Mitigate Cyber Risks With a Vendor Security Assessment

In today’s interconnected digital landscape, third-party vendors could be both valuable assets and potential liabilities. Conducting thorough vendor security assessments is crucial for mitigating cyber risks, ensuring compliance with industry regulations, and protecting sensitive data. This comprehensive guide delves into the importance of vendor security assessments, outlines key components and best practices, and provides actionable steps to strengthen your organization’s security posture.

What Is a Vendor Security Assessment?

A vendor security assessment (VSA) is a systematic process that organizations use to evaluate the security controls, vulnerabilities, and overall cybersecurity posture of their third-party vendors. The VSA aims to gain an understanding of the vendor’s environment, ensure that vendors meet your organization’s security standards, and comply with relevant regulations, thereby reducing the risk of data breaches and other cyber threats.

By conducting VSAs, organizations can:

• Protect Sensitive Data: Safeguard proprietary and customer information from unauthorized access.
• Maintain Compliance: Ensure adherence to industry standards like HIPAA, GDPR, SOC 2, PCI DSS, and ISO 27001.
• Strengthen Security Posture: Identify and mitigate potential vulnerabilities in the supply chain.
• Enhance Business Continuity: Prevent disruptions caused by security incidents involving vendors.

VSAs are essential for identifying and mitigating risks associated with third-party vendors, thereby protecting sensitive data and ensuring compliance with regulatory and industry standards.

Why Vendor Security Assessments Matter

The digital transformation has led organizations to increasingly rely on third-party vendors for various services, from cloud computing to data analytics. While this reliance enhances operational efficiency, it also expands the attack surface, making organizations more vulnerable to cyber threats. Cybersecurity risks have escalated, with attackers often targeting less secure vendors as entry points into larger networks. According to a report by Cybercrime Magazine from 2023, supply chain attacks are expected to increase 15% year over year through 2031, emphasizing the need for robust VSAs.

The SolarWinds cyberattack highlights the critical need for robust VSAs. Malicious code injected into the Orion software supply chain compromised 18,000 customers, including federal agencies. This breach highlighted issues and dependency of IT supply chain security as well as threat actor capability and motivation. Vendors who used SolarWinds and performed robust VSAs may have noticed a weak development process as well as weak processes for identifying and detecting unauthorized access. Solarwinds did not discover the injection of malicious code in their Orion IT management platform until 14 months after the infiltration. 

Regulatory and Compliance Requirements

Organizations must comply with various regulatory and compliance requirements to avoid legal penalties and reputational damage. VSAs help ensure that both the organization and its vendors adhere to these regulations and industry standards.

Key regulations and industry standards include:

• HIPAA Compliance: Protects sensitive patient health information.
• GDPR Data Protection: Safeguards EU citizens’ personal data.
• SOC 2, PCI DSS, ISO 27001 Standards: Provide frameworks for managing data security and confidentiality.

For instance, if a subcontractor processes data on your behalf and fails to comply with GDPR regulations, the implications can be significant and may include legal, financial, and reputational consequences. Under GDPR, data controllers are ultimately responsible for ensuring that data processors, i.e. subcontractors, comply with GDPR. If the subcontractor breaches GDPR, you may be held liable for the consequences, as you are responsible for the subcontractor’s actions in processing data on your behalf

Vendor contract language should include security requirements, data flow diagrams, and architectures as well as security plans to meet regulatory compliance. An example of the most stringent security plan requirement would be the Center for Medicare and Medicaid Services (CMS) System Security and Privacy Plan (SSPP) which applies to subcontractors engaged with CMS. In order to procure a contract with CMS or other federal agencies, certain regulatory and compliance requirements are to be met or shown as works in progress before engaging for a contract.

VSAs are crucial for meeting regulatory and compliance requirements, thereby avoiding legal penalties and/or safeguarding your organization’s reputation.

What Are the Key Components of a Vendor Security Assessment?

A comprehensive VSA typically includes the following key components:

Security Questionnaires and Templates

Security questionnaires are standardized documents sent to vendors to gather detailed information about their security practices. These questionnaires cover aspects like:

• Access Controls
• Data Encryption
• Incident Response Plans
• Compliance Certifications and Reports

Using templates can streamline the process, ensuring consistency and saving time. Templates can be customized to focus on specific areas relevant to your industry or compliance requirements.

An example of a template that is open and available to benchmark your security assessment against Cloud Service Providers is the Cloud Security Alliance’s Consensus Assessment Initiative Questionnaire (CAIQ) is an industry-wide initiative to standardize security and risk management assessments of cloud computing vendors. The CAIQ was developed to provide a consistent way for cloud service providers, customers, and third-party assessors to conduct cloud security assessments. The CAIQ is used to assess cloud security practices by asking vendors to disclose specific details about their operations in 17 different domains. 

Risk Assessment Process

A structured risk assessment process helps identify and evaluate potential risks associated with vendors. Vendor security risk is one component of the overall Third-Party Risk Management (TPRM) process. For more on building a comprehensive TPRM program, see our guiding principles on Third-Party Risk Management.

Identifying High-Risk Vendors

Not all vendors pose the same level of risk. High-risk vendors are those that have access to sensitive data or critical systems. Factors to consider include:

• Data Sensitivity: Types of data the vendor will handle.
• System Access Level: Level of access granted to the vendor.
• Vendor’s Security History: Past security incidents or breaches.

Evaluating Vendors’ Security Policies, Certifications, and Compliance Records

Assess the vendor’s internal security policies and verify their compliance with industry standards. Check for certifications or reports like:

• ISO 27001
• SOC 2 Type II
• PCI DSS Compliance

This evaluation ensures that the vendor adheres to recognized security practices.

Penetration Testing

Penetration testing involves simulated cyberattacks on the vendor’s systems to identify vulnerabilities. This proactive approach helps in:

• Uncovering Hidden Weaknesses
• Assessing the Effectiveness of Security Controls
• Providing Insights for Remediation

A thorough vendor security assessment involves evaluating security questionnaires, conducting risk assessments, and performing penetration tests or gathering third party penetration test results to uncover and mitigate potential vulnerabilities.

For a deeper understanding of how vendor risk assessments fit into a broader risk management strategy, refer to our guide on Vendor Risk Assessments.

What’s the Proper Way to Conduct a Vendor Security Assessment?

The National Cyber Security Centre has released an approach for assessing the security of network equipment, which documents a matrix of VSA criteria for assessing vendor’s security performance. Conducting an effective VSA involves several critical steps:

Steps in the Vendor Onboarding Process

1. Initial Screening: Evaluate the vendor’s security posture before initiating any formal relationship.
2. Risk Profiling: Categorize the vendor based on their risk level..
3. Due Diligence: Collect detailed information through security questionnaires and interviews.
4. Contractual Agreements: Include security requirements and compliance obligations in the contract.
5. Final Approval: Obtain sign-off from relevant stakeholders, including the security team and procurement.

Highlighting the importance of early assessment, Duke University’s Vendor Risk Assessment process emphasizes integrating security evaluations into the vendor onboarding workflow to reduce risks from the outset.

Evaluating Cybersecurity Posture and Data Protection Practices

With emerging risks leading to opportunities for improvement in TPRM, the following are a guide to evaluate the third-party vendor’s cybersecurity posture and data privacy practices:

Review Incident Response Plan (IRP)

Assess the vendor’s ability to respond to security incidents effectively. Key elements include:

• Detection Capabilities 
  • Does the vendor use modern security tools (e.g., SIEM systems, IDS/IPS) to monitor for unusual behavior, unauthorized access, or data exfiltration? 
  • Are automated alerts set up for anomalies? 
  • Does the vendor incorporate threat intelligence feeds to stay updated on emerging threats?
• Communication Protocols
  • How quickly does the vendor notify you (or regulators if required) after detecting an incident? 
  • Does the timeline comply with regulatory or contractual requirements (e.g., GDPR’s 72-hour rule)? 
  • Are designated contacts (e.g., data protection officer, incident manager) and stakeholders identified? 
  • Are secure and potential backup channels (e.g., encrypted email, secure portals) available for incident-related communication?
• Recovery Procedures 
  • What steps does the vendor take to isolate affected systems or contain the threat and are the measures automated? 
  • How does the vendor remove the threat from their systems (e.g., malware cleanup, privilege revocation)? 
  • Does the vendor have procedures and timelines to restore systems to a secure state (e.g., patching, rebuilding, reconfiguring)?
  • How are regular backups maintained, tested, encrypted, and stored securely?
  • Does the vendor conduct regular simulations or tabletop exercises to test recovery procedures?

Assess Access Controls and Data Privacy Practices

Examine how the vendor manages:

• User Authentication: Ensure that multi-factor authentication (MFA) is used and enforced in their policy for all applications, including their third parties.
• Role-Based Access Controls: Restrictions around who has access to administrative features and the use of just-in-time access for accessing root functions to make major changes.
• Data Encryption in Transit and at Rest: Check in on their external endpoints, APIs, and mail servers to ensure strong encryption protocols are followed.
• Mobile Device Security: Validating a mobile device manager is enabled for all devices accessing your data, including mobile phones, to force native device operating system security features like host-based firewalls, zero trust filters, device pins, and malware detection.
• Personnel Training: Request reports or information about the policy for employee security and privacy training.

Ensure Adherence to Industry Standards

Verify that the vendor complies with relevant industry standards and regulations, such as:

• HIPAA for healthcare data: Inquire about their business associate agreement practices and policies and procedures in place for data handling and retention. This includes data subject requests and product schema for the type of data that is collected.
• PCI DSS for payment card information: It’s common for merchants and service providers who handle card data to have either an Attestation of Compliance (AOC) and/or a Report on Compliance (ROC) report. Request and inspect the report for compliance.
• ISO 27001 for information security management: Some of the deliverables you may request from a vendor include a Certification Audit Report (every three years), annual Certificate of Compliance, Statement of Applicability (SoA), Audit Findings Report with findings and opportunities for improvement and/or Risk Assessment Report.

A structured approach to evaluating vendors during onboarding ensures they meet your organization’s security and compliance requirements from the beginning.

Mitigating Risks and Strengthening Vendor Relationships

Automating the Process

Automation can significantly enhance the efficiency and effectiveness of VSAs. Benefits include:

• Streamlined Workflows: Automated tools can manage repetitive tasks, such as sending questionnaires and tracking responses.
• Real-Time Monitoring: Continuous assessment of vendor security posture.
• Scalability: Ability to manage multiple vendors without a proportional increase in workload.

Implementing a TPRM platform can centralize the assessment process. AuditBoard’s TPRM solution offers automation features that simplify risk assessments and monitoring.

Continuous Monitoring

Ongoing vigilance is crucial for maintaining a secure vendor ecosystem. Key practices include:

• Regular Vendor Risk Reviews: Schedule periodic assessments to keep up-to-date with vendors’ security status.
• Monitoring Fourth-Party Risks: Understand and manage risks associated with the vendor’s suppliers.
• Tracking Security Metrics: Keep an eye on critical metrics like security ratings, compliance updates, and incident reports.

According to Google Cloud’s Vendor Security Assessment, continuous monitoring helps in early detection of potential risks, allowing for timely remediation.

Automating assessments and implementing continuous monitoring are essential strategies for reducing risks and strengthening vendor relationships.

Vendor Security Assessment Best Practices

Establishing Security Policies and Methodologies

Developing robust internal policies sets the foundation for effective vendor risk management. Consider the following:

• Standardize Assessment Criteria: Ensure consistency across all vendor evaluations.
• Define Risk Tolerance Levels: Establish thresholds for acceptable risk.
• Implement a Risk Assessment Methodology: Use frameworks like NIST or ISO for guidance.

When selecting a vendor, the FTC has a checklist of requirements to look for:

1. Contractual Security Provisions

• Include Security Clauses: Ensure vendor contracts specify security requirements, including plans to evaluate and update security controls as threats evolve.
• Non-Negotiable Terms: Make critical security provisions mandatory and non-negotiable.

2. Compliance Verification

• Establish Verification Processes: Implement procedures to confirm that vendors adhere to your security policies by inspecting their certifications and reports.

3. Access Control

• Limit Data Access: Restrict vendor access to sensitive information strictly on a need-to-know basis and only for the duration necessary to perform their tasks.
• Enforce Strong Passwords: Require passwords with at least 12 characters, including a mix of numbers, symbols, and both uppercase and lowercase letters.
• Prevent Password Sharing: Prohibit password reuse and sharing among employees and vendors.
• Limit Login Attempts: Set restrictions on the number of unsuccessful login attempts to defend against password-guessing attacks.
• Implement Additional Verification: Require vendors to use MFAmulti-factor authentication, such as temporary codes or hardware keys, for accessing your network.

4. Data Protection

• Use Strong Encryption: Apply properly configured, strong encryption to safeguard sensitive data during transfer and storage.
• Data Handling: Adhere to data retention and removal processes.

6. Incident Response

• Report Breaches Promptly: In the event of a vendor-related security breach, immediately notify local law enforcement or your local FBI office.
• Ensure Remediation: Confirm that the vendor addresses vulnerabilities and implements measures to prevent future incidents.
• Notify Affected Parties: Inform customers and other affected individuals if their data has been compromised, as they may be at risk of identity theft.

Collaborating with the Security Team and Procurement

Cross-functional collaboration enhances the effectiveness of VSAs.

• Involve Security Teams Early: Engage cybersecurity experts during the vendor selection process to identify potential risks.
• Integrate Procurement and Risk Management: Align procurement policies with risk management objectives to ensure that security considerations are part of purchasing decisions.

If choosing a managed service provider to support your cybersecurity program, the NIST has outlined Five Parts to Choosing a Vendor/Supplier: 

1. Determine the Need for Outside Cybersecurity Support

• Assess your organization’s current cybersecurity capabilities and risks.
• Identify gaps in expertise or resources that may require external assistance.

2. Understand Types of Cybersecurity Vendors and Services

• Familiarize yourself with different types of service providers (e.g., Managed Service Providers, Security Consultants).
• Review the specific services they offer, such as monitoring, incident response, and compliance management.

3. Select the Right Level of Support

• Define your organization’s cybersecurity needs and risk tolerance.
• Match the vendor’s services to your business size, complexity, and budget.
• Prioritize scalability and the vendor’s ability to grow with your needs.

4. Review the Cybersecurity Vendor Contract

• Look for clear terms regarding service scope, security protocols, and liability.
• Ensure the contract includes provisions for regular reporting, auditing, and incident handling.
• Confirm data protection and compliance measures align with your industry standards.

5. Manage the Relationship with Your Vendor

• Establish regular communication and performance reviews.
• Monitor vendor compliance with agreed-upon security practices.
• Maintain oversight to ensure the vendor adapts to evolving threats and your business needs.

Establishing clear policies and fostering collaboration between security and procurement teams ensures a holistic approach to vendor risk management.

Mitigate Cyber Risks with a Vendor Security Assessment

In conclusion, VSAs are a critical component of a robust cybersecurity strategy. They enable organizations to:

• Identify and Mitigate Third-Party Risks: Proactively address vulnerabilities before they can be exploited.
• Ensure Regulatory and Industry Standards Compliance: Meet legal obligations and avoid penalties.
• Protect Sensitive Data: Safeguard customer information and proprietary data.
• Maintain Business Continuity: Prevent disruptions caused by security incidents involving vendors.

Even open-source code vulnerabilities should be identified and included in your risk management program. The following lists the top Vulnerabilities in Open Source Code and Services:

1. Lack of Proper Authentication and Authorization: Open-source projects may fail to implement secure authentication and authorization mechanisms, making them vulnerable to attacks like privilege escalation or unauthorized access.
   • Example: Insufficient session management or missing access controls on APIs.
   • Best Process for Checking: Perform Dynamic Application Security Testing to check for access control flaws and inadequate session management. Tools like OWASP ZAP or Burp Suite can help simulate unauthorized access attempts.
2. Insecure Dependencies and Libraries: Open-source projects often rely on third-party libraries, which can contain vulnerabilities. If these dependencies are not updated regularly, the project may inherit these weaknesses.
   • Example: A popular library that has a known security flaw but has not been updated in a while.
   • Best Process for Checking: Use Dependency Scanning tools like Snyk or OWASP Dependency-Check to identify known vulnerabilities in third-party libraries and ensure they are updated regularly.
3. Improper Input Validation: Insufficient input validation can lead to a variety of attacks, including SQL injection, cross-site scripting (XSS), and buffer overflows.
   • Example: A form accepting user input without sanitization, leading to malicious code execution.
   • Best Process for Checking: Use Static Application Security Testing (SAST) tools to analyze the source code for improper handling of input, such as failure to sanitize user input. SonarQube and Checkmarx are good tools for this.
4. Code Injection Vulnerabilities: Open-source projects that fail to sanitize user input may allow attackers to inject malicious code into the application.
   • Example: Command injection attacks when user input is passed to system commands.
   • Best Process for Checking: Use Penetration Testing to actively test for vulnerabilities like command injection or SQL injection by simulating real-world attacks. Tools like Kali Linux and Metasploit are helpful for this.
5. Broken Cryptography: Using outdated or weak cryptographic algorithms can expose sensitive data to attackers. Open-source projects often use encryption libraries that may be vulnerable if not configured or updated correctly.
   • Example: Use of weak hashing algorithms like MD5 or SHA1 for storing passwords.
   • Best Process for Checking: Perform a Cryptography Audit to check for outdated or weak encryption algorithms. Use tools like OWASP Dependency-Check and Snyk to ensure libraries implementing cryptography are secure and properly configured.

By implementing best practices, automating processes, and fostering collaboration, organizations can significantly reduce cyber risks associated with third-party vendors. To learn more about how to enhance your vendor risk management efforts, explore AuditBoard’s Vendor Risk Management solutions.