Ask the Guru: A Prospective Vendor Either Won’t or Can’t Provide the Documentation We Need. What Should We Do?

Ask the Guru: A Prospective Vendor Either Won’t or Can’t Provide the Documentation We Need. What Should We Do?

Hey Guru!

We’re doing our due diligence on a new HR software package. We’ve requested the vendor’s financials and a SOC 2 report, but they told us they don’t provide financials (they are privately held), and their SOC 2 won’t be completed until the end of the year. They do have a SOC 1. What are your thoughts on this?


As with almost everything else, this starts with the risk assessment. What are your primary concerns with this vendor? They probably fall in 2 main categories; the security of the confidential data they store and process, and the criticality of the service they provide. A sound set of financials will give you some assurance that they can continue as an on-going concern and fulfill the terms of their contract. A SOC report will give you assurance that they have an effective control system in place for your confidential data. SO without either, how do you assure yourself? You’ll need to find alternate assurances, otherwise known as compensating controls.

In the absence of audited financials, one way to gain at least some assurance about the financial health of the company is to pull a D&B report. Another way is to ask the company for their banking contact as a reference, but as a private company they may be reluctant to provide that. In the end, if you aren’t able to gain sufficient assurance of their ability to continue to function, you’ll need to identify alternative vendors that can step in if needed.

Regarding assurances of their control environment in the absence of a SOC 2 report, this is a bit more difficult because there are potentially 5 criteria covered in a SOC 2 report; confidentiality, data integrity, data availability, privacy and security. Their SOC 1 may speak to data processing integrity, but compensating controls for the other criteria will have to be pieced together. BCP plans and testing results can speak to data availability. InfoSec policies, vulnerability assessments and PEN test results can speak to the security criteria. The contract and/or non-disclosure agreement (NDA) may contain privacy and confidentiality elements.

In the end, you’ll need to decide if the compensating controls in these areas result in a residual risk level within your risk appetite. If not, you may be better of waiting until the SOC 2 is released.

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