ZenGRC

Simply Powerful GRC

ZenGRC Team

Best Practices for Payroll Internal Controls

· ·

Payroll is a crucial business process in any organization because it assures that employees are compensated in full and in a timely manner. Employees assume they will receive their paychecks without delays or errors; it’s a basic expectation.

Conversely, payroll delays and errors erode employee morale and productivity — and even lead to enforcement from labor regulators. Unhappy employees, meanwhile, also jeopardize the company’s profitability, financial stability, and reputation. For these reasons, it’s critical to develop a strong payroll process, identify any risks, and implement robust control activities to mitigate those risks.

Common Payroll Risks and the Need for Controls

Ghost Employees

Ghost employees are a common cause of payroll fraud. These are usually:

  • Fake employees who don’t exist and are employees on paper only;
  • Dead or terminated employees who remain on the payroll;
  • Real people who never work at the business but receive paychecks from it anyway.

Ghost employee fraud is almost always perpetrated by someone inside the company, usually working in or managing the payroll function.

If the ghost employee is an actual person, he or she may also be involved in the fraud. In some cases, a ghost employee payroll scheme is set up by an employee to bribe someone outside the company and make the bribe payments look like legitimate payroll payments.

Timesheet Padding

Hourly employees claiming that they worked more hours on their timesheet than they actually worked is another common payroll risk. Such padding of time records is particularly prevalent in smaller companies that use legacy timekeeping systems, such as paper time cards or spreadsheets. Timesheet padding is also common when employees work remotely or when there is little or no managerial oversight.

Attendance by Proxy

Attendance by proxy (also known as “buddy punching”) happens when one employee clocks in for another. If it happens on rare occasions, the harm to payroll is small. When widespread or frequent, however, the fudged hours or days can add up and result in significant losses for the organization.

Incorrect Classification

The risk of incorrect payee classification is fairly high for companies with inexperienced teams running payroll in-house. When contractors and freelancers are not separated from full-time employees in the payroll, the company may end up paying more taxes than it needs to.

Lack of Security Leading to Data Loss

The payroll system contains all sorts of sensitive information related to the organization and its employees. Unfortunately, many organizations still use insecure password-based systems or have no controls to identify or prevent phishing scams. This lax security leaves the organization vulnerable to data breaches, fraud, and compliance-related fines.

Non-Compliance

A lack of understanding of relevant laws around taxation, overtime pay, holiday pay, or minimum wage pay rates can create compliance headaches for the payroll department. Further, the legal and regulatory landscape is constantly changing, so payroll must keep up to assure that the company is not fined or otherwise punished for its compliance mistakes.

Natural Disasters or Other Disruptive Events

Disasters and emergencies can disrupt operations in any company. If a disruptive event occurs, the company may not be able to fulfill its payroll obligations. That can lead to disgruntled employees, increase churn, and ultimately harm operational continuity and service delivery.

Internal Controls Procedures for Payroll Systems

Many types of internal controls play a critical role in minimizing risks for payroll systems. Every organization should consider these payroll internal controls.

Segregation of Duties

Segregation of payroll duties, also known as separation of duties, assures that no single person has access to all the sensitive payroll data or tasks to perpetrate fraud. At the very least, these payroll tasks should be segregated:

  • Timesheet approver
  • Payroll processor
  • Paycheck signer and issuer
  • Payroll tax preparer

Payroll Audits

Regular payroll audits can minimize the chance of fraud due to buddy punching or ghost employees. Audits can confirm that the payroll system is running correctly and reveal whether the organization is accurately fulfilling its payment and tax obligations.

Separate Bank Accounts

A separate bank account for payroll reduces the number of company assets at risk. Even if an employee commits payroll fraud, the business losses will be limited to that account only. A dedicated payroll account also simplifies audits.

This account should only contain enough funds to process and complete payroll. All other business funds should be maintained in a separate bank account.

Management Review

A member of company management (or the business owner) should periodically review payroll records. Managerial oversight can assure proper payroll record-keeping and reduce the risk of fraud.

Digitized Time Tracking

Time and attendance software can address the risk of incorrect timekeeping, payroll mistakes, and fraud. Time tracking and payroll software also records overtime, approved paid time off, and unpaid absences as additional payroll controls.

For example, software applications are now available with an approval checkbox on every employee’s time card. A supervisor must provide that approval before the time card can be sent to payroll for processing. Once the payroll preparer receives this approval, the employee cannot make changes to the timesheet.

Access and Change Control

The roles and access levels of payroll staff should be carefully assigned and monitored. Only authorized staff with the proper access rights and permissions should be allowed to make changes to the payroll system. Non-payroll employees should not be able to access the payroll information of other employees.

Any changes — especially incorrect ones due to either fraud or negligence — can be quickly identified and addressed with changelogs and audit trails.

Variance Analysis

Organizations should know how much they spend each payroll cycle. If payroll in one pay period greatly fluctuates from the average spend, that could indicate payroll errors or fraud. Therefore, a mechanism should be established for payroll managers to investigate such variances.

Other Security Controls

All electronic payroll and employee records should be protected with strong passwords and ideally with two-factor or multi-factor authentication (2FA or MFA). All physical payroll records must be stored in a safe place with robust access controls so that unauthorized people cannot access, modify, compromise, or delete the documents.

Some other ways to strengthen payroll security are:

  • Train payroll staff on the dangers of social engineering scams such as phishing, as well as ransomware and different kinds of cyberattacks that may result in data breaches.
  • Limit access to the payroll office to authorized personnel only.
  • Protect payroll documents stored offsite with strong physical security.
  • Protect all computer systems and databases with a strong firewall, endpoint security solutions, and other security measures.
  • Protect online payroll documents or records with robust access control.
  • Securely dispose of all paper documents.
  • Establish a policy to process all external requests for payroll information specifying the:
    • Acceptable communication channels (for example, all requests should be given in writing);
    • Audit controls;
    • History and change logs

How Can I Implement Payroll Internal Controls?

Implementing internal payroll controls should start by first identifying the risks specific to your organization. For instance, a small business with fewer than a dozen employees is less likely to have a problem with ghosting or buddy punching. In larger organizations, both these issues could be more challenging to detect.

It’s also essential to identify the relevant regulatory and legal rules applicable to the organization. Non-compliance can be a serious problem, so knowing your compliance obligations is another good starting point for implementing internal payroll controls.

Automated time and attendance tracking systems should be implemented, along with cybersecurity measures such as access control and MFA. In addition, if payroll staff have multiple roles or carry out various activities, their duties should be segregated.

If a separate bank account does not already exist for payroll, open one without delay. A designated bank account is a quick and easy way to improve control over your payroll processes. Finally, the organization should establish a mechanism to conduct regular management audits and fraud audits.

Protect Your Payroll System With ZenGRC

Protect your payroll function with adequate controls to reduce financial risks and keep your business running smoothly. ZenGRC can help you identify and manage payroll risk and compliance by documenting audits and tracking workflows.

Get better visibility into your payroll landscape, recognize risks, and mitigate business exposure — all from one single, integrated platform. ZenGRC provides customizable risk calculations and enables continuous risk monitoring, so you can catch and remediate payroll and other risks quickly before they become an issue.

Want to see for yourself how ZenGRC works? Schedule a demo.

The Aftermath: Steps to Recovering from a Malware Attack

· ·

Malware (shorthand for “malicious software”) is any intrusive software that can infiltrate your computer systems to damage or destroy them or to steal data from them. The most common types of malware attacks include viruses, worms, Trojans, and ransomware.

Malware attacks are pervasive, and can be devastating to an unprepared business. Preparing for such attacks also means accepting the reality that eventually you will fall victim to one – and that you can then recover from it swiftly. This article will explore how to do that.

We can begin with ransomware. Ransomware is a form of malware that encrypts its victim’s files, allowing the attacker to demand monetary payment in exchange for a decryption key. Simply put, cybercriminals use ransomware attacks to hold your data hostage and practice extortion. Typically the ransom is paid using cryptocurrency such as bitcoin to hide the identity of the attackers.

Most malware attacks are file-based, meaning that threat actors use executable (.doc, .zip, or .pdf) files that are embedded with malicious code. The goal of a malware attack is to fool users into opening those files, which will introduce the malicious script into your organization’s network to steal passwords, delete files, lock computers, pilfer data, and so forth.

Unlike traditional malware attacks, fileless malware attacks involve no files that cybersecurity software can scan, and are therefore harder to detect by conventional endpoint protection tools. In fileless malware attacks, attackers can achieve their goals even if the victim does nothing more than click on a malicious link or unknowingly visit a compromised website, usually followed by a phishing attack or social engineering attempt.

Over the years, malware and ransomware attacks have increased significantly. 2021 alone saw ransomware attacks perpetrated against Colonial Pipeline, the Steamship Authority of Massachusetts, JBS, and the Washington DC Metropolitan Police Department.

In many of these cases, the inability to access encrypted files from the ransomware infection resulted in the shutdown of critical infrastructure. This led to shortages, increased costs of goods and services, financial loss due to shutdown of operations, and loss of money due to payment owed to ransomware attackers.

Research also suggests that healthcare organizations are particularly vulnerable to ransomware attacks. A study by Comparitech shows that ransomware attacks had a huge financial impact on the healthcare industry, with more than $20 billion in lost revenue, lawsuits, and ransom paid in 2020.

Ransomware and malware affects all industries. Malware is clearly a major threat to businesses in all sectors, and the first step to protecting your organization from malware attacks is to understand how malware and ransomware work.

Ultimately, how you respond to a security incident such as a malware attack should be documented in a business continuity plan (BCP), and more specifically as part of your disaster recovery (DR) strategy.

Your disaster recovery plan (DRP) should consist of a set of policies, tools and procedures that will help your organization to resume the operation of vital technology systems following a natural or human-induced disaster.

In this article, we’ll take a closer look at the signs of a malware attack, the steps you can take after a malware attack, as well as some methods for prevention including how to develop a robust data protection strategy that’s right for your business.

Signs of a Malware Attack

Before we introduce the steps to recover from a malware attack, we first need to describe some of the signs you should look for when trying to identify a malware attack. It isn’t always obvious when you’ve been the target of a malware infection.

Here are some things you should look out for if you think you may have experienced a malware attack:

Slow Devices

For some devices, running slowly is just a sign of old age. That said, a slow operating system (or one that freezes or crashes often) can also be an indication of a malware infection. Malware viruses usually run in the background on your system and interfere with other programs, eating up your processing power. If you notice that your devices are running slower than usual (and especially if it’s a newer device), you should have the device inspected by your IT team or an information security specialist.

Login Lock Out

Many malware programs, and especially ransomware, will lock you out of your own system or deny access to certain files until you pay a sum of money. Ransomware attacks will typically identify themselves when they demand a ransom in exchange for a decryption key, but even if you don’t see a ransom note, the sudden inability to log in to your computer is a red flag for a possible malware attack.

Unusual Error Messages

Some malware viruses will send error messages to prompt users to grant even further systems permissions or to authorize more downloads. These messages will often attempt to mimic your computer’s error messages – but look for something off stylistically or grammatically. If you get a message you don’t recognize, or one that seems strange, you should first try Googling for the exact wording of the message to see if it’s associated with any malware. Even if you can’t find anything online, a mysterious and recurring error message is a good reason to have your device inspected for malware.

Pop-up Interruptions

Annoying pop-ups that interrupt your work with alarming messages or advertisements aren’t just irritating; they’re an indication of a malware virus on your device. If you suddenly start getting inundated with pop-up messages, it’s likely that you’ve fallen victim to a malware attack.

Browser Changes

When a virus infects your web browser, it inserts itself onto the pages you visit on the internet and can sometimes even change your settings without your approval. If you notice any suspicious behavior on your browser – say, your homepage suddenly being set to a different website, a new extension appearing next to your search bar, or new bookmarks being added to your browser menu – it’s probably a warning sign of a malware attack.

Strange Icons or Programs

Some malware viruses will also install some sort of program on your device that tries to pass itself off as legitimate. While it may have an harmless looking name and icon, any programs or applications that you don’t recognize or don’t remember downloading should be cause for concern.

Spontaneous Restarts or Shut Downs

Most computers will automatically restart after a system update, although they will usually warn you before they do so. If your computer spontaneously shuts down and restarts itself, it’s possible that you have a malware virus. If you notice it happening repeatedly and without warning, you should talk to your system administrator or an IT specialist about the possibility of a malware attack.

Antivirus Alerts

Some of the more clever malware viruses also come with self-defense mechanisms to prevent themselves from being quarantined or removed. One such mechanism is to disable any antivirus programs that run on your devices. Hopefully, your antivirus software will warn you if it’s been disabled. And if you see such an unprompted warning (especially after you’ve recently activated software) it’s a sign that something is probably wrong.

System Tools Disabled

Another common defense mechanism for malware viruses is to lock users out of their control panel to prevent them being able to check the system settings that would alert them to what’s wrong with their device. If you try to check your control panel and get a message saying that only system administrators are allowed access, it’s another possible sign of a malware infection.

Nothing at All

Unfortunately, most malware viruses go out of their way to avoid detection. Some even remove other viruses on your device to assure that they don’t blow their cover. And the longer these malware viruses are on your system, the more information they’re able to glean, and the more dangerous they become.

Even if nothing seems wrong, you should still run regular checks on your computer and invest in antivirus and antimalware protection. You should also keep your computer up to date, especially with security updates. And be wary of any suspicious websites, emails, or advertisements online that might trigger a malware download.

Steps to Recover from a Malware Attack

Let’s say you have been attacked, and you recognize some of the signs that we described above. What’s next?

Here are the steps you should take if you’ve been on the receiving end of a malware attack:

  1. Isolate
    To prevent the malware infection from spreading, you’ll first need to separate all the infected devices from each other, shared storage, and the network.The rate and speed of your malware detection is critical to combat attacks before they spread across your network and encrypt your data. If you suspect a device has been infected, first isolate it from other computers and storage devices. This includes disconnecting it from the network (both wired and Wi-Fi) and from any external storage devices.Keep in mind that it’s likely that there could be more than one patient zero, meaning that the malware may have entered your organization or home via multiple devices. Or it may be dormant on other devices and just hasn’t shown itself on some systems.Regardless, you should treat all connected and networked devices with suspicion and apply measures to ensure that all your systems are not infected.
  2. Identify
    It’s important that you do your best to identify which malware strain you’re dealing with by examining any messages, evidence on the computer, and using identification tools.As mentioned above, ransomware attacks will often identify themselves with a ransom note. There are also a number of sites that can help you identify ransomware, including ID Ransomware, and the No More Ransom! Project.Identifying which malware strain has infected your devices will help you better understand how it propagates, what types of files it might encrypt, and some of the options for removal and disinfection. You should also try to determine the date of infection from malware file dates, messages, and any other information you can find.Identifying the type of malware and the date of the malware attack will also help you report it to the proper authorities.
  3. Report
    Reporting a malware attack to the authorities will help you (and others) support and coordinate measures for counter attack. The FBI urges ransomware victims in particular to report ransomware incidents, regardless of the outcome.Reporting malware attacks provides law enforcement with a greater understanding of the threat, as well as providing justification for ransomware investigations and contributing relevant information to any ongoing ransomware cases.
  4. Consider Your Options
    You can deal with a malware attack in several ways. Ultimately, you should determine which approach is best for you and your organization.If you find yourself the victim of a ransomware attack, these are your options:
    • Pay the ransom. Generally it’s considered poor form to pay ransom for a data decryption key for a number of reasons. First, this encourages more ransomware. Second, even if you do pay the ransom, it’s likely you won’t get your data back anyway.
    • Remove the malware. There are a number of internet sites and software packages that claim to be able to remove malware from systems; whether this is actually possible is up for debate. There isn’t any guarantee that decryption tools will work for every known variant, and the more sophisticated the malware, the less likely it is that a decryption tool will help.
    • Wipe the system and start from scratch. This is the surest way to remove malware or ransomware for good. Completely wiping all of your storage devices and reinstalling everything from scratch will include formatting your hard disks to assure that no remnants of malware remain. Ideally before this step happens, you should have enforced a strict backup policy, so you should already have copies of all your critical data up to the time of infection.
  5. Restore and Refresh
    No matter what you decide to do after a malware attack, you’ll need to rely on safe backups and program software sources to restore your computer or outfit a new platform.If you are the victim of a malware attack and you don’t have a consistent backup system, it’s time to develop one. Starting from scratch after a disruption can lead to delays in business continuity and even harm your business operations entirely.Your backup procedures and processes should be thoroughly documented in your disaster recovery and business continuity plans so you know exactly what to do should an incident occur.
  6. Plan for Prevention
    The most effective way to protect your systems against malware is to prevent it from being installed in the first place. Unfortunately this isn’t always possible, and it’s likely that your organization will experience a malware attack at least once in its lifetime.After an attack, you should make an assessment of how the infection occurred and consider what you can do to put measures into place that will prevent it from happening again.You’ll need to develop a robust data protection strategy that includes the following:
    • Data inventory. Inventory your data to determine how it should be categorized and where it should be stored. Some categories might include: critical, valuable, regulated, or proprietary. Once you have a clear understanding of your data, you can begin to determine how to best protect it and how to initiate a consistent data backup solution.
    • Endpoint identification. To identify where malware infections might be coming from, it’s critical to know where your endpoints are. Just like with your data, you should categorize your endpoints to determine their priority and to assure that your high-value endpoints are appropriately protected.
    • A Data recovery plan. As part of your disaster recovery plan, you should create a data recovery plan for all assets and data, and prioritize those that are mission-critical. Ideally, you should be able to restore or rebuild all of your assets and data from a master backup to prevent any data loss.
    • Backup protection. Your backup plan is only helpful if it’s both secure and accessible. This means you should make sure that your backups are protected in addition to your critical systems and data, to assure that you are able to restore data from backups, and that the data you are restoring is reliable.
    • Duplicated offsite data. To keep your data safe, you should store at least one copy either offline, offsite, or both. Even if your on-site backups end up encrypted or stolen, you can still restore your data and your most important files.
    • Tools to help. A number of cybersecurity solutions are designed to help you recover your systems and your data after a malware attack. Consider the options that make the most sense for your organization and determine how you can leverage these tools to make your cybersecurity efforts as streamlined as possible.

Mitigate Cyber Risks with ZenGRC

The key to a successful cybersecurity program is knowing when to ask for help. Cybersecurity is a complicated practice that requires in-depth knowledge and understanding of cyber risks and how to mitigate them. You need a solution that can help take the guesswork out of cyber risk management. So how do you know which software is right for your organization?

ZenGRC is an integrated cybersecurity risk management solution designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats and controls for you, so you can spend less time setting up the application and more time using it.

A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in sync with the direction your business is moving.

ZenGRC will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.

Plus, ZenGRC is seamlessly integrated so you can leverage your compliance activities to improve your risk posture with the use of AI. ZenGRC gives you the ability to see, understand and take action on your IT and cyber risks.

Now, through a more proactive approach, you can give time back to your team with ZenGRC. Talk to an expert today to learn more about how ZenGRC can help your organization mitigate cybersecurity risk and stay ahead of threats.

How to Monitor Your Risk Management Plan

· ·

As ever more business operations rely on software systems and online platforms, the range of cybersecurity risks they face become ever more complex. A strong risk management process can help, enabling organizations to detect potential threats, gauge the potential disruption, and implement mitigation plans to minimize the risk of harm.

That said, merely implementing a risk management plan is not enough to ensure optimal cybersecurity. It’s equally important to revisit the plan regularly, to identify any new risks and ensure that the existing risk mitigation measures are still effective.

This is known as risk monitoring, and it’s an essential aspect of risk management that involves ongoing observation, evaluation, and reporting of potential risks and their impact on the organization.

In this article we’ll discuss the key steps for monitoring cyber risk and provide insights on how businesses can prevent potential issues from arising.

How to Monitor and Review Risk Assessments

To monitor and review risk assessments, your organization’s risk managers should develop a risk register that includes details such as the level of urgency, response priority, and response plans for each risk. Categorize each risk under specific headings, such as operational, budget, or information security risks; then assign likelihood levels to prioritize specific risks. Identify a risk owner responsible for managing each risk to ensure ongoing monitoring.

Your risk managers should use that risk register often; refer to it when launching new projects so the team can be aware of identified risks and monitor new threats. Review the risk register at regular intervals (annually, for example) and update it as necessary. This helps you to identify new threats and to detect changing patterns in existing risks, which allows for a more active approach to risk management.

To adapt to emerging risks and changing circumstances, consider the effectiveness of your risk management strategies and adjust them as necessary. This may involve implementing new controls or procedures, investing in risk mitigation tools, or seeking out additional resources.

To improve risk management practices, involve stakeholders at all levels in the process to ensure everyone understands the importance of risk management and feels empowered to identify and report potential risks.

Key Steps for Monitoring Risk

After establishing a risk register, you can begin the monitoring process. To ensure a smooth and effective monitoring process, consider the following steps:

  • Monitor risk response plans
  • Identify trigger conditions
  • Analyze periodically to detect new risks
  • Evaluate the effectiveness of the risk management plan

Monitor your risk response plans

Each risk should have its own response plan and risk owner. The risk owner is responsible for implementing the response plan for each incident and for reporting to the company risk manager. Each scenario or incident will require its own careful review to determine whether a new contingency plan should be implemented.

Identify trigger conditions

Trigger conditions are specific events or circumstances that indicate that a risk is likely to occur. Identifying trigger conditions is an essential step in effective risk management because it allows risk managers to take early action to prevent or mitigate the harm of potential risks.

Once trigger conditions are identified, the risk manager should include them in the risk response plan and assure that appropriate measures are in place to address them. Regular monitoring and communication with project stakeholders can help identify new trigger conditions and keep risk response plans updated accordingly.

Analyze periodically to detect new risks

Risks evolve over time, so at regular intervals (say, annually or semi-annually) you should reassess the risks you’ve already identified to see how they’ve changed. This step also helps you to identify any new risks that may have emerged, assess the effectiveness of your mitigation strategies, and adjust as necessary.

In addition to reviewing your risks, gather feedback from project teams and stakeholders to identify any potential risks that may have been missed. This feedback can help you to better understand the unique risks associated with each project and make adjustments to your risk management plan accordingly.

Once you’ve identified new risks, assess their potential impact on your business operations. You can do this by estimating the likelihood and severity of each new risk and prioritizing them based on their potential impact. This will help you to focus your resources on mitigating the most significant risks first.

Evaluate the effectiveness of your risk management plan

To ensure effective risk management, organizations must take a holistic view of their risk monitoring process. To evaluate the effectiveness of your risk management plan, start by reviewing your risk identification process. Are you able to identify all potential risks? Have you missed any risks that could impact your business operations? Consider using historical data or industry benchmarks to help you identify any gaps in your risk identification process.

Next, assess your risk mitigation strategies. Are they effective in reducing the impact of identified risks? Are they being implemented consistently across all projects? Identify any gaps in your mitigation strategies and make adjustments as necessary.

And don’t forget to measure the effectiveness of your risk management plan by analyzing your risk monitoring process. Are you able to detect risks in real-time? Are you gathering feedback from project teams to improve the risk monitoring process? Use metrics such as the frequency and severity of risks to evaluate the effectiveness of your risk management plan and make necessary adjustments.

ZenGRC Helps Your Business Avoid Upcoming Issues

ZenGRC is a software solution that empowers organizations to make strategic, risk-informed decisions. With its ability to monitor IT and cyber risks, automate compliance, and communicate the impact on top priorities, the ZenGRC gives users a comprehensive understanding of their risk exposure.

The software’s real-time risk monitoring also enables users to stay ahead of potential threats and make proactive decisions to mitigate risk.

Schedule a complimentary demo now to see ZenGRC in action.

Third-Party Due Diligence Best Practices

· ·

No matter your industry, business relationships with third-party vendors are the most significant risk to your information landscape. Increasingly, companies are adding more Software-as-a-Service (SaaS) vendors to streamline business processes. However, vendor due diligence becomes more complicated as you add new services.

What is Third-Party Due Diligence?

Third-party due diligence is the process of vetting suppliers, distributors, and service providers using a risk-based approach to uncover any red flags that may indicate a danger to your business.

For instance, if a company wants to outsource work or hire a new supplier or vendor, it will do third-party due diligence to determine any risks or possible issues with this new partnership.

Making a list of all prospective third parties and assessing their risk is the first step in the third-party due diligence procedure. Before delving further into crucial subjects like compliance or the potential for bribery, risk assessors first acquire pertinent information or details about a potential vendor’s ownership, management, operations, and company structure.

The participating organizations choose particular research fields before the procedure. Depending on the situation, the geographical areas a corporation operates in, the third party’s business relationships, and other factors may all be significant. The company can do the due diligence independently or with a provider of services specializing in these investigations.

Businesses must conduct third-party due diligence when deciding who to cooperate with and enter into contracts to reduce compliance, legislation, and public perception concerns. In addition, it helps the firm understand its potential for responsibility and risk before entering into a formal agreement and provides details on what mitigation measures need to be implemented.

As they expand in a worldwide economy, businesses must be aware of various regulatory frameworks, data protection laws, penalties, export limitations, and common types of corruption, such as money laundering and bribery. Additionally, due diligence is prioritized by corporate executives because of the higher standards that regulators now hold firms to, owing to the increased resources available for regulatory and compliance.

In addition to legal and regulatory concerns, third-party agreements can provide several risks, including exposure to cyber-attacks and negative news. For more renowned companies with thousands of third-party contracts, the overall risk might be severe if due diligence is not completed each time.

In other words, the risk that third-party due diligence exposes organizations to makes it so important, particularly in today’s highly competitive and intricate global marketplace.

Why You Need a Security-First Due Diligence Process

Starting with security enables you to protect your information and reputation better. By locking down your entire environment and supply chain, you make sure that data protection comes first. The old(ish) saying goes, “if you build it, they will come.” However, in cybersecurity, you need to update it to “if you build it, they will come, but they won’t get in.”

Due diligence in vendor management requires you to maintain that security-first approach and find organizations that also take cybersecurity seriously. Prominent vendors may seem secure, but their size often means they have a large perimeter to protect.

On the other hand, Small vendors may have cutting-edge technology, but their agile development may lead to a hole in security. You must ensure that all vendors begin with safety as a primary concern.

Common Third-Party Security Risks and Challenges

The top five obstacles companies experience during the Third Party Risk Management (TPRM) process are listed below. While not a complete list, these are some of the more substantial and usual TPRM issues.

Detecting Cybersecurity Threats

With the expanding digital world across all business sectors, cybersecurity is one of the most challenging obstacles for enterprises when setting up and carrying out their third-party risk management program.

Often, enterprises need more resources and awareness to address cybersecurity measures in third-party vendors. Webinars and resources may only go so far and sometimes leave firms unable to respond when cyber assaults affect a third party and their own.

Amount and Complexity of Third-Party Partnerships

Modern corporations have hundreds, if not thousands, of third-party collaborations. Suppliers, vendors, contractors, consultants, and others are among them. New merchants may be added daily, and established vendors can be deleted.

Furthermore, fast-growing businesses may swiftly add new providers. The number and complexity of third-party collaborations for modern enterprises is a critical problem in controlling third-party risk.

The number of third parties a company collaborates with makes it incredibly difficult to track possible risks or regulatory compliance.

Third-party risk management demands companies monitor and identify risks across all third parties while completing various due diligence and decision-making degrees. If even one is overlooked, that vendor may be exposed to a risk that, if exploited, might result in significant damage.

Inadequate Visibility

A good TPRM program should enable businesses to view their third-party risks across all service providers quickly and simply.

However, companies frequently lack a comprehensive perspective of their third-party connections and associated dangers. This makes tracking individual vendor performance, security postures, risk mitigation, and regulatory compliance across all third parties challenging.

As with other aspects of business, having clear insight into day-to-day workflows and management procedures is critical to ensure that operations operate smoothly and that any concerns are resolved as soon as possible.

TPRM slows down this workflow without visibility, frequently resulting in missed risks and miscommunications across the third-party risk management process.

Regulatory and Compliance Issues

Data privacy and cybersecurity requirements are becoming more stringent as digital data becomes more integrated into company processes. These regulations may indirectly impact your business if you deal with a third party that is required to follow them.

If a third party fails to comply with specific legislation, your company may be held accountable for any ensuing damages.

The General Data Protection Regulation (GDPR) is one example of such legislation. The European Union (EU) established this rule in 2018 to guarantee the privacy of EU people, and it compels enterprises to notify authorities of certain types of personal data breaches within a set timeframe.

If your organization is based in the EU and uses a third party outside the EU to handle personal data, part of your compliance program must consider whether the third party also complies with the GDPR.

Insufficient Continuous Monitoring

Third-party risks evolve with time. An organization may now classify a third party as low-risk, but that classification may change tomorrow. Continuous monitoring is required for a successful TPRM program, but it is challenging to perform correctly.

With their present resources and technology, organizations with several vendors may struggle to monitor each of them constantly. Furthermore, the risk environment continuously changes due to new threats, legislation, and business practices, influencing what continuous monitoring must keep up with.

Where Do I Start Third-Party Due Diligence?

The first step to any vendor due diligence program is cataloging your business partners. Starting with the ones most critical to business processes is easy. To achieve this objective, you must create and distribute due diligence questionnaires. Next, you’ve got networks, servers, and software providers.

The difficulties arise when you start drilling down further. Different business areas require other vendors.

For example, your human resource department possibly links to healthcare insurance providers using a web-based application. Meanwhile, your marketing department uses social media tools to develop your brand.

While some business partners are easy to define, the risks to your data environment come from being interconnected within an overarching ecosystem.

How Do I Analyze Third-Party Risk?

Finding vendors may be difficult, but determining your third-party risk feels insurmountable.

In the due diligence review of third-party relationships, you need to evaluate, at minimum, the following:

  • How does the vendor support my overall business objectives and strategic plans?
  • How critical to business operations is the vendor?
  • How important is the vendor to business continuity?
  • What information does the vendor access?
  • What networks, servers, software, and devices do the vendor access?
  • What level of access do I need to provide the vendor to my networks, servers, software, and appliances?

If a vendor needs high access to private information, they need to be labeled as a high-risk relationship. However, even though a vendor isn’t a high risk to your organization, you may need to look at the various risks associated with the relationship.

How to Create Associated Risk Tiers

Some vendors may not be critical to business operations, but they access private information. Some vendors may access your networks but don’t access your customer information.

For example, social media marketing tools access your networks, but they probably won’t be critical to business operations. Meanwhile, a payment processing vendor will be essential to your business operations and access to customer information.

Finally, if you manage an employee web portal, the data is private information unrelated to customers; it accesses your networks but may not be critical to maintaining business continuity.

All of these associated risks impact your cybersecurity, but not necessarily equally. Considering the amount of access, information, and criticality, create risk-based segmentation of your vendors to help monitor the most impactful risks.

5 Vendor Management Due Diligence Best Practices

Define Strategies

After determining your risks, you need to establish strategies that mitigate them. Although you may choose to accept, transfer, or refuse certain risks, ultimately, you can’t get rid of all of them. Strategies for risk mitigation include obtaining self-assessments, site visits, audit reports, and continuous monitoring tools.

Review Employee Conduct

All vendor employees can pose a data risk. Part of due diligence requires reviewing the risks that employees – from senior management to entry-level – pose. For example, a single disgruntled employee can lead to corruption risks arising from the desire to sell information. In addition, if employees leave bad reviews on hiring websites, the company may pose this risk.

Establish Legal Guidelines

Business relationships aren’t friendships. They require legal oversight, such as contractual obligations. A strong vendor management program maintains service-level agreements that define product delivery and cybersecurity requirements. To protect your business, you must explain everything from the vendor’s access level to the data breach notification schedule.

Define Cybersecurity Controls

Your vendors need to align with your cybersecurity stance. You need to define your risk management requirements to avoid liability for their data breach. These requirements include firewall protections and data encryption to monitor their ecosystem.

Many businesses forget that their business partners also use vendors. Those fourth-party risks increasingly boomerang back to you, making you liable for any data breach caused down the supply chain.

Trust But Verify

Sure, you trust the audit reports of your vendor’s supply. But, unfortunately, those reports only show you a point in time. Cybersecurity threats evolve constantly. As such, your audit reports can be outdated, with one previously unknown vulnerability being exploited by hackers, otherwise known as “zero-day vulnerabilities.” Therefore, you need a way to review the threats to your data continuously to maintain a robust cybersecurity stance.

Continuous Monitoring for Third-Party Vendors

Due to the ability of firms to boost functional efficiency and concentrate on key business goals, outsourcing has grown widespread in the business sector. Nevertheless, if third-party vendor relationships are poorly managed, they can expose businesses to several hazards. While companies evaluate these risks throughout the onboarding process, the emphasis on due diligence typically shifts away after a vendor has been incorporated into business operations.

Without ongoing monitoring, organizations are unlikely to be aware of third-party risks that might cause significant financial and reputational damage to their company. Therefore, companies need procedures that enable them to regularly assess vendor security to reduce risk and implement Third-party risk monitoring.

This will guarantee your company is shielded from vendor obligations and maintains third-party due diligence beyond the onboarding procedure.

How to Review and Improve Your Due Diligence Practices Over Time

The following are a few crucial procedures businesses may use to sustain third-party due diligence.

Consolidate Third Party Data

Businesses’ visibility over their operations may be diminished by having a sizable base of third-party vendors. Therefore, organizations should put procedures in place to preserve crucial information from being lost and centralize third parties’ data.

It will be easier to obtain information by consolidating company information, contacts, previous assessment findings, and third-party roles and duties. This will also help you with suppliers’ risk mitigation procedures.

Understand the Risk Landscape of your Business

When keeping track of third-party due diligence, it’s critical to identify the dangers that represent the most significant risk to your company. Making risk appetite and risk tolerance declarations is one method to do this.

The amount of risk your company is willing to take to achieve your business goals is known as your firm’s “risk appetite.” In contrast, risk tolerance statements quantify the level of risk your firm can accept before failing.

Using these two metrics, you may prioritize vendor risk based on your strategic goals, which will help you complete your due diligence quicker and for less money.

Sort Vendor Risk

Each vendor you work with presents a particular risk to your company. Therefore, it is essential to categorize third-party risk since it enables you to decide what steps should be taken to address certain risk instances.

The following are the most typical categories of vendor risk:

  • Strategic Risk
  • Reputational Risk
  • Operational Risk
  • Transactional Risk
  • Compliance Risk

Establish a Procedure for Third-Party Monitoring

Establishing a mechanism to track vendor security posture is one of the critical components of third-party due diligence. Third-party risk assessments, created to determine the degree of particular risk vendors bring to a company, can be used to do this.

To make this process as efficient as possible, you should develop procedures for managing vendor risk that all organizational departments can use. This facilitates the assessment process and enables you to conduct more thorough examinations.

Organizations should use automation whenever feasible to conduct evaluations because they need a lot of resources. In addition, companies can standardize assessments through technology, making third-party monitoring and management flexibility possible.

Audit your Due Diligence Procedure

Organizations must track how well and precisely their due diligence systems evaluate vendor risk to sustain owing diligence. You can develop success metrics when reviewing your due diligence procedures using your risk appetite and tolerance statements as a baseline for acceptable risk. By comparing performance to these measures, you can assess how well your firm manages risk and find areas for improvement.

To get the most out of the knowledge your programs can teach you, it is advised that you audit your processes once a year. Once a risk has been recognized, monitoring the steps taken to ensure that third parties correctly handle any liabilities is crucial.

How ZenGRC Enables Security-First Vendor Management

Vendor management means reviewing your third-party providers’ security as diligently as you review your own. First, however, Chief Information Security Officers (CISOs) need tools to help manage the alert influx.

A single person can’t be in contact with every vendor every day. Moreover, even in a small business, maintaining the organization necessary to ensure continuous monitoring and communication with a few vendors can be overwhelming.

ZenGRC offers a Task Management capability, where compliance officers can assign remediation work and capture all the relevant data about that job: the requester, the assignee, the current status of the task, and necessary deadlines.

Now, your CISO can maintain a workflow that enables a robust vendor management program that keeps your organization secure. First, monitor your vendors in real-time, then create a workflow that allows you to maintain ongoing oversight to ensure they remediate issues.

Contact us for a demo today for more information about how ZenGRC can streamline your Governance, Risk Management, and Compliance (GRC) process.

The Key Differences between FedRAMP A-TO & P-ATO

· ·

The Federal Risk and Authorization Management Program (FedRAMP) helps U.S. federal agencies assess cloud service providers’ security more efficiently. It aims to protect government data and information systems and promote the adoption of secure cloud products and services by federal agencies.

FedRAMP standardizes security requirements and authorizations for SaaS, PaaS, and IaaS cloud services per the Federal Information Security Management Act (FISMA). All cloud service providers (CSPs) that process, transmit, or store government information must use the FedRAMP baseline security controls to obtain security authorization under FISMA.

Any CSP looking to work with a federal government agency must achieve FedRAMP authorization via an Agency Authority to Operate (ATO) or a Provisional Authority to Operate (P-ATO). ATO and P-ATO are the two pathways to achieve FedRAMP compliance for cloud vendors.

Both types of authorization indicate that the CSP has implemented the required cloud security measures to protect sensitive government data. That said, there are differences between these two authorization paths. Understanding FedRAMP is crucial to understanding the differences.

What is FedRAMP?

FedRAMP standardizes and simplifies FISMA compliance for Cloud Service Offerings (CSOs). Through a set of best practices and controls, FedRAMP provides agencies and vendors with a “standardized approach to security and risk assessment for cloud technologies and federal agencies,” to use the FedRAMP website‘s own words.

This government-wide program aims to:

  • Assure that all CSOs used by government agencies are adequately protected
  • Reduce duplication and cost inefficiencies around risk management
  • Create transparent security authorization processes to enable agencies to adopt secure cloud computing systems rapidly

The baseline controls that serve as the foundation for FedRAMP come from the National Institute of Standards and Technology (NIST), specifically in the security framework known as NIST 800-53. The controls in NIST 800-53 encapsulate multiple security and risk areas, including:

  • Access control
  • Configuration management
  • Contingency planning
  • Risk assessment

In addition to providing standardized security, assessment, and authorization requirements for cloud products and services, FedRAMP also provides:

  • Standardized authorization packages
  • A conformity assessment program with qualified independent, third-party security assessors
  • A repository for CSO authorization packages that any federal agency can access
  • Standardized contract “language” to help agencies seamlessly integrate FedRAMP requirements into CSO acquisitions

These artifacts are based on a security risk-based model, allowing agencies to leverage cloud system authorizations. All CSOs and CSPs must get FedRAMP authorization.

FedRAMP controls are designed, implemented, governed, and maintained by multiple U.S. government agencies, including the Department of Homeland Security (DHS), the Department of Defense (DoD), the General Services Administration (GSA), and, of course, NIST.

The FedRAMP Program Management Office (PMO) manages the program’s day-to-day operations. In addition, the Joint Authorization Board (JAB) issues a Provisional Authority to Operate (P-ATO) for cloud services and CSPs.

What is FedRAMP Authority to Operate (ATO)?

CSPs must first complete a rigorous authorization process to contract with U.S. federal agencies. An Authority to Operate (ATO) FedRAMP certification is one way to achieve authorization.

The ATO is a formal declaration by an agency authorizing the use of a CSO while explicitly accepting the risk of doing so. CSPs work directly with the agency’s security office and an Authorizing Official (AO) to obtain the ATO.

When applying for the ATO, CSPs provide a security authorization package to the agency. Before granting the ATO, the agency will provide a risk review of all the artifacts in the package following FedRAMP requirements.

The documentation is assessed independently, usually by a FedRAMP-accredited Third-Party Assessment Organization (3PAO) that acts on behalf of the federal agency. A 3PAO verifies the CSP’s security implementations and assesses the overall risk posture of its cloud environment to guide the agency’s security authorization decision.

The FedRAMP PMO recommends that agencies select an Independent Assessor (IA) from the FedRAMP 3PAO accreditation program. That’s not required, however; an agency can use a non-accredited IA for the ATO process as long as the agency can provide evidence of the IA’s independence via a letter of attestation.

Once the agency authorizes a CSP’s package, the agency emails the FedRAMP PMO. The PMO will instruct the CSP to submit the package for PMO review. During the review, the PMO will confirm that the package meets FedRAMP standards and publish it in the secure and access-controlled FedRAMP Secure Repository.

Once the AO authorizes a CSP environment for use by the agency, the agency formalizes the decision in an ATO letter, which is then given to the CSP system owner. Then, the CSP is added to the list of authorized CSPs on www.fedramp.gov.

Other agencies can rely on the authorization letter and security package from the Secure Repository to make their own procurement decisions for cloud products and to issue their own ATO to a CSP.

ATO Authorization Phases

The ATO application process varies depending on the CSO requesting authorization and the government systems it is requesting access. But in general, the ATO authorization process consists of four phases:

  1. Establish CSP/Agency Partnership
    In this first step, the agency reviews the CSP’s security authorization package and identifies areas where adjustments are required.
  2. Perform Security Assessment
    A FedRAMP-accredited 3PAO or a non-accredited IA performs the security assessment. After completing the security assessment, the agency may grant the ATO.
  3. Complete Authorization
    An agency’s ATO does not give the CSP blanket authority to work with all agencies. To work with other agencies, the CSP must go through steps 1 and 2 again. Other agencies can review the CSP’s authorization letter from the ATO-granting agency on the FedRAMP Secure Repository. They can compare the package to their security requirements to determine whether the CSO meets their security standards.
  4. Perform Continuous Monitoring
    Once a CSP receives the ATO, it must continuously monitor to maintain authorization. To this end, the CSP must submit a set of monitoring deliverables to the agency using the CSO.

Monitoring assures that the CSP’s security measures are still operating effectively and that its security authorization package is up-to-date. Monitoring also increases visibility into the CSO’s security posture and allows agencies to make informed risk management decisions.

If more than one agency uses the FedRAMP-ready CSO, the CSP must submit these deliverables to all agencies. The CSP must also conduct annual security assessments to assure alignment with security requirements and maintain its FedRAMP ATO.

What is FedRAMP P-ATO?

A CSP can also obtain FedRAMP authorization via a provisional authorization (P-ATO) through the Joint Authorization Board (JAB). 

To get a P-ATO, the CSP works with the FedRAMP PMO through its Security Assessment Framework (SAF) and provides documentation in the security authorization package to the JAB. (Remember, in the case of ATO, the package is provided to the agency that will use the CSP’s CSO.)

For P-ATO, the JAB provides a risk review of these documents. An accredited 3PAO independently tests, verifies and validates the CSP’s security assessment package, and JAB then grants the P-ATO.

The JAB also informs federal agencies whether the CSO’s risk posture is acceptable for use at the designated data impact levels. The JAB, however, does not assume the risk for any agency. After vetting a CSP and assessing its security posture, the JAB may grant a P-ATO, but it is still an individual agency’s decision to grant the ATO.

Differences Between ATO and P-ATO

At first glance, the only difference between ATO and P-ATO seems to be the word “provisional,” but there’s a lot more to these ideas than that one word.

Whether the CSP gets ATO or P-ATO authorization, the CSP must obtain an authorization letter from the granting authority. For ATO, the letter is provided by the agency contracting with the CSP; the JAB signs the P-ATO letter.

Another difference between ATO and P-ATO is around continuous monitoring. The FedRAMP PMO manages continuous monitoring activities (yearly and monthly) for systems with a JAB P-ATO. The agency manages these activities for systems with an agency ATO and annually updates a CSP’s security authorization package in the FedRAMP Secure Repository.

A CSP that has earned a FedRAMP JAB P-ATO meets the program’s stringent security and authorization requirements. Agencies can trust that essential data security and cybersecurity measures are in place in the cloud environment, and the agencies don’t have to do their security risk assessments.

FAQs About FedRAMP ATO and P-ATO

How Long Does It Take to Get a FedRAMP ATO?

Three major components of your ATO trip will influence how long it takes to obtain permission. Furthermore, the authorization method you choose (JAB or Agency Sponsor) and the level you seek will influence your timetable. We propose organizing your chronology into four major sections:

  • Review of Readiness. Required for JAB authorization and frequently suggested for agency ATO preparation – anticipated to take 1 month.
  • Remediation. This is tough to quantify because each company is unique. Most businesses will require 4 to 6 months or more before they are ready (depending on commitment to acquire an ATO).
  • Complete security assessment. This is when a 3PAO will conduct an impartial review of your security measures, as well as extensive security testing and vulnerability scanning. Depending on your resources and commitment to acquiring an ATO, this procedure might take 2-4 months to complete.
  • The Authorization Procedure. This is the stage at which you collaborate with the JAB or agency/FedRAMP PMO to examine your authorization package and get an ATO. This procedure can take 2 to 3 months or longer, depending on how regularly and openly you communicate with the JAB, your agency and how accurate and thorough your authorization package is.

How to Obtain a FedRAMP Authorization

A FedRAMP Authorization can be obtained in two ways: as a provisional authorization through the Joint Authorization Board (JAB) or an authorization through an agency.

At any stage within the Agency permission process, agencies may interact directly with a Cloud Service Provider (CSP) for permission. CSPs who cooperate directly with an agency to get an Authority to Operate (ATO) will collaborate with the agency throughout the FedRAMP Authorization process.

Is FedRAMP Authorization Required?

FedRAMP is necessary for every CSP that has created a CSO for use with a federal agency.

FedRAMP rules must be followed whenever a federal agency distributes sensitive government data in the cloud. When an agency seeks a collaboration with a CSP, both parties must collaborate to get authorization. 

What are the Best Practices for FEdRAMP Authorization?

Here are some best practices for attempting the many routes to authorization and attaining FedRAMP compliance:

Determine Your Impact Baseline

Your authorization level will depend on the services your CSP offers to federal agencies; this will also define how many security controls you must implement to get authorization.

Three impact baseline levels—low, moderate, and high—are used in the FedRAMP organization. These align with the potential consequences of a breach involving the agency’s information.

Filling the Federal Information Processing Standards Publication 199 (FIPS-199) form is the first step towards FedRAMP compliance. You can find out exactly what risk impact level you need to pursue by using the FIPS-199.

Select Your Authorization Pathway

FedRAMP authorization can be obtained through two primary channels: the Joint Authorization Board (JAB) or a particular Agency. An organization can obtain an Authorization to Operate (ATO) by agency authorization and a Provisional Authorization to Operate (P-ATO) through JAB authorization. The approach you choose should align with your business’s objectives, risk-impact level, and maturity. 

Prepare Your POA&M

The initial stage of compliance, FedRAMP authorization, requires a lot of documentation. You must also finish the Plan of Action and Milestones (POA&M) and the FIPS-199. Under the National Institute for Standards in Technology (NIST) Special Publication 800-53, Security and Privacy Controls for Information Systems and Organizations, your CSO’s POA&M is a risk management strategy.

Align with Your Third-Party Assessment Organization (3PAO)

Visit the FedRAMP Marketplace for further details on federal agencies, a list of Third-Party Assessment Organizations (3PAOs), and a look at the already listed CSPs. To determine whether your company is ready for your ATO or P-ATO, you must work with a 3PAO to evaluate it and compile your Readiness Assessment Report (RAR).

Prepare for Continuous Monitoring

Following the receipt of your ATO or P-ATO, you have a schedule for continuous monitoring, or ConMon, as it’s known in FedRAMP. Monthly vulnerability scans are part of ConMon.

Planning out your monitoring schedule can help you prepare for this by going over your POA&M again, making sure the appropriate staff members are taking ownership of the controls, and creating an auditing and risk management strategy mainly made to keep your FedRAMP authorization.

Make sure to adequately prepare for this phase, which also necessitates keeping abreast of any updates to FedRAMP compliance standards and security measures applicable to your designated impact level. If you don’t, the JAB or the agency you’re working with may cancel your ATO.

Manage Compliance With ZenGRC

If you are a cloud vendor just starting your FedRAMP compliance journey, you need a tool to streamline the FedRAMP authorization process and make it less overwhelming. You need visibility into your control environment and access to information to evaluate your compliance program. With ZenGRC, you can get all this and more.

ZenGRC provides an integrated and automated system of record to help you stay up-to-date with FedRAMP requirements and ensure continual compliance monitoring. It eliminates tedious manual processes and spreadsheets to provide a fast, easy, prescriptive compliance solution.

Take advantage of ZenGRC to optimize the health of your FedRAMP compliance program. Schedule a demo to get started.