Some say that your business is only as good as your employees. The same can be said for your vendors, as they are only as good as their vendor (your fourth party). A fourth party vendor is your third party vendor’s vendor. It’s one with whom your organization does not have a direct contractual relationship.
Vendors have a responsibility to their clients (you) to verify that their third parties have implemented best practices, maintained regulatory compliance and are upholding the terms of their contract. It becomes necessary to review the fourth party SOC report when the services they provide could directly affect your organization.
2 Examples of When You Should Review a Fourth Party's SOC Report
- If your vendor uses a vendor for data center services, your data is now outside the boundaries of your contract with your vendor.
- If your vendor uses a vendor for information system controls, server security, network security, patch management, etc., and that fourth party does not do their job, then your data is at risk, which ultimately affects your business, so the fourth party SOC report should be reviewed.
We often hear that requesting and obtaining the fourth party’s SOC report can be a challenge. Remember, SOC 1 and SOC 2 reports are considered confidential. Typically, the fourth party vendor will not provide you with their confidential information as your organization in not their direct client. Therefore, it’s the responsibility of your third party vendor to provide you with the fourth party’s SOC report(s) and additional due diligence documentation.
Steps to Properly Reviewing a Fourth Party’s SOC Report
First step: Review your vendor’s SOC report, in other words your third party. This report will identify fourth parties. If the fourth party provides a “make or break you” service to your vendor (i.e., data center service, information system services) or if your vendor is just a re-seller of another vendor’s product, contact your vendor and request the necessary fourth party SOC report.
Second step: Review and analyze the fourth party SOC report, just as you would if the fourth party was your direct third party vendor. If you need additional information to verify the fourth parties’ internal controls, contact your vendor and request more information.
Keep in mind that if your vendor uses a fourth party for services that could affect your business, it’s important that you have a solid understanding of the entire control structure. If there are Complementary User Entity Controls (CUES) in the fourth party SOC report, you should verify that your vendor has taken those into consideration and reviews them regularly to make sure that all bases are covered.
It’s important to have a thorough understanding as to how certain fourth party vendors can impact your organization in order to prevent unwanted exposure to risks.
Need a guide to help you analyze your third and fourth party vendors' SOC reports? Download our infographic where we'll go over the different types of reports, scope and more.