dumping chemical products in the rivers of a small town, what will be its image for the market? These are just some of the risks your company may be exposed to.

With the Background check process, your company can identify these and many other risks through data analysis, offering the opportunity to know and mitigate them, in addition to projecting its principles of transparency, ethics and integrity to the market, with actions that reinforce the purpose of its Integrity Program.

Companies that do not carry out the Background check are more exposed and susceptible to risks related to third parties, such as hiring people with a history of criminal conviction, companies with environmental, tax and labor problems, financing relevant clients with conduct that deviates from their code of ethics, between others.

Any company, small or large, can and should carry out Background check procedures, in any segment of activity. Of course, the processes to be implemented will be adequate to the size of the company, type of business, degree of exposure to risks, among others. Each company will have its own process suited to its business.

The Background check process can be performed either by an internal team or by a specialized external company. The advantage of executing this process with an external company is the independence of the process, the reduction of conflicts of interest, in addition to market experience and technical capacity in identifying and assessing the risks to which the company may be exposed.

Regardless of the choice, it is essential that your company makes informed decisions based on data, translating strategy into execution, knowing the risks related to its decisions and building a perennial business.

Written by Camila Arná Holzer, Advisory Services Manager at PP&C Auditores Independentes.