Home Page » Magazine Archive » Web Content » 2006 Editions » CU Magazine: November 2006 » Due Diligence: Keep Members, Regulators Happy

By Norine Richards

The National Credit Union Administration (NCUA) often repeats the "due diligence" theme in regulations, letters to federally insured credit unions, and examiner questionnaires.

These eight steps incorporate the points in NCUA's 2001 letter regarding due diligence in selecting third-party providers:

1. Know your problem or goal

Approach vendor selection with predefined objectives tied to your short- and long-term strategies. Don't pursue products or services unless they directly contribute to a defined credit union objective.

2. Know your expectations and desired results

Staff must be clear on why they're soliciting vendors and the desired outcome. Before arranging a client demonstration or visit, create a cross-functional project team and brainstorm business, technology, and financial requirements.

3. Know your due diligence analysis standards

Due diligence should precede all outsourcing activity or product purchases. The biggest risks often are associated with the most innocuous, nonintrusive vendor relationships.

4. Know your vendor

Sometimes credit unions shortcut the due diligence process due to preconceived ideas or opinions about vendors.

Some view a vendor's reputation as sufficient evidence of impeccable service. Or a tip from a trusted credit union colleague might cause your CEO to ask, "Why aren't we using them?"

Ask these questions during vendor selection:

• Will your credit union be the vendor's largest customer or a smallclient? You may lose your ability to negotiate with larger companies, butdeal with small firms with care because they may not have the resources tosupport your needs adequately.
• Is the vendor willing to share its financial statements? If not, besuspicious. If the vendor worries about a confidentiality issue, agree tosign a nondisclosure agreement to assure the vendor that your credit unionwon't distribute the vendor's financial data.
• Who provided the client contacts? The vendor should provide acomprehensive list of clients, allowing you to choose the clients you wishto contact. And seek user forums for opinions.

5. Know your costs

Why outsource? Cost reduction is among the top answers. But how many deals actually reduce expenses? Typically, contracts define direct costs that may include the service or license fees, implementation, continuing support and maintenance, and vendor training. Consider important intangibles and how outsourcing affects internal operations. If you aren't clear about service levels, terms, recourse and liability, and fees, consider an attorney review.

Page: 1 2 [Next]

Related Articles Small CU Profile: Nick Kessenich, Members First CU Beggs on the Market: Holiday Hangover Top 10 Stories of 2009 Beggs on the Market: Looking ahead to 2010 Compliance Q&A: SARs Spotlight: Joni Walker