You are on page 1of 7

Vendor Risk Management Audit

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

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.

__ 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
__ 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
__ 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
__ 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
__ Does it outline the vendor compliance requirements?
__ 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
__ 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
__ Does the organization outline metrics and reports needed to review

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
How SecurityScorecard Enables Better Vendor Risk
Management Audit Outcomes
Creating an audit trail requires extensive documentation. As vendors become
more integral to business operations, companies need to focus on building
streamlined documentation processes that enable efficient governance.

In today's world, information security impacts several areas of vendor

management for which audits require documentation. Poor information
security programs leave vendors at risk for data breaches that impact their
financial security, an integral part of risk evaluation and qualification. A
vendor's authorization management also affects upstream clients because it
places them at risk for internal actors to inappropriately access systems and
databases. Vendors must monitor their downstream suppliers, but supply
chain risks arise when upstream companies trust without verifying.

Organizations can use SecurityScorecard's platform to create an audit trail for

their vendor management program in several ways.

First, as part of the risk assessment analysis, companies can use quantitative
benchmarks for reviewing vendors. Companies can document a vendor's
security rating, relate it to their risk tolerance, and use it as a qualitative metric
that links to both data controls and financial stability. Additionally, the easy-to-
digest grades of A through F ease the pain of explaining risks to the Board and
ensure proper oversight documentation.

Second, SecurityScorecard's SaaS platform allows multiple stakeholders to

access the same information. For example, the payroll department focuses on
a vendor meeting PCI compliance requirements while the legal department
focuses on Sarbanes-Oxley compliance. A shared vocabulary across the
enterprise eases the burden of documenting stakeholder responsibilities
across the enterprise.
Third, SecurityScorecard identifies leaked credentials and factors related to
social engineering that provide insight into the effectiveness of a vendor's
employee security awareness training. Training documentation shows that the
vendor provided education, SecurityScorecard provides insight into how well
the employees apply the information.

Fourth, with SecurityScorecard, companies can define cohorts that allow them
to group vendors and track security rating changes within the groups. This
functionality provides documentation supporting the categorization and
classification of vendors when an auditor reviews a risk assessment

Fifth, security ratings allow companies to verify reports and questionnaires that
vendors provide. For example, a SaaS vendor can submit a SOC 2 report
attesting to the effectiveness of their controls at the time of the report.
However, threats evolve, and controls fail. SecurityScorecard's ratings
incorporate network security, DNS health, patching cadence, endpoint
security, IP reputation, and web application security. Since our threat
reconnaissance capabilities continuously monitor the IT ecosystem, we update
our security ratings regularly. Tracking vendors in the platform, therefore,
allows organizations to verify the trust they place in their vendors.

Companies know how to manage their vendor risks. Documenting the supply
management process can be more difficult. With SecurityScorecard,
organizations can streamline both processes by documenting as they manage.