Streamline Third-Party Risk Management Audits: 5 Critical Compliance Steps

Few words instill as much dread in security and risk management professionals as "audit." Just reading the word can send shivers down the spine. The challenge of an IT security audit is magnified when it extends to third-party vendors and suppliers, which requires additional resources and time.

The challenge goes beyond time spent gathering evidence and identifying and reporting on control gaps. Performing a third-party risk audit means navigating a complex and often overlapping regulatory landscape. So, how can a security and risk management team responsible for third-party risk management (TPRM) ensure their vendors and suppliers follow sound risk management principles without exhausting the team?

The key to overcoming this challenge lies in recognizing the commonalities across multiple regulatory and IT security control frameworks and baselining your compliance efforts on those commonalities. This blog outlines five overlapping areas across common TPRM requirements for organizations to build a solid foundation for audit and compliance efforts.

1. Planning: Set Up Your Program for TPRM Compliance

Understanding your organization's risk exposure from third parties is key in many regulatory and control frameworks. It's imperative to focus on two types of third parties: those providing critical products or services and software that supports key business processes. Many regulatory regimes require systematic assessments of vendor criticality, centralized management, and monitoring of third-party software.

Establish a Cross-Functional TPRM Team

Form a team with representatives from across the enterprise, including IT security, risk management, legal, internal audit, and procurement. This team will be responsible for establishing the proper governance and steering the TPRM program and will incorporate the needs of all teams that require insight into third parties.

TRPM Tip: Look for TPRM solutions that provide consolidated risk insights for multiple teams and enable a role-specific view of risks and reporting.

Determine Vendor Criticality

Understanding which third-party vendors are critical to your operations is the cornerstone of TPRM planning. Vendors providing essential services or handling sensitive information should be classified as critical, necessitating advanced due diligence and continuous monitoring.

TRPM Tip: Conduct a profiling and tiering exercise to determine inherent risk and identify vendor criticality.

Centralize Vendor Inventory

Build a central third-party inventory that enables teams to manage all vendors throughout their relationship lifecycle. Early on, you should pay particular attention to all existing third-party software vendors connected to your organization. With the rise of software supply chain attacks, maintaining an up-to-date inventory of all third-party software is vital. This inventory should link to your business processes and the third parties supporting them.

TPRM Tip: Since your organization is likely already leveraging a common control framework for its IT security reporting, structure your third-party risk assessments using frameworks like NIST SP 800-53 or ISO 27001.

2. Due Diligence and Third-Party Selection

Once the rules for determining vendor criticality are set and an inventory of existing third-party software and services is established, it's time to apply sound due diligence principles to selecting new solutions. It's crucial to choose a solution or service that is not only fit for purpose but also aligns with the organization's risk profile. A comprehensive vendor due diligence process lets organizations capture relevant supplier information upfront and address key controls in many regulatory frameworks.

The vendor due diligence process involves a few straightforward steps:

• Assess the vendor by evaluating their cybersecurity and data privacy practices, business and operational factors, reputation, compliance status, ESG policies, and finances after onboarding. Conduct pre-contract due diligence prior to onboarding.

• Centralize risks and control gaps into a single risk register for enterprise-wide visibility. This will drive the development and enforcement of vendor remediation plans and facilitate internal discussions on the vendor's risk acceptability.

• Leverage the central third-party inventory created in the Planning stage to manage the relationship lifecycle efficiently. Include attributes such as vendor company data, financial information, and location.

TPRM Tip: The goal of performing regulatory-required due diligence is to mitigate identified risks, not just to conduct the assessment to “check the box.” Therefore, enforce remediations to ensure third parties align with your organization’s risk thresholds.

Visibility Into Your Extended Supply Chain

To have an effective TPRM program, you need visibility into your extended supply chain. Extended supply chains involving subcontractors and Nth parties present significant operational risks, and a lack of visibility can lead to failures in resilience during disruptions. Many large data breaches can be tied back to third-party compromises, but when investigated, it is often found that the compromise started at the subcontractor level.