Today’s businesses are more interconnected than ever. Your company may rely on a network of third-party service providers who handle payroll, taxes, new employee recruitment, and much more. These service providers often need to access sensitive information to complete their functions. As a result, SOC reporting is necessary to ensure that your vendors are maintaining a secure data environment. A breach in your vendor’s network may also compromise your company’s data, which is why SOC reporting is critical.
SOC (Service Organization Controls) are internal control reports that provide information on the current state of vendor systems. These reports vary in how they’re used across organizations, as well as their level of importance. For example, some SOC reports are meant to ensure that continuous compliance is met, while others are directed towards the supply chain and IT environment. Varying levels of SOC controls are designed to help your business in managing its vendor environment. Each level of SOC also compliments the other, and together, they provide a more detailed description of vendor systems.
Here is a brief overview of 3 different levels of SOC reporting:
SOC 1 Reporting
A SOC 1 report is a description of the current state of your vendors’ systems. There are two levels of SOC 1 reports- type 1 and type 2. A type 1 report is meant to provide an overview of how suitable your vendors’ systems are in their designs and controls. Ideally, the systems of third-party providers should be designed to fall in line with your company’s objectives and security requirements. SOC 1 reports provide such descriptions as of a specific date.
Type 2 SOC 1 reports are similar to type 1 reports, but they also contain additional opinions. These opinions describe the effectiveness of current controls and information on tests, audits, and results. SOC 1 reports are applicable to financial reporting, where the management teams of service organizations provide insights into the current state of their systems. SOC 1 reports are also used by user auditors and entities when tests and controls are being carried out.
SOC 2 Reporting
SOC 2 reports cover IT security, privacy, integrity, and confidentiality. They’re meant to define the requirements of a proper IT framework for vendor systems. SOC 2 reports also contain procedures that are directed towards data security, repelling threats, and keeping customer information safe. SOC 2 reports stipulate a framework that 3rd party vendors should adhere to. Through a combination of IT controls, audits, and report preparation, you can ensure that your data environment is secure. The four main elements of SOC 2 reporting include:
- Active monitoring of systems, networks, and processes
- Timely alerts in vendor systems when threats are detected
- Regular audits of vendor systems to ensure continuous compliance
- Gathering of actionable insights that help strengthen your overall IT environment
There are many reasons why SOC 2 reports are important for your company. First, the workflows required to maintain compliance ensure high data security standards. Secondly, having a detailed document trail of IT security tasks is one of the best ways of preventing future threats. SOC 2 reports are often used to develop data security policies and screen vendor systems according to these new guidelines.
SOC 3 Reporting
A SOC 3 report is essentially a summarized service report that’s used to examine vendor systems. These reports provide a quick overview of the design, control, and suitability of a vendor’s network in relation to your current systems. While a SOC 3 report looks much like a SOC 1 and 2, it doesn’t go into as much detail with regards to controls, audits, and results. SOC 3 summarized service reports can be displayed on websites, in offices, and other relevant areas to provide evidence of compliance.
Vendors typically display SOC 3 reports to instill confidence in companies that are seeking their services. You can think of a SOC 3 report as a marketing tool that invites companies to take a deeper look into the current state of vendor systems. Indeed, by supporting a SOC 3 report with SOC 1 and 2, a vendor can establish GRC compliance and the suitability of their systems to protect client data. SOC reports also make it easier for businesses to assess compatibility and suitability across multiple vendors.