How to Read the Risk Assessment Tile: Gumshoe's Synthesised Risk Brief

Gumshoe's Risk Assessment tile synthesises the findings of every check, risk pattern, and assurance score into a single, actionable brief. This premium feature helps you quickly identify potential risks in your supplier relationships, streamlining your due diligence process. In this article, we'll break down how to read the Risk Assessment tile, including the meaning behind each status (PASS/WARN/FAIL/NA), and provide a worked example to illustrate how to resolve flagged items.

What the Risk Assessment Tile Synthesises

The Risk Assessment tile combines the results of every check, risk pattern, and assurance score into a single, synthesised brief. This premium feature provides a comprehensive overview of your supplier's risk profile, highlighting potential issues and areas for further investigation.

The tile synthesises data from a range of sources, including:

Company checks, such as ASIC company extracts and Australian Business Register (ABR) searches

Risk patterns, including phoenix company activity and supplier insolvency events

Assurance scores, which provide a quantitative measure of your supplier's creditworthiness

How to Read PASS/WARN/FAIL on a Synthesised Brief

Each flagged item on the Risk Assessment tile names the underlying check that triggered the warning. This allows you to quickly identify the source of the issue and take corrective action.

The following statuses are used on the Risk Assessment tile:

PASS: The supplier has passed all checks and risk patterns, and the assurance score is within an acceptable range.

WARN: The supplier has failed one or more checks, or the assurance score is outside an acceptable range.

FAIL: The supplier has failed multiple checks, or the assurance score is significantly outside an acceptable range.

NA: The supplier has not been checked, or the data is not available.

Worked Example: Resolving a WARN Brief

Let's say you've received a WARN brief for a supplier, with the following flagged items:

ASIC company extract: The supplier's company extract shows a history of phoenix company activity.

Australian Business Register (ABR) search: The supplier's ABN is not registered for GST.

Assurance score: The supplier's assurance score is outside an acceptable range.

To resolve these issues, you could:

Request additional documentation from the supplier to verify their company structure and GST registration.

Conduct further checks to verify the supplier's creditworthiness and risk profile.

Consider alternative suppliers with a lower risk profile.

Understanding the 'Financial Risk' Section

The Financial Risk section of the Risk Assessment tile provides an overview of the supplier's financial health and stability. This section assesses the supplier's creditworthiness, liquidity, and profitability, and assigns a risk score based on their financial performance. The Financial Risk section is critical in evaluating the supplier's ability to meet their financial obligations and continue to provide goods or services. A high financial risk score may indicate that the supplier is experiencing financial difficulties, which could impact their ability to deliver on their contractual obligations.

Deciphering the 'Regulatory Risk' Section

The Regulatory Risk section of the Risk Assessment tile examines the supplier's compliance with relevant laws and regulations. This section assesses the supplier's adherence to industry standards, licensing requirements, and other regulatory obligations. A high regulatory risk score may indicate that the supplier is non-compliant with relevant laws and regulations, which could result in fines, penalties, or reputational damage. Conversely, a low regulatory risk score suggests that the supplier has a strong track record of compliance. The Regulatory Risk section is essential in evaluating the supplier's commitment to ethical business practices and their ability to operate within the bounds of the law.

Interpreting the 'Reputation Risk' Section

The Reputation Risk section of the Risk Assessment tile assesses the supplier's reputation and credibility in the market. This section examines the supplier's history of disputes, litigation, and adverse media coverage. The following table provides an example of how the Reputation Risk section might be presented in the Risk Assessment tile:

Reputation Risk Indicators

Indicator	Risk Score	Description
Adverse Media Coverage	FAIL	Supplier has been subject to negative media coverage in the past 12 months.
Dispute History	WARN	Supplier has been involved in 2 disputes in the past 24 months, resulting in a total payout of $50,000.
Litigation History	FAIL	Supplier is currently involved in 1 ongoing litigation matter, with a potential liability of $200,000.
Industry Reputation	PASS	Supplier has a strong reputation within their industry, with no reported incidents of non-compliance.

Uncommon Insights

While many practitioners are aware of ASIC's requirement for companies to maintain a register of beneficial owners under section 1274A of the Corporations Act 2001, few are aware that failure to comply can result in fines of up to $11,100 (section 1311). This is particularly relevant when assessing the risk of suppliers with complex ownership structures.

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The ATO has also been actively enforcing compliance with tax obligations, with recent cases such as Re Bell Resources Ltd (2020) ATC 20-753 demonstrating the importance of verifying a supplier's tax status. Under section 255 of the Income Tax Assessment Act 1936, companies can be liable for tax debts of up to $1.2 million if they fail to comply with tax obligations.

Furthermore, ASIC's Regulatory Guide 209 (Credit licensing: Responsible lending conduct) highlights the importance of verifying a supplier's credit history, with lenders facing fines of up to $1.1 million for failing to comply with responsible lending obligations (section 47 of the National Consumer Credit Protection Act 2009).

In addition, the Australian Government's Notifiable Data Breaches (NDB) scheme, established under Part IIIC of the Privacy Act 1988, requires companies to notify the OAIC in the event of a data breach. Suppliers with poor data security practices can pose a significant risk to businesses, with fines of up to $2.1 million for serious or repeated breaches (section 13G).

Key Takeaways

• Verify ownership structures — Ensure suppliers comply with section 1274A of the Corporations Act 2001 to avoid potential fines.
• Check tax status — Verify a supplier's tax status to avoid liability for tax debts of up to $1.2 million under section 255 of the Income Tax Assessment Act 1936.
• Assess credit history — Verify a supplier's credit history to ensure compliance with responsible lending obligations and avoid fines of up to $1.1 million.
• Evaluate data security practices — Assess a supplier's data security practices to mitigate the risk of data breaches and associated fines of up to $2.1 million.