Organizations conduct due diligence into the third-party's ecosystem and security,
but to truly protect themselves, they must audit and continuously monitor their
vendors. Not only do organizations audit their vendors, but standards and
regulations often require audits of the company's vendor management program.
Organizations need efficient vendor risk management audit processes that allow for
smooth audits of their vendor management program.
What are the steps in a vendor management audit?
Internal audit managers know that successful audits begin by establishing an audit
trail. The operating model, or living documents that guide the process, includes
vendor categorization and concentration based on a risk assessment that uses an
approved methodology. Next, organizations must supply vendor report reviews
proving ongoing governance throughout the vendor lifecycle.
What is vendor lifecycle management?
Traditionally, vendor lifecycle management incorporates five primary categories:
qualifying, engagement, managing delivery, managing finances, and relationship
termination. However, as data breach risk increases, companies need to include
reviewing information security as a sixth category in the life cycle. Due diligence
during the qualification step incorporates information security management.
However, threats evolve continuously meaning that organizations need to review
information security over the entire lifecycle, not just at a single point.
Before documenting activities, companies need to plan their supplier relationship
management process from start to finish. As regards the audit, companies need to
ensure that their supplier relationship management policies, procedures, and
processes address each step in the life cycle.
QUALIFYING
__ Process for obtaining and determining insurance, bonding, and business license
documentation
__ Benchmarks for reviewing financial records and analyzing financial stability
__ Review process for staff training and licensing
__ Benchmarks for evaluating IT assets
ENGAGEMENT
__ Contracts include a statement of work, delivery date, payment schedule, and
information security requirements
INFORMATION SECURITY MANAGEMENT
__ Baseline identity access management within the vendor organization
__ Baseline privileged access management for the vendor
MANAGING DELIVERY
__ Scheduling deliverables
__ Scheduling receivables.
__ Organization defines stakeholders responsible for working with the vendor
__ Establishing physical access requirements
__ Defining system access requirements
MANAGING FINANCES
__ Establish invoice schedule
__ Establish payment mechanism
TERMINATING RELATIONSHIP
__ Revoking physical access
__ Revoking system access
__ Definitions of causes for contract/relationship termination
What should the risk assessment framework and methodology
documentation contain?
Before reviewing third-party vendors or establishing an operating model,
companies need to create a risk assessment framework and methodology for
categorizing their business partners. This process includes aligning business
objectives with vendor services and articulating the underlying logic to senior
management and the Board of Directors.
When auditors review risk assessments, they need documentation proving the
evaluative process as well as Board oversight. For example, organizations choosing
a software vendor for their quality management system need to establish risk
tolerances. As part of the risk assessment methodology, the auditor will review the
vendor categorization and concentration.
RISK ASSESSMENT QUALITATIVE DOCUMENTATION
__ Vendors are categorized by service type
__ Access needed to internal data
__ Nature of data categorized by risk (client confidential, private data, corporate
financial, identifiers, passwords)
__ Data and information security expectations
RISK ASSESSMENT QUANTITATIVE DOCUMENTATION
__ Financial solvency baselines
__ Contract size
__ Beneficial owners of third-party's business
__ Location of headquarters
__ IT Security Ratings
What does an organization need as part of its operating model
documentation?
The term "operating model" primary means policies, procedures, and processes that
guide vendor management. These documents act as the skeleton for any third-party
management program as well as the audit.
RISK ASSESSMENT
__ Does the organization risk rate its vendors?
__ Does the risk assessment discuss the methodology
(qualitative/quantitative/combination)
__ Are the vendors categorized by risk?
VENDOR RISK MANAGEMENT POLICY
__ Does it include human resources security?
__ Does it discuss physical and environmental security?
__ Does it establish baseline requirements for network and system security?
__ Does it establish baseline requirements for data security?
__ Does it establish baselines requirements for access control?
__ Does it establish baseline requirements for IT acquisition and maintenance?
__ Does it require vendors to document their vendor management program?
__ Does it define the vendor's incident response management responsibilities?
__ Does it define the vendor's business continuity and disaster recovery
responsibilities?
__ Does it outline the vendor compliance requirements?
PROCEDURES
__ Is there a workflow for engaging in vendor management review?
__ Does the organization designate a stakeholder to track vendors, relationships,
subsidiaries, documents, and contacts?
__ Does the organization designate a stakeholder responsible for vendor due
diligence?
__ Does the organization designate a stakeholder who delivers and collects surveys
and risk assessments?
__ Does the organization designate a stakeholder to manage contract review and
renewal?
__ Does the organization outline a process for coordinating with legal, procurement,
compliance, and other departments when hiring and managing a vendor?
__ Does the organization outline metrics and reports needed to review vendors?
What documentation supports vendor report reviews and ongoing
governance?
Vendor report reviews are one part of ongoing vendor management governance.
Proving continuous monitoring includes reviewing reports and
questionnaires attesting to security.
VENDOR REPORT DOCUMENTATION
__ Audit Reports (SOC audits, ISO audits)
__ Security questionnaires
__ Financial reports
__ Financial controls documentation
__ Operational controls documentation
__ Compliance controls documentation
__ Data breach reports
__ Access control management documentation
__ Control change management documentation
