AuditOne Advisory – Assessing Cloud and Technology Service Providers for Cybersecurity Preparedness and Resilience

AuditOne Advisory

From Bud Genovese, Chairman

As part of vendor management, we have seen a recent examiner focus into how you monitor cloud and technology service providers for cybersecurity preparedness and resilience.  Kevin Tsuei and Jon West, part of AuditOne’s Technology Audit group, have prepared concise guidance on how to conduct the review and suggestions on what to look for. Please share this with colleagues with responsibilities related to vendor management and technology oversight. Thank you, –Bud

Assessing Cloud and Technology Service Providers for Cybersecurity Preparedness and Resilience

By: Jon West, Senior Audit Associate, and Kevin Tsuei, Technology Practice Co-Director, AuditOne, LLC

In our review of recent examination reports for various of our firm’s clients, we noted some attention to a new topic: a requirement that vendor reviews include the vendor’s cybersecurity preparedness and resilience, incident response procedures, and awareness of emerging technologies. However, the question confronted by Financial Institutions (FIs) is how to conduct such a review.

As a firm responsible for the auditing of FIs, we have worked with regulators, clients, and our own IT team to create a solution to this business problem. Like most of our clients, we rely on technology service providers to help us run our business. We primarily utilize cloud services, specifically Software as a Service (SaaS) and Platform as a Service (PaaS). These service providers have brought with them many business benefits to AuditOne, primarily providing us with scalability and ease of deployment. We, like our clients, follow strict ongoing service provider monitoring practices using the necessary due diligence materials (i.e., financial statements, independent audits (e.g., SOC reports), proof of insurance, business continuity planning, and disaster recovery test results).

However, how can we evaluate a service provider’s cybersecurity readiness? The FFIEC released guidance on Outsourced Cloud Computing in July 2012. The guidance provides us with a checklist as part of cloud service provider due diligence, and we have included that list below as well as some suggestions on what to look for:


To what extent does this service provider present Strategic, Financial, Reputational, or Compliance risks?

Data Classification

Does the data contain NPPI information? Confidential information about the FI? Or does it contain only non-confidential information?


Expense of cloud providers can be significantly higher than hosting on-site if a certain amount of growth is experienced by your FI. Ensure that management is aware of when a relationship with this vendor may cease to make sense, including the costs of transitioning to hosting your own solution.

Encryption for Data-at-Rest and

Is data being securely encrypted as it is transferred from one location to another? If applicable, is data that is in storage being securely encrypted?

Multi-tenancy Risks

Is your data on the same server as another FI? What is the risk that malware introduced by other FIs could compromise your confidential data?

Business Continuity/ Disaster Recovery

Uptime for these service providers is generally of great significance to an FI’s daily functioning. Ensure that a commensurate amount of scrutiny is applied to their ability to continue providing service without interruption during a disaster.

Certainly, these factors are highly important. However, they might not be enough to fully assess a service provider’s cybersecurity preparedness and resilience. To give an idea of the kind of factors to take into consideration, here are the internal controls we audit when we do an evaluation of an FI’s cybersecurity readiness: IT/GLBA/Cybersecurity risk assessment, policies, management oversight, staffing, threat and vulnerability detection, IT asset management, change management, threat intelligence, incident response planning and testing, infrastructure management, patch management, access and data management, training, and the service provider’s own third-party management. Not all of these will be directly relevant to your own assessment of individual vendors, but this will give you an idea of the range of relevant considerations.

As part of our ongoing monitoring process for our own third-party providers, we found that many of these cybersecurity controls can be found in their SOC reports. However, there are typically some gaps between the cybersecurity control list above when compared to our service providers’ audit reporting. As a result, we will reach out to our service providers directly for additional information, and we’ve found them generally willing and able to provide additional security information (e.g., white-paper) to close this gap. Should this not be the case during your due diligence process, do be sure to retain documented evidence of your efforts, should your auditor or examiner request to verify your process.

It is noted that smaller technology service providers may well not have the means to conduct periodic SOC audits. While we strongly encourage these firms to obtain a SOC review (note: our affiliate company AuditOne Inc. offers very competitively priced SOC reviews), it is understandable that the cost might be too much. In these cases, it is management’s responsibility to conduct its own audit/review of its service providers’ key controls as they relate to cybersecurity. We plan in the upcoming months to publish further Advisories on this topic and to elaborate on the relevant cybersecurity controls to look for and to audit.

We hope that our checklists and guidance can help you enhance your initial and ongoing monitoring of your technology (including cloud service) providers. If you would like to learn more about vendor management best practices, we recommend the on-demand WiBinar that we recently hosted with Western Independent Bankers, which you can find at:

AuditOne LLC – Company Overview

AuditOne LLC provides independent risk management services to financial institutions. Our sole focus is providing internal audit and credit review services to the financial institution industry. We have experience with all regulatory authorities and offer a full selection of audit services comprising Credit Review/ALLL, BSA/Compliance, IT/Information Security, ACH rules Compliance, Operations, Network Tests, and Asset/Liability Management and various specialty areas. Our expertise is your edge. For more information on this article, please contact Jeremy Taylor at Contact Us orKevin Watson, Co-CEO at Contact Us and for information about all of our audit services see