What does "due diligence" mean in compliance context?

"Due diligence" in the context of compliance refers to the ongoing process of investigating and evaluating obligations to understand risks associated with various operations and actions within an organization. This process involves thorough research and consideration to ensure that the entity is adhering to legal standards, regulations, and internal policies.

The significance of this ongoing process lies in its ability to help organizations identify potential compliance issues before they arise, mitigate risks effectively, and make informed decisions that align with regulatory requirements. It encompasses not only an examination of financial practices but also extends to assessing how policies and practices align with compliance obligations.

In this sense, due diligence is a proactive approach that helps maintain integrity within an organization, fostering a culture of compliance and accountability. It is distinct from a one-time evaluation or a strategy aimed at improving customer service, as those focus on specific areas rather than the overarching responsibility of ensuring compliance with laws and regulations continuously. Additionally, it is not limited to financial reporting, which represents only a portion of what due diligence entails within the broader context of compliance risk assessment.