Managing Third Party Risk: A Guide for Small Businesses
For small businesses, managing third party risk is becoming increasingly important in a world where vendors and service providers are deeply integrated into daily operations. From payroll processing to cloud services, small companies often rely on third-party providers to keep things running smoothly. But as convenient as these partnerships are, they also introduce potential risks, especially when those third parties handle sensitive data.
One need only look at past incidents like the Kronos payroll breach, which impacted numerous businesses, or the case where PepsiCo faced lawsuits after a vendor’s data breach, to understand the stakes. Small businesses need to manage these risks carefully, yet often face significant challenges when assessing their vendors’ security practices.
Here’s how small businesses can navigate third-party risk management, even when dealing with larger companies that may be less than forthcoming.
Establish a Trust Center or Privacy Portal
One of the first steps a small business can take is creating a central hub for managing security and privacy-related documentation—a "Trust Center" or a privacy portal on their website. Here, you can consolidate and showcase your own security practices and certifications, such as your privacy policy, compliance with regulations like GDPR, and any relevant security documentation like SOC 2 reports. This approach not only helps build trust with your customers but also sets a standard for how you expect third parties to manage your data.
While having your own trust center helps establish credibility, it’s equally important to demand similar transparency from your vendors. Larger vendors might have privacy portals or trust centers of their own, where they share security details, but many smaller third parties, or even large ones, might not. If you’re working with a third party that doesn’t have a formal privacy portal, it’s critical to ask them directly for the information you need.
Request SOC 2 and Other Security Documents
A common way to assess the security of third-party vendors is by requesting a SOC 2 report. A SOC 2 report is an independent third-party assessment of a company's information systems for security, availability, processing integrity, confidentiality, and privacy. Many third-party vendors who handle sensitive data will have a SOC 2 report, as it’s often required by customers.
For small businesses, getting access to SOC 2 reports and other security documents and certifications (ISO 27001, HIPAA compliance, etc.) can be tricky. Larger companies may be reluctant to share them, either due to a lack of resources or internal bureaucracy. And when they do, these reports can be lengthy, difficult to interpret, and filled with technical jargon that might overwhelm a small business without a dedicated security team.
When faced with resistance, persistence is key. Make clear that security documentation is non-negotiable. Additionally, it can help to offer to sign a non-disclosure agreement (NDA) if the vendor is concerned about sensitive details in their SOC 2 report.
Utilize Security Questionnaires (But Beware of Their Pitfalls)
Questionnaires can be an effective tool for evaluating third-party risk. They allow you to ask specific questions about the vendor’s security practices, disaster recovery plans, encryption policies, and more. Tools like RiskRecon, Vanta, or OneTrust offer templates and services to automate this process.
However, creating and managing these questionnaires comes with challenges. For one, larger vendors often push back against filling out questionnaires, especially if they already have security certifications. In some cases, they may send a generic security overview instead of responding to your specific questions, which can leave you without the detailed information you need to evaluate their risks properly.
For smaller businesses with limited resources, it’s hard to keep track of questionnaire responses and compare them against industry standards. This can result in a surface-level understanding of security risks that doesn’t account for deeper vulnerabilities.
To streamline the process, use standardized questionnaires such as the CAIQ (Consensus Assessments Initiative Questionnaire), which is widely recognized in the security community. It reduces the burden of creating a new questionnaire from scratch and may increase the likelihood that vendors will respond.
Understand the Challenges of Working with Larger Vendors
While third-party risk management is crucial, small businesses often face a common issue: a power imbalance when dealing with larger third parties. Large vendors may not prioritize responding to smaller clients’ security inquiries, leaving you in the dark about potential risks.
Additionally, big players may offer complex service agreements that shift responsibility for data security back to the customer. This can be problematic when you lack the leverage to negotiate better terms. For example, when working with cloud service providers or payroll vendors, the terms of service may limit their liability in the event of a breach, which could leave you facing legal or financial exposure, even if the breach wasn’t your fault.
A real-world example of this is the Kronos breach in 2021. Kronos, a workforce management platform, experienced a ransomware attack that disrupted payroll systems for numerous businesses. Though Kronos was the vendor affected, many small businesses had to scramble to find alternative ways to pay their employees. In the case of PepsiCo, a data breach involving a third-party vendor led to a lawsuit against PepsiCo itself, illustrating how businesses can be held accountable for the actions of their vendors.
Continuously Monitor Third Party Risk
The risk doesn’t end once a contract is signed. A secure vendor today might not be secure tomorrow. This is why continuous monitoring is critical, especially when vendors handle sensitive customer data or intellectual property.
Tools like BitSight or SecurityScorecard offer third-party risk monitoring that provides ongoing visibility into a vendor’s security posture. These platforms can alert you to new vulnerabilities, data breaches, or security incidents affecting your vendors. However, the cost of these tools can be a barrier for small businesses.
If purchasing a monitoring solution isn’t feasible, make it a point to reassess your vendors’ security practices annually and ask them to confirm they haven’t experienced any breaches or changes in their security controls.
Plan for Breaches and Prepare a Response
Even with strong risk management practices in place, breaches can still happen. Have an incident response plan that includes what to do if one of your third-party vendors is breached. This plan should detail how you’ll notify customers, what immediate actions need to be taken to secure data, and how to collaborate with the vendor to resolve the issue.
Also, have clear contractual language that defines the vendor’s obligations in the event of a data breach. This should include who is responsible for notifications, what remediation steps will be taken, and any financial liabilities.
Conclusion: Balancing Risk and Trust
Managing third-party risk is challenging for small businesses, but it’s an essential part of maintaining strong security practices. While larger vendors may not always be forthcoming with the information you need, persistence, a clear understanding of your expectations, and leveraging tools like SOC 2 reports, security questionnaires, and monitoring platforms can help you mitigate risks effectively.
The goal is to balance the convenience of third-party services with the need to protect your business and its data. Be proactive in your assessments, stay on top of vendor relationships, and always have a plan for when things go wrong.
Need Help Managing Third-Party Risk? We’ve Got You Covered!
At ManaSec, we understand the unique challenges small businesses face when dealing with third-party risk. From vendor assessments to continuous monitoring, we offer tailored third-party risk management services to protect your business from potential breaches and security gaps.
Our team will help you:
Review and manage vendor security practices
Request and analyze SOC 2 reports and other security documentation
Create and streamline security questionnaires
Monitor vendors for ongoing risk
Develop a clear incident response plan
Don’t let third-party risks threaten your business. Let us handle the complexities of vendor management while you focus on growing your business.
Contact us today to get started!