Questions to Ask Your Third Party for Fourth-Party Due Diligence

When it comes to third-party risk management, dealing with your fourth-party vendors can be tricky. After all, these are vendors with whom you have no direct contract, so you might be wondering what exactly you can do to ensure that your organization is protected from risk. Thanks to the SSAE18 (Statement on Standards for Attestation Engagements 18), your third-party vendors are required to have a third-party risk management program in place which includes formal risk assessment processes. Furthermore, they must identify the functions and controls their vendors (your fourth parties) are performing.
While the SSAE18 is a good starting point to identify your fourth parties, you should also consider how they can factor into your third-party due diligence. This blog will cover some questions that you can use while discussing fourth parties with your third-party vendors.

Questions to Ask to Determine Fourth-Party Vendor Criticality

Before you start assessing your fourth-party vendors, you should determine those that are critical to your third party. Discuss the following questions with your third party:

• Will the sudden loss of the fourth party would cause significant disruption to you (our third party)?
• Are your customers going to be impacted by the sudden loss of the fourth party?
• If the fourth party experiences a disruption that requires more than 24 hours to restore, would there be a negative impact to your operations?

If your third party confirms that any of the following questions are yes about your fourth party, it’s probably critical.

Questions to Ask Based on Vendor Due Diligence Categories

Due diligence is an essential process that gives greater insight into your third party’s risk and controls, and by extension, your fourth parties. Prepare a list of due diligence questions for your third party to answer about your fourth parties. It may help to understand them in the context of the following risk categories:

• Operational risk – Asking questions about your fourth party’s business continuity (BC) and disaster recovery (DR) plans will ensure you’ve identified the operational risk. Here are a few questions you can ask:
  
  • Does the BC/DR plan meet our organization’s needs?
  • How often does the fourth party review and test their plan?
  • Have you reviewed the following components to ensure it meets our expectations?
    
    • Recovery time objective (RTO)
    • Recovery point objective (RPO)
    • Maximum tolerable downtime (MTD)
• Information security risk – It’s essential to confirm that your fourth parties will properly protect your organization and customers’ data. This can be achieved by asking your third-party about your fourth party’s SOC reports and cybersecurity controls, such as:
  
  • Is the fourth party’s SOC report the most current one they have?
  • Have you reviewed Section 3 of the report (i.e., the fourth party’s description of its in-scope system and details on control objectives)?
  • What are the fourth party’s control objectives and activities?
  • Have you reviewed the audit findings?
  • Does the fourth party have policies for data retention, destruction, classification and privacy?
• Financial risk – You’ll want to evaluate your fourth party’s financial health to ensure they can continue providing products and services to your third-party. As a starting point, discuss the following questions with your third party:
  
  • Is the fourth party a public or private organization?
  • Have you reviewed the past three years of the fourth party’s balance sheet, income statement, cash flow statement, and ratios?

Although you don’t have a direct contract with your fourth-party vendors, it’s still important to understand how they can expose your organization to risk. Your third-party vendors will play an important role in managing fourth-party risk, while also helping you establish a holistic view of your entire vendor landscape.