Fourth-Party Vendors: How Far Do You Need to Go?

Just when you thought you had a handle on your vendor management program, auditors and examiners have started inquiring about something else in recent years - your fourth-party vendors.

It can be quite confusing to figure out exactly where to draw the line on all the vendors that indirectly affect your organization. After all, each of your vendors has their own vendor inventory, known as your fourth-party vendors. Are you responsible for managing all of them? This endless web of vendors can quickly become overwhelming, so let’s break it down.

The SSAE 18 Report

With the introduction of the SSAE 18 report in 2017, this process of identifying your fourth-party vendors is a little easier. According to the report, your third-party vendors are required to include applicable complementary subservice organization controls in their SOC reports, which effectively identifies your fourth-party vendors.

3 Things to Understand About Your Fourth-Party Vendors

To gain a better understanding of your fourth-party vendors, answer the following questions:

1. Who are they?
2. What products and services do they provide to your vendor that causes them to be categorized as critical to their operations?
3. What has your vendor done as part of their due diligence on these vendors?

By answering these questions, you’ll be better prepared for risks that may not be as apparent. For example, consider how your data might need to be shared and possibly stored in a vendor’s system in which you have no direct contract.

Since you don’t have a direct contract with your fourth-party vendors, it’ll be understandably difficult to obtain information about controls they have in place. Most organizations won’t share this information with other parties unless they were bound by confidentiality agreements or had solid “need to know” justification.

So, how can you comply with regulators if you don’t have the same information to assess your fourth parties? The first step is to communicate with your own critical vendors. Let them know that you’re reviewing the next level of your vendor management program and need to focus on your fourth parties.

Ask Third-Party Vendors for the Information

Ask your third-party vendor to provide you the following pieces of information:

• A copy of their own vendor management policy
• A complete list of all vendors they classified as critical and/or high risk
• Copies of their most recent annual review of each of these vendors
• The fourth-party vendor's SOC report (your third-party vendor can typically get you a copy of it, but you’ll need to sign the fourth-party vendor’s confidentiality agreement)

Once you have this information, review it and formulate your opinions of the risk these fourth-party vendors pose to you (not your third-party vendor). If needed, ask additional questions to ensure you understand the products or services being provided and how they can impact you. 

Where Fourth-Party Vendors Pose Risk to You

Here are a few common situations where a fourth-party vendor may pose a risk to you:

• Your sensitive data is being transmitted or stored by a fourth-party vendor and could be exposed if the vendor’s system is breached
• Payment processing or other dependent services for your own customers may fail if the fourth party vendor experiences a failure
• Downtime of the fourth party vendor may be visible to your own customers depending on the integration method
• Critical materials or components required for your product are delayed or missing, causing delays or shutdown of manufacturing operations 

You don’t need to be concerned about fourth parties who pose incidental risk (e.g., the third party’s vending machine company).

Remember to Track Findings

Don’t forget to thoroughly document your review and repeat annually. It’s also a good idea to monitor news headlines for any public information that may alert you of a breach or other potential issue with your fourth parties.

As you've learned today, fourth-party risk management can be tricky, but it's sometimes just as important as third-party risk management.