Due Diligence Audits

Due Diligence Audits: “I wish I had known then what I know now”

“I wish I had known then what I know now,” said the company’s CEO, reflecting on past mistakes.

“We should have performed an in-depth quality and food safety audit before making that decision. The situation we are in could have been prevented. We underestimated the potential risks and failed to gather all the necessary information before acting. It’s crucial to learn from this experience and ensure we prioritize thorough assessments in the future.”

Everyone in the room could feel the weight of the CEO’s words, realizing the impact of their past oversight. It was a sobering moment that reminded them of the importance of thoroughness and careful consideration in decision-making.

A due diligence audit on quality and food safety was not performed before acquiring the small company. Contaminated products were unknowingly distributed to the market, causing a widespread food poisoning outbreak. This incident led to numerous lawsuits, a damaged reputation, and significant financial losses for the company.

CEOs in the food industry understand that providing safe food and protecting consumers is their primary challenge and focus. They are aware that an outbreak can have devastating consequences for their business. Not only can it result in financial losses for the company, but it can also damage its reputation and lead to legal issues.

According to a 2018 SSAFE document co-published with Accenture on managing food safety in mergers and acquisitions, most businesses devote less than 2% of their due-diligence efforts to food safety concerns. 23% of survey respondents’ merger and acquisition deals failed to generate the value they had hoped for, according to a 2019 Deloitte study. This shows how crucial food safety auditing is to mergers and acquisitions and how there is room for improvement.

Why is it sometimes difficult for businesses and people to effectively anticipate risks?

Let me go over a few key reasons that I’ve encountered in the past.

Individuals may prioritize immediate tasks or short-term goals over risk anticipation in high-paced environments or situations with limited resources. The pressure to meet deadlines or financial constraints can make it difficult to devote time and resources to proactive risk assessment and mitigation.

When individuals and organizations lack the knowledge and awareness of potential hazards or vulnerabilities in a given context, they may fail to anticipate risks. This lack of knowledge and understanding can lead to a false sense of security and failure to take appropriate precautions. Furthermore, people may fail to anticipate risks when they underestimate the potential consequences or believe that certain events are unlikely to occur.

Complacency can occur when individuals or organizations become overconfident or comfortable with the status quo. Because they have not experienced any adverse events in the past, they may underestimate or disregard potential risks. This can result in a lack of preparedness and a failure to implement necessary safety measures. Furthermore, complacency can impede proactive problem-solving and the identification of potential vulnerabilities, making individuals or organizations more exposed to unexpected crises or emergencies.

People’s perspectives may be skewed due to a narrow focus or a lack of diverse input. This can prevent them from considering a wide range of possibilities and potential risks. Overreliance on previous experiences or a single point of view can lead to blind spots and an inability to anticipate new or evolving threats.

What does good look like?

According to the SSAFE document, a best-practice due diligence process for food safety should enable early risk awareness, appropriate expertise, precise checklists and documentation, facility visits, and a seat at the decision-making table for food safety leaders. By incorporating these practices into the due diligence process, companies can better assess the potential risks and make informed decisions regarding mergers and acquisitions. This not only ensures the safety of the food supply chain but also mitigates any potential financial and reputational risks associated with food safety issues.

You may want to consider due diligence audits if you want to go from being reactive to proactive in managing quality and food safety risks. Their robust design and implementation will ensure:

  • no unexpected quality or food safety issues,
  • early detection of quality and food safety strengths,
  • early identification of critical and significant food safety risks,
  • understanding of their potential business impact,
  • informed decisions about food safety and quality,
  • early mitigation plans/actions defined and ready to deploy, and
  • post-merger integration of quality and food safety programs that is seamless and faster.

“I am happy to know and practice now that prevention is what matters” the company’s CEO said after several years and the strict implementation of many due diligence quality and food safety audits in the supply chain.

The CEO was also pleased with the increased transparency achieved through these audits, which allowed them to identify and address potential risks before they became significant issues. This proactive approach has not only improved the company’s reputation but has also instilled in its food safety practices a culture of continuous improvement.

By Marc Cwikowski
July 18, 2023

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