As technology continues to advance, businesses are becoming more reliant on third-party vendors to provide services and solutions. While this can be beneficial, it also poses a significant risk to the security of sensitive data. Third-party data breaches have become a common occurrence, with many high-profile companies falling victim to these attacks. Vendor due diligence is key in preventing these third-party data breaches.
The number of cyberattacks on business partners of healthcare organizations has risen to the stage where they exceed attacks on healthcare providers. According to a recent report from the vendor risk management firm Black Kite, there has been a rise in both the impact and destruction caused by cyberattacks on third-party suppliers.
For their 2023 report, Black Kite examined 63 third-party breaches that affected at least 298 businesses and found that both the impact and destruction of those breaches had doubled. An average of 2.46 companies were impacted by each third-party breach in 2021, and this figure rose to an average of 4.73 companies per breach in 2022.
Vendor Due Diligence – What is It & Why is it Important?
Vendor due diligence is the process of assessing the security and risk management practices of third-party vendors before engaging in a business relationship with them. This process is crucial in ensuring that vendors have the necessary safeguards in place to protect sensitive data by evaluating a vendor’s security policies, procedures, and controls. This process may include reviewing the vendor’s security certifications, conducting onsite assessments, and reviewing the vendor’s security incident response plan.
Components of a Vendor Due Diligence Process
- Vendor Risk Assessment– Assessing the risk associated with engaging in a business relationship with a particular vendor. This assessment should take into account the vendor’s security posture, reputation, and compliance history. A HIPAA Security Risk Assessment is suitable fo healthcare vendors to assess their risk.
- Contractual Requirements– Contracts with third-party vendors should include specific requirements related to security and data protection. These requirements should outline the security controls that the vendor must have in place to protect sensitive information. A HIPAA business associate agreement is a contractual agreement needed between a vendor and healthcare provider that requires the vendor to meet HIPAA security and data protection standards.
- Ongoing Monitoring– Once a vendor has been engaged, ongoing monitoring should be conducted to ensure that the vendor continues to maintain the necessary security controls.
- Identify Key Vendors– Identify the vendors that have access to sensitive data and prioritize them based on the level of risk associated with their services.
- Conduct Onsite Assessments– Conduct onsite assessments of each vendor to evaluate their security controls and ensure that they meet the contractual requirements.
Vendor due diligence is crucial in preventing third-party data breaches. By conducting regular vendor due diligence, businesses can ensure that their vendors have the necessary security controls in place to protect sensitive data. Implementing access controls, encrypting sensitive data, and monitoring network activity can also help to prevent unauthorized access to sensitive data.
Failure to conduct vendor due diligence can have severe consequences, including financial loss, reputational damage, and legal consequences. As such, it is essential for businesses to prioritize vendor due diligence in their risk management strategies.