Modern enterprise relies increasingly on a complex network of vendors and service providers to handle their infrastructure. From security and cloud computing to applications and logistics, these providers will often take the most important data that the enterprise generates or processes.
That’s why organizations must look at their vendors with more scrutiny. For example, getting involved with vendors that adhere to SOC 2 standards is a solid way to ensure that these providers maintain proper data security practices.
What Is SOC 2?
SOC 2 was designed to ensure that service providers securely manage data to protect the interests and privacy of their clients. Unlike prescriptive standards, SOC 2 is a set of criteria focusing on organizational controls related to security, availability, processing integrity, confidentiality, and privacy – often referred to as the Trust Service Criteria.
- Processing Integrity
SOC 2 is critical in today’s data-driven environment, where businesses routinely outsource crucial operations to third-party vendors. It provides a benchmark to ensure these vendors handle data with the highest standards of security and confidentiality.
For businesses, SOC 2 compliance is a way to build trust with customers and stakeholders.
The Role of SOC 2 in Vendor Selection
A 2023 Verizon report states that 62% of breaches occurred through third-party vendors. Businesses must ensure that their partners, particularly those handling sensitive data, adhere to high data security and privacy standards. Choosing SOC 2 compliant vendors is a proactive step in mitigating risks associated with data management and safeguarding against potential vulnerabilities.
When selecting a vendor, businesses should consider the following aspects related to SOC 2 compliance:
- Type of SOC 2 Report: Determine whether the vendor has a SOC 2 Type I or Type II report. While Type I is valuable, Type II provides a more comprehensive understanding of the vendor’s ongoing operational effectiveness.
- Scope of the Report: Examine which Trust Service Criteria are covered in the vendor’s SOC 2 report. Not all vendors may have all five criteria evaluated, so matching the report’s scope with your specific security and compliance needs is essential.
- Audit Findings and Exceptions: Review any findings or exceptions noted in the SOC 2 report. Understanding these details can give insight into the vendor’s potential vulnerabilities or areas for improvement.
- Recentness of the Report: Ensure that the SOC 2 report is recent, reflecting the current state of the vendor’s controls and practices. Outdated reports may need to represent the vendor’s present compliance status accurately.
- Vendor’s Compliance History: Look into the vendor’s history of compliance. A consistent track record of SOC 2 compliance is indicative of a vendor’s commitment to maintaining robust security practices.
Importance of Continuous Compliance
Opting for SOC 2-compliant vendors can significantly impact business relationships. It builds trust and reliability, which is crucial in partnerships involving sensitive data handling. Moreover, it streamlines the vetting process, as SOC 2 compliance can serve as a benchmark for security and privacy practices.
When evaluating a vendor’s SOC 2 compliance, it’s essential to understand the report beyond a surface-level engagement:
- Assess the Audit Scope: Ensure the audit covers areas crucial to the company’s needs. Check if the report includes relevant Trust Service Criteria aligning with the company’s security and operational requirements.
- Evaluate the Coverage of Trust Service Criteria: Identify which of the five Trust Service Criteria are included in the report. Determine if the included criteria match the company’s priorities and risks associated with the vendor’s services.
- Review the Audit Period: Confirm that the audit period is recent enough to reflect the current compliance status of the vendor. A recent SOC 2 Type II report is preferable as it provides an ongoing assessment of the vendor’s controls.
- Analyze Findings and Exceptions: Closely examine any findings or exceptions noted in the report. Understand the nature of control failures or lapses and how the vendor addressed these issues. This analysis provides insight into the vendor’s operational effectiveness and commitment to maintaining standards.
- Interpret the Auditor’s Opinion: Pay attention to the auditor’s opinion, which can be either unqualified (clean) or qualified (issues noted). An unqualified opinion indicates effective design and operation of controls, whereas a qualified opinion suggests areas of concern.
- Examine Control Activities and Technologies: Review the vendor’s specific control activities and technologies. Assess whether these measures are adequate and align with current best practices in security and compliance.
- Consider the Vendor’s Response to Past Audit Findings: Evaluate the vendor’s history of responding to audit findings. A good track record of addressing issues is a positive indicator of their commitment to continuous improvement.
- Check the Vendor’s Incident Response Plan: Ensure the vendor has a robust incident response plan, which is crucial for the Security and Availability criteria. Evaluate the plan’s adequacy in responding to and managing potential security incidents.
- Use the Report for Comprehensive Risk Assessment: Integrate the insights from the SOC 2 report into the company’s broader risk assessment framework. This helps in evaluating the overall risk posed by the vendor relationship.
- Align with Strategic Goals: Beyond compliance, assess if the vendor’s data security and privacy approach aligns with the company’s strategic objectives. SOC 2 compliance should contribute to broader business goals, not just be a compliance checkbox.
How Do I Deal with Non-Compliant Vendors?
Before taking any action, it’s crucial to identify and understand the nature of the non-compliance accurately. This non-compliance could range from minor lapses in procedures to significant breaches of the SOC 2 criteria.
Some of the steps you can take include:
- Communicating Concerns to the Vendor: Once non-compliance is identified, the next step is to open a line of communication with the vendor. Express concerns clearly and provide specific details about the non-compliance issues observed. This dialogue is essential for understanding the vendor’s perspective and the reasons behind the non-compliance.
- Evaluating the Vendor’s Response: Immediate Response: Evaluate how quickly and effectively the vendor responds to the concerns raised. A prompt and proactive response is a positive indicator of their commitment to resolving the issues.
- Action Plan for Compliance: Look for a detailed action plan from the vendor outlining how to address the non-compliance issues. This plan should include timelines and specific steps to achieve compliance.
- Deciding on the Future of the Relationship: Based on the vendor’s response and willingness to comply, decide on the future of the business relationship. This decision can range from continuing the partnership with close monitoring to terminating the contract in cases where non-compliance poses significant risks.
- Mitigation Strategies for Non-Compliance: Working with the Vendor: If the decision is to continue the relationship, work closely with the vendor on their compliance journey. Consider offering guidance, setting up regular compliance reviews, and establishing clear benchmarks for progress.
- Seeking Alternatives: In cases where non-compliance is severe or the vendor is unresponsive, seek alternative vendors who meet the SOC 2 compliance standards.
- Legal and Contractual Considerations: Review any legal or contractual implications of the non-compliance, especially if considering contract termination. This includes understanding any penalties, transition clauses, or data security measures that must be enforced.
- Learning from the Experience: Use the experience of dealing with non-compliant vendors to refine future vendor selection and management processes. This could involve improving the initial vetting process, setting more rigorous compliance requirements, or developing a more structured approach to monitoring vendor performance.
Tackle Your SOC 2 Compliance with Lazarus Alliance
The digital supply chain is often our weakest link. Ensure you’ve got all your bases covered regarding security and SOC 2 compliance with Lazarus Alliance.