Key Takeaways
1. SOC 2 vendor management helps companies manage vendor contracts, performance, and relationships in compliance with SOC 2 trust service criteria.
2. Effective SOC 2 vendor management reduces risks related to compliance, downtime, perception, recovery, and data security.
3. I.S. Partners helps you assess vendor risks, perform due diligence, and monitor vendor performance to maintain SOC 2 compliance and protect your business.
What Is SOC 2 Vendor Management?
System and Organization Control (SOC) 2 vendor management is a process that helps companies develop, manage, and control contracts, performance, and relationships with their vendors, which include software as a service (SaaS), data centers, and managed services providers.
It requires companies to use the SOC 2 trust services criteria (security, availability, confidentiality, processing integrity, and privacy) to understand vendor risks, control costs, and provide services to their clients.
SOC 2 vendor management is an ongoing process that allows companies to constantly identify the risks and impact of each vendor working with them, monitor the relationship, and present reports to stakeholders.
“Vendor management is a key component of obtaining a SOC 2 report. IS Partners will assist clients in identifying which vendors should be identified as “subservice organizations” within the scope of their SOC 2 assessment and the adequate monitoring approaches relative to those vendors.”
Who Is Considered a Vendor Under SOC 2?
Third-party vendors are external parties to which a company subcontracts services. Under SOC 2, this includes the following business partners:
- Data centers, such as hosting providers
- A managed service provider
- SaaS providers
- Vendors who process transactions on your behalf, such as consulting, accounting, and HR firms
Why Is SOC 2 Vendor Management Important?
SOC 2 vendor management reduces vendor-associated risks, improves client and partner trust, and increases operational efficiency.
Here are more details:
1. Reduced Risk
Vendors may follow a different set of security guidelines from your organization, exposing you to a range of risks. Here’s how SOC 2 helps with vendor risk management:
- Compliance risk. If your vendor isn’t compliant with data security laws, they are prone to cyberattacks, which could affect your clients.
- Downtime risk. If your vendor is impacted, such as due to a faulty update push, your business continuity can be disrupted.
- Financial risk. If your vendor goes out of business, it could impact your bottom line.
- Perception risk. As an example, if a vendor who works with your customer data is impacted by a data breach, it could risk your customers’ information and negatively impact your business perception.
- Recovery and backup risk. If a vendor undergoes a data issue, your access to crucial data can be impacted.
When it reduces these risks, SOC 2 vendor management enables companies to meet goals, avoid deal and delivery failure, reduce the potential for business disruption, and get the most value from their vendors.
2. Improved Client and Partner Trust
SOC 2 vendor management ensures that vendors maintain high standards of data security, privacy, and operational integrity. This means they’re less likely to be impacted by data breaches, data authorization access fails, and security incidents.
When clients and partners learn about a company’s efforts to protect their personal information at all costs, this can build trust, increase the company’s credibility in their eyes, and improve client-vendor or partner-vendor relationships.
3. Increased Operational Efficiency
Improved data security and compliance measures are based on structured processes that ensure standardized outcomes. This means businesses have to streamline their processes and reduce redundancies to ensure data security.
These improvements have two benefits: increased data security and improved operational efficiencies. How? When bottlenecks are removed and resources are allocated to sectors they’d be put to best use, companies run more efficiently.
What Standards Relate to SOC 2?
Different vendors handle different types of data. Depending on the information accessible to a vendor, it may have to comply with one or more of the following standards:
- HIPAA. The Health Insurance Portability and Accountability Act applies to any company processing protected health information (PHI).
- PCI DSS. This standard impacts financial services that process, receive, send, store, or delete financial information.
- NIST. The National Institute of Standards and Technology data center security standards ensure that federal information systems maintain data privacy and security.
- FISMA. The Federal Information Security Management Act requires federal government organizations to develop and implement IT programs that secure all types of sensitive information.
- ISO 27001. This International Organization for Standardization (ISO) standard provides a framework that helps companies implement and operate an information security management system (ISMS).
Our experts can help you with SOC 2 mapping to ensure your vendors follow all relevant frameworks. We can also help align SOC 2 requirements with other security standards to ensure more streamlined compliance. I.S. Partners can create an efficient course that helps your vendors comply with all relevant security controls.
Best Practices for SOC 2 Vendor Management
Ensuring SOC 2 compliance involves not only internal controls but also the effective management of third-party vendors. Doing your due diligence, establishing a contract, and maintaining records are the three SOC 2 vendor management best practices to adhere to.
1. Do Your Due Diligence
While you may not have to pore through vendor records if they provide a non-critical service, the same cannot be said for critical vendors with access to your data and that you cannot operate without.
Always perform background checks and vendor due diligence for these service providers—which include checking their credentials, security practices, cybersecurity risk, compliance history, and financial stability—or any vendor with whom you’re sharing system access or providing data access.
You can also request SOC 2 reports, financial reporting, and other security certifications from vendors to understand whether they’re a secure choice.
2. Always Set What You Want in a Contract
If you don’t put in a contract, you can’t expect it to happen. If you’re going with a vendor, you need to draft a thorough contract that covers all security requirements, compliance obligations (whether at the company or state level), and data protection measures.
You should ideally establish a service-level agreement (SLA)—or edit an existing one—that mentions exactly which performance targets you want to achieve, response times, and penalties for non-compliance (if any).
3. Maintain Records
Once a contract has been made, monitor vendor performance against the SLA and perform periodic audits depending on the type of vendor to understand whether they’re adhering to security policies and compliance standards.
After that, regularly report all relevant vendor audits, concerns, and performance reports to stakeholders within the organization.
How to Establish a Vendor Management Program
Effectively managing your vendors is crucial for streamlining operations and reducing potential risks. This section outlines the key steps and best practices for developing a vendor management program that enhances efficiency and strengthens your organization’s overall performance and security.
1. Identify Vendors
Instead of settling on the most popular vendor, create a vendor inventory that helps you understand your options before initiating a contract.
This inventory should include the vendor’s name, contact information, a list of services they provide, their contacts with your company (department), potential contract terms, and customized requirements.
If the vendor is a SaaS or IT provider, you also need to know the following:
- Name of the hardware or software you’re purchasing
- Whether the software is hosted in the cloud, customized for you, and comes with support and upgrades
2. Understand Vendor Risk
Once you’ve compiled a vendor list, identify the potential risk of working with each vendor. Here’s how you can classify vendors during vendor risk assessments according to their risk level:
- Low risk. These are vendors who provide a non-critical service and don’t have access to your systems or data. A service failure would most likely cause a minimal impact on the business.
- Moderate risk. These vendors have limited access to your systems and data but don’t provide hosting or process PII. You could operate without them in case of failure but with considerable issues.
- High risk. These vendors have direct access to your systems and process confidential information, which means you won’t be able to operate without them in case of a failure.
3. Vet Vendors
After you’ve figured out levels of risk, talk to each vendor and set expectations about what you’re looking for, how you want something to be done, how soon you want it to be done, and anything specific to your company, such as data security options.
Once you know they understand your expectations, conduct a security and financial review. Does the vendor have a history of maintaining data security with companies at the level you’re operating? Are they financially solvent? Are they likely to stay that way?
Here are some steps to take at this stage:
- Find out if SLAs are in place and whether they meet your expectations.
- Ask for the vendor’s SOC 2 audit report. If a SOC report isn’t available, ask them to complete an IT questionnaire, such as through NIST, SANS Top 20, ISACA, or EDUCAUSE, and send over their IT security policy so you can review their internal controls.
- Review insurance certificates.
- Look at the vendor’s year-over-year financial statements to understand liquidity, profitability, financial leverage, and risks.
- Perform reference and background checks.
4. Assign Owners to Each Vendor
Once a vendor contract has been finalized, assign owners to every vendor. These will be the first point of contact for the vendor, address all vendor concerns, and ensure that they remain compliant with company policy.
Owners working with vendors in a specific department could be placed under a manager, with the vendor management sub-department being centralized under a vendor management coordinator.
5. Monitor and Report Vendor Performance
After you’ve established a contract with a vendor, document all actions taken by them throughout the fiscal year, any security threats experienced, and any concerns from the SOC 2 audit report.
Report your findings to stakeholders and vendors through a SOC audit report. This report will contain a description of the system and SOC 2 controls by the management and contain two sub-reports:
- The type 1 report will include the auditor’s opinion on the fairness of the description by the management.
- The type 2 report will talk about the operating effectiveness of the system and the auditor’s system control tests and their results.
Ensure SOC 2 Compliance With I.S. Partners
Vendor contracts are risky, especially those with whom you share sensitive data, as even the tiniest system vulnerability can cause data security violations.
SOC 2 vendor management reduces this risk in two ways: it improves operational efficiency and increases the safety of your data through SOC 2 compliance.
If you’re looking for ways to tighten your vendor relationships and improve your security posture, I.S. Partners can help. With over 20 years of experience in auditing and ensuring successful SOC 2 audits, our team helps you find ways to streamline your vendor management process so it is compliant with SOC 2.
Ready to get started? Book a free 30-minute consultation today to kickstart the process.
