With digitization of services progressing at a relentless pace, cloud-based services are becoming ubiquitous. But with sensitive information being routinely handled by service providers and third-party associates, there is a pressing need for increased information security. Data breaches and cybercrime too are a threat to security. In such a scenario, it is not uncommon for clients to want an independent review of your internal controls for data security prior to partnering with you, especially if you are a SaaS organization.
This is the kind of guarantee that an SOC 2 audit provides, and many organizations seek to be SOC 2 compliant to possess more robust internal controls and improve their trustworthiness. To have an in-depth look at what is SOC 2 and the relevance of SOC 2 audits, read on.
Framed by the American Institute of CPAs (AICPA),Service Organization Control 2 or SOC 2 lays down a framework for strong information security for cloud service companies. SOC 2 applies to SaaS companies and businesses that upload customer data to the cloud and aims to safeguard this data through 5 Trust Services Criteria.
The 5 Trust Services criteria are:
● Processing integrity
Following this, SOC 2 compliance is about an organization being able to assure the security of customer data, based on these 5 principles, using adequate controls and systems. Beyond criteria, SOC 2 also provides an auditing procedure and a SOC 2 audit report aims to assure users, clients, stakeholders, and third parties that the organization is complying with the criteria in place for handling sensitive information.
That said, SOC 2 reports are unique to your organization and you have the power to design controls and systems to comply with the trust service criteria that are relevant to you. SOC 2 audits are performed by accountancy organizations or an independent CPA (Certified Public Accountant).
Companies and clients you liaison with may not require you to furnish SOC 2 reports. SOC 2compliance is not a strict necessity in that sense. However, being SOC 2 compliant has its share of benefits. Here’s a look at what they are.
● When auditors attest to your organization’s system sand controls for data security, you possess a competitive advantage in the market. All things equal, clients are sure to prefer an organization that assures them of information security and integrity.
● SOC 2 compliance can help boost your other compliance efforts, such as preparing to be compliant with ISO 27001.
● Data breaches can cause grave financial losses and have legal ramifications too. Being SOC 2 compliant is an ideal way to safeguard yourself against such aspects.
So, while SOC 2 compliance is not mandatory, objectively speaking, it may be required for your organization on a practical level.
The 5 Trust Services Categories outlined by AICPA are:
Security: Refers to information and systems being protected against unauthorized access, unauthorized disclosure, and damage that could affect the entity’s ability to meet its objectives.
a. Information protection in this case covers the points of collection, creation, transmission, storage, processing, and use
b. Systems under protection are those that employ electronic information to act on the information gained
The criteria of security seeks to safeguard customer data against aspects like theft and unauthorized disclosure. Consequently, tools like 2-factorauthentication can be used to secure data.
Availability: Refers to systems and information being available for operation and use to meet the entity’s objectives.
So, your systems need to be available and accessible as per the terms of your service agreement. Availability is vital, for instance, if you run a datacenter or a web hosting service, which requires data to be accessible 24/7.Likewise, if you sell a SaaS product, you need to ensure that it is available for use, as per the agreement.
Processing Integrity: Pertains to services provided or goods manufactured, distributed, or produced. It ensures that the audited system’s processing is valid, complete, timely, accurate, and authorized in such a way that the entity’s objectives can be met.
If you provide e-commerce services or transact on behalf of clients, processing integrity should make its way into your SOC 2 report. This ensures clients that data modification is authorized, processing errors are able to be detected, system output is accurate, and so on.
Confidentiality: Stipulates that information that is held as confidential is aptly protected to meet the entity’s objectives. This applies from the point of collection right till removal. While privacy pertains to personal information, confidentiality refers to other information as well, such as proprietary information, trade secrets, and intellectual property.
An example of data that needs to be protected is personal health information. If your organization collects and stores such information, an audit of confidentiality ought to be carried out as per the SOC 2 guidelines.
Privacy: Refers to the collection, usage, retainment, disclosure, and disposal of personal information to meet the entity’s objectives. Privacy has parameters such as:
a. Notice and communication of objectives
b. Choice and consent
d. Use, retention, and disposal
f. Disclosure and notification
h. Monitoring and enforcement
The criteria of privacy verifies that your organization is handling customer data in accordance with the privacy terms agreed upon.
SOC 2 has two types of reports. Type 1 reports attest to the design of controls and security systems at your organization at a specific point in time. Type 2 audit reports are broader in scope. They contain everything that is included in Type 1 reports and attest to the effectiveness of the controls in place evaluated for a period of 6 months or more. Thus, a SOC 2 type 2 report is more valuable.
An SOC1 report attests to financial controls only. It is mainly for other auditors. An SOC2 report attests to controls that come under the 5 Trust Service Criteria. An SOC 2 report is mainly for the company itself and while SOC 1 focuses on internal controls over financial reporting (IFCR), SOC 2 focusses on data handling as per the Trust Criteria. SOC 3 report is a general use report that is designed for public sharing. It is a high-level summary of the SOC 2 report but does not go into details of the information in it.
A GRC platform like VComply can help you design internal controls that keep your organization compliant with the criteria requirements of SOC 2. VComply provides an uncomplicated way for you to manage compliance and risk, allowing you to assign controls and track them through an intuitive interface. For instance, you can assign responsibilities for data security so as to comply with SOC 2’s primary criteria.
Being SOC 2 compliant is sure to throw open doors to business opportunities and improve customer confidence in your services. Go about it the smart way with a GRC solution by your side!
The tick mark has grown to become a symbol of the internal auditor’s raison d'être, but the primary role of internal audit is not, in fact, defined by stationery and workpapers. The Institute of Internal Auditors (IIA) notes that:
“The role of internal audit is to provide independent assurance that an organization's risk management, governance and internal control processes are operating effectively.”
Today, in the wake of the pandemic, organizations across the world are not just realizing the importance of internal audit, but also appreciating the merits of internal audit that go beyond the confines of ticking and tying. With automation, AI, and ML brining data-driven insights to the table, C-suites and boards are better able to realize why internal audit departments should exist. What is the primary objective of auditing? It’s about offering an independent opinion. But how many times do auditors unearth matters that are of immense importance? The crux of the issue lies in going beyond sheets and into strategy. For that, it is helpful to list out some best practices that can change how internal audit works.
This applies to what and how much. After all, internal audit teams help boards and the C-suite steer the ship. It is of prime importance that auditors are trained to look at the big picture and not just at minute details, which very often have no significant consequences on decision making. As the pandemic unfolded, many organizations were confronted with realities they had, hitherto, turned a blind eye to and if internal audit can unmask threats with well-timed counsel, it will well and truly have done its job.
The objectives of each audit too must be defined so that teams do not get overwhelmed with scope creep. This is when you aren’t able to audit in a modular way and land up investigating and rummaging through everything. To define the scope of the undertaking it can be helpful to learn from past audits and factor an element of structure into the internal audit process by drawing out a schedule, assigning responsibilities, setting a budget, and so on.
One thing the pandemic made clear is that a spotless past is no absolute guarantee of a seamless future. Many ways of working were condemned to at least temporary obsolescence and today, many organizations question their preparedness for things to come in the future. Hence, internal audit has the chance to evolve into the role of a dependable advisor. The emphasis here lies on what lies ahead. Yes, GRC is important, but consulting must come to the fore too.
Shining a spotlight on issues that have occurred, and even diagnosing them is one thing, investigating processes for issues that may occur in the future is quite another! This is the kind of value that leadership and stakeholders seek, especially after the pandemic. Forward-looking internal audit can take many forms: providing data on how much of a cybersecurity risk work from home poses, probing into current employee morale and what a company needs to do to avoid attrition, alerting management to current ways of working that are likely to come under environmental sanctions in the future, and so on. The advantages of internal audit multiply when you add strategy to assurance.
You’ll note shifting the focus from hindsight to foresight is not so much about an internal audit process, it is more about the competence of the team. As such it makes sense to recruit and retain top talent. Besides technical audit skills there are several competencies that you should look to your auditors having.
Data analysis: There is a reason that data science is in vogue and people from all professions are taking to it. With operations and processes becoming increasingly digital, there is a dire need for professionals who can work on that data, make sense of it, and churn out insights from a heap of 1s and 0s. This means that if an audit lead, for instance, were to be able to process data, he or she could instantly steer the internal audit team towards bringing data-driven insights to the executive table.
Soft skills: Irrespective of the internal audit procedure and the technical skills it mandates, what does not change is the requirement for soft skills like exemplary communication. Often, these are hard to teach and given that internal auditors communicate with persons at different levels of the organization, the audit committee, board, C-suite, employees, and stakeholders alike, soft skills can be the factor that determines the efficacy of an audit.
Cybersecurity: With online work going mainstream and unsafe cyber practices being commonplace a fragile digitally-connected world is now a reality. Along with this is the increased probability of a cyber pandemic that can cripple to industries on a global scale. Far from being conspiracy theory, this is what entities like the World Economic Forum are talking about. Having an internal audit department that understands cybersecurity is almost a necessity today (why wait for the next pandemic to strike!).
Ancient philosophers believed that what is received is received according to the mode of the receiver. Meaning that an internal audit report may be only as good as the way it is accepted. Since it is to comprise of an independent opinion, it becomes necessary to foster transparency across the organization, and definitely between the auditors and the people they are reporting to. If internal audit reports to an audit committee, things become easier, but, for instance, in a small organization, if auditors must report to the department they are auditing it becomes tricky.
An interesting way to improve transparency across the organization is to reduce the gap between employees through collaboration. If auditors work with other employees and vice versa mutual trust will be formed and further, cross-team projects give internal audit an opportunity to glean strategic insights.
The traditional internal audit checklist is replete with items like repetitive tasks, manual data extraction, spreadsheet-intensive work, and report preparation. Not only are many of these time-consuming but in other fields tasks such as these have already been automated. It is this gap that GRC solutions like VComply seek to fill, offering internal audit capabilities such real-time metrics, easy reporting and dashboarding, advanced data analytics, compliance management, and remote auditing tools.
Deploying such a software organization-wide increases the scope of internal audit instantly and is in fact a clear sign that you want to move beyond tick marks and spreadsheets, and into the realm of data-driven insights and advice. Good luck!