Why You Should Outsource Third-Party Risk Audits
In today’s highly regulated environment, banks and financial institutions are held to increasingly strict standards when it comes to vendors. Not only are you liable for third-party business activities, but you are held responsible for their third-party vendors, as well.
Relying on a strong working relationship with third-party vendors isn’t enough. To protect your customers and company, you need to understand and assess risks related to your vendors.
For many organizations, this means prioritizing audits of vendors. Traditional vendor audits are designed to evaluate processes and determine what’s changed since the last check-in. Unfortunately, many companies — large and small — fail to check in frequently enough.
Why put your company at risk? If you’re failing to evaluate vendors on a regular basis, try outsourcing the audits to a team of experts.
Why aren’t third-party risk audits a priority?
Conducting a third-party risk audit is incredibly important for understanding your vendor’s security posture. According to a survey by eSentire, amongst respondents who audit their third parties, most companies conduct their audits on a quarterly or annual basis.
Most of the companies surveyed have 500+ employees, so smaller companies are likely to be audited less. They’re at the mercy of problematic vendors. Small companies are more likely to audit on an “as-needed” basis and will often miss warning signs. Such oversight can lead to data breaches, operational interruptions, and reputational harm.
What’s an effective audit of a third party?
From the start of a third-party relationship, clear performance objectives should be set for a vendor in the contract. Include a written right to audit, monitor the vendor, and require the vendor to provide remediation when issues are identified.
Vendors must demonstrate how they will safeguard customer information. Audit reports should also include a review of the third party’s risk management and internal control as well as business continuity plans (BCP) and disaster recovery (DR).
An effective auditing process provides up-to-date information on the health of your vendor on any given day. A thorough audit includes an analysis and comprehensive review of a third party, parsing through:
- Governance issues
- Policies and procedures
- Assessment results
On-site visits also provide an opportunity to observe how a business is run. Day-to-day interactions inside an organization will speak volumes about the quality and urgency of their services.
Companies can benefit from outsourcing the responsibility of quarterly or annual reviews. If you’re a smaller bank or credit union, you may lack the time and resources. If you’re a larger company, you can redirect time and resources to other cost-saving-related activities like gathering reports and data and analyzing for insights.
Having an outsourced VRM solution provides less overhead and management constraints than hiring a salaried vendor manager and can provide you with the confidence and security you need.