The Importance of Third-Party Risk Assessments and Verification of Controls
By Joshua Ivy, Information Security Analyst, TraceSecurity
July 17, 2023
Risk management is essential to successful business operations in today's complex and rapidly changing business landscape. Companies must continuously evaluate risk profiles and take appropriate action to ensure long-term stability and success. One crucial aspect of risk management is conducting third-party risk assessments and verifying the effectiveness of existing controls. This article delves into the importance of third-party assessments, the verification process and their impact on a company's overall risk management strategy.
Third-Party Risk Assessments: An Objective Approach to Risk Management
Third-party risk assessments involve engaging external companies or consultants to evaluate an organization's potential risks. This external perspective offers several benefits, including increased objectivity, access to specialized expertise and the ability to benchmark against industry standards. In addition, by performing a third-party risk assessment, companies can gain valuable insight into potential threats that might disrupt their operations and take proactive measures to mitigate them.
There are several advantages associated with third-party risk assessments, including:
1. Objective risk identification: External risk assessors can provide an unbiased perspective on a company's risk profile, which is crucial for effective risk management. By considering a broader range of risks and utilizing specialized expertise, third-party assessors can help companies better prepare for potential disruptions and minimize their impact on business operations.
2. Access to specialized expertise: Third-party risk assessors often possess technical knowledge and experience in specific industries, risk types or methodologies. By engaging external experts, companies can benefit from their insights and best practices, improving the overall quality of the risk assessment.
3. Benchmarking against industry standards: Engaging a third party to perform risk assessments can enable companies to benchmark their risk management practices against industry standards and best practices. This can provide valuable insights into areas for improvement, help companies stay ahead of their competitors, and clearly define where they rank within the industry.
Verifying Controls: Ensuring the Effectiveness of Risk Mitigation Measures
Once a company has identified its risks through a third-party risk assessment, it must implement appropriate controls to mitigate them. However, these controls are only effective if properly designed and functioning as intended. Therefore, verifying the effectiveness of controls is crucial to ensure that risk mitigation measures are successful and that the company is adequately protected from potential threats.
The process of verifying controls typically involves the following steps:
1. Review of control design: This step involves evaluating the design of existing controls to ensure they are appropriate for addressing the identified risks. Companies should assess whether the controls are appropriately designed, comprehensive and aligned with industry best practices.
• Example: A software development company has identified the risk of unauthorized access to its client’s sensitive data as one of the top risks they face. To mitigate this risk, the company has implemented several controls, such as multi-factor authentication (MFA), firewalls and encryption.
2. Testing of control effectiveness: This step involves testing the controls to ensure they function as intended. This may include reviewing documentation, conducting interviews, observing processes and performing other tests to assess the controls' effectiveness in mitigating the identified risks.
• Example: Assessing the MFA system to ensure it is implemented consistently across all user access points and is aligned with industry best practices, such as requiring a combination of something the user knows (e.g., a password), something the user has (e.g., a token or mobile device) and something the user is (e.g., biometric data).
3. Continuous monitoring: Companies should continuously monitor their controls to ensure they remain effective over time. This may involve regular testing, updating controls as necessary and tracking changes in the risk environment to ensure the controls remain relevant and adequate.
• Example: Regularly testing MFA utilizing penetration tests, where attempts are made to bypass MFA using various tactics and conducting periodic audits to verify that MFA is consistently enforced across all user access points.
Third-party risk assessments and verifying controls are vital to a company's overall risk management strategy. Companies can make better-informed decisions and implement appropriate controls to mitigate potential threats by engaging external experts to identify and understand risks. Additionally, verifying the effectiveness of these controls is equally essential to ensure the company remains adequately protected and resilient to disruptions. Finally, by prioritizing these processes, companies can enhance stakeholder trust, improve decision-making and ultimately achieve greater long-term success.
Connect with TraceSecurity to learn more.
TraceSecurity has provided over 30,000 examiner approved reports, helping credit unions of all sizes maintain compliance year after year. A CUNA Strategic Services provider since 2006, TraceSecurity helps credit unions with a range of cybersecurity services, including risk assessments, penetration testing and IT audits. With a combination of software and services, TraceSecurity can help credit unions manage their information security program and supplement it with third-party validation.