Welcome to this week’s Third Party Thursday! My name is Cindy Horn and I’m the Chief Operations Officer here at Venminder. In today’s session, let’s talk about why you need an external audit on your third party risk program.
In many cases, the review of third party risk is done either as part of the internal audit program or external audit program or both. However, for the purposes of today’s discussion, let’s look at a few scenarios that would warrant an external review of your vendor management program:
- Your internal audit is stretched thin. Perhaps the easiest and most common scenario is that the internal audit area is stretched very thin and perhaps does not have enough staffing to get to all parts of the company’s areas of operation, or various policies, to provide adequate coverage, let alone take on the extensive task of reviewing vendor management. In this case, internal audit may very well direct that rather than including in the annual review for various areas of your company, it makes more sense to engage outside auditors to review the program.
- Special skills are needed to look at certain areas. Perhaps the internal audit area feels that vendor management requires an auditor to have special skills to adequately review such things as financial reports and SSAE 18 reports that your vendor management team is collecting and to be able to determine the adequacy of those documents. OR, maybe they simply want a second set of eyes to confirm findings or concerns they have identified.
- Your internal and external audits aren't consistent (and they should be). Typically, internal audit and external audit work very closely together on a prescribed set of reviews and activities. Their work products should reach the same general types of conclusions and follow the same sort of consistency of activities – you would not expect one to take a deep dive and one to take a brief review of the same sort of activity.
The work of the internal and external audit programs is typically dictated by the audit committee in conjunction with the various lines of business. A strong working relationship between vendor management, the various lines of business, audit, compliance and legal is absolutely essential to a well-managed program. Any audit issues raised, and any reports issued, should be carefully reviewed and any follow up steps should be agreed upon and acted upon.
Obviously, this is a very high-level overview but hopefully it gives you a good idea on the importance of an external audit. Again, I’m Cindy and thanks for tuning in to this week’s Third Party Thursday; if you haven’t already done so, please subscribe to our series.