The Role of Third-Party Audits in Securing Vendor Relationships

Many companies today are expanding their operations by integrating remote teams and leveraging cloud-based solutions. This shift often includes a greater dependency on services provided by external vendors.

Although this growing dependency on external vendors may be advantageous for business growth, it also introduces new challenges. In an age where digital security threats are constantly increasing and regulatory standards are tightening, data protection becomes crucial - especially when it comes to third parties.

What Risks Do Businesses Face From Third-Party Vendors?

A third-party provider may be an important partner for your company. However, along with the benefits they provide, there are certain risks that need to be managed.

Cybersecurity Threats

One of the most visible and immediate threats to third-party vendors is cybersecurity. Occasionally, when developing a partnership with one of the vendors, you might grant them access to confidential information or systems. If they do not treat cybersecurity seriously, their activities and yours may be exposed to various digital threats.

Brand Reputation Damage

Brand reputation is one of your most valuable assets. If a third-party vendor commits a mistake, even if you had nothing to do with it, your brand gets affected. Customers may also end up blaming your company for the failures of your vendor, affecting the relationship between your brand and impacting your market position.

Compliance Challenges

Compliance problems may also be created by third-party vendors. Based on specific compliance frameworks your business may be measured against, you may be subject to stringent standards or diversified laws relating to data privacy, environmental standards, and labor, among others. If these standards are not implemented by your vendors, then you may be considered in violation of such regulations, resulting in fines or legal action.

Operational Disruptions

If a vendor is unable to deliver the goods and services promised, operational disruptions result. This may lead to financial losses, failure to meet the deadlines and enhanced workload pressure on your staff.

What are Security & Compliance Audits, and How Can They Help?

Security and compliance audits are important aspects of risk management for third-party vendors. Below are some common audit types:

ISO Audits

ISO audits are performed in compliance with the International Organization for Standardization’s framework (ISO 27001). These audits are aimed at comprehensively evaluating a company’s information security management systems and their constant improvement.

In contrast to audits that focus solely on technical aspects of a company, these assessments include many elements. They encompass the legal, physical, and security aspects as well.

SOC Audits

SOC audits assess the controls that service-oriented companies put in place to protect their customer’s data. These assessments focus on various elements, with SOC 1 audits prioritizing financial operations and SOC 2 covering a broader range of business activities.

SOC 2 evaluations are comprehensive, covering various aspects to adhere to the five trust service principles. These include security, confidentiality, availability processing integrity, and privacy. Most companies who have intimate access to the data of their clients, or offer technology-dependent services commonly choose SOC 2 as a preferred standard in assessment.

HITRUST Assessments

The HITRUST Alliance has developed a Common Security Framework (CSF) which is an adaptable and comprehensive set of guidelines that helps companies manage regulatory compliance as well as mitigate risks.

HITRUST certifications evaluate an organization’s compliance with a number of standards and requirements. These assessments play an important role in the case of organizations that need to meet healthcare regulations or work with external healthcare service suppliers.

Necessary Steps for Conducting a Third-Party Security & Compliance Audit

In order to manage the risk of a third-party partner, it calls for an organized approach for carrying out compliance audits. Here are some important steps to take:

Identify All Current Relationships

The initial step in managing third-party relationships is to carry out an inventory of all the existing arrangements. This list should contain all the vendors, suppliers, contractors, and other partnerships with an external party that deals with your business. Remember that no vendor is too small, and even smaller partners can incur risk if their security policies are not sufficient.

Evaluate Any Existing Contracts and Policies

Analyze all the contracts and agreements with your third parties. Make sure to note clauses concerning security and compliance obligations, as well as any provisions regarding audits or assessments. Also, you should assess your internal policies on third-party management in consideration of best practices or any regulatory standards in place.

Develop a Roadmap for Risk Assessment

You should develop a plan to evaluate the risk posed by each vendor. This should have a standard process for assessing their security controls, compliance status, and related risk factors. Your roadmap should also create practical standards to decide a vendor’s acceptable risk level and note the actions that should be taken if this company does not meet your requirements.

Outline the Scope of Vendor Engagement

The scope of the audit for each vendor should be clearly outlined. This includes defining what systems, processes or data will be assessed and the depth of auditing. When defining the scope, remember to capture the nature of each vendor relationship as well as access levels they have to your available resources.

Notify All Your Partners

Prior to starting the audit, notify all your vendors that they are going through an assessment. Describe why you are auditing them, what it will entail, and how they should prepare for the audit. Good communication will encourage cooperation from your vendors and improve the auditing process.

Execute Assessment, Review, and Report

When the audit is over, analyze the results and prepare a thorough report on your findings. This should emphasize all identified risks or challenges and suggestions for changes. Share the report with each of your vendors, and work in concert to create a plan that addresses any deficiencies identified.

Keep Your Third-Party Vendor Relationships Secure

Maintaining a secure vendor ecosystem is an ongoing process. By regularly reviewing and updating your security standards and audit processes, you can minimize your risk profile while ensuring your partnerships remain strong.