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Blog — Mar 06, 2019

Nearly half of firms suffer data breach at hands of vendors

4 minutes read
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As trusted partners, third-party vendors often become the overlooked or unwitting accomplice in criminal activities. As privacy laws and cybersecurity regulations continue to increase accountability around data confidentiality and protection, we wanted to know how seriously firms take the risks associated with third-party vendors, and their vendors’ vendors.

Earlier this year, we commissioned Spiceworks to survey 600 IT and security decision-makers about their top concerns around their supply chain and the policies or procedures used to mitigate identified vendor risks.

Approximately 60 percent of organizations have some formalized third-party policies, but completeness and depth varied significantly. Most firms (90 percent) review their policies at least annually. The strong majority (81 percent) consider their policies effective, but this result conflicts with reported breaches attributed to vendors.

Even though the majority of respondents felt confident in the vendor to keep their data safe, nearly half (44 percent) of firms had experienced a significant, business altering data breach caused by a vendor. Human error and stolen passwords accounted for 26 percent of the breaches, while malware played a key role in half of the attacks.

Of the nearly 250 companies that experienced a breach, 32 percent affected personal identifiable data, 29 percent included payment information, and 24 percent exposed proprietary business data. What’s worse, only 15 percent of firms reported that their vendor notified them when a breach occurred.

These breaches can result in disrupted operations (27 percent), increased operational complexity and cost (52 percent), reputational damage (19 percent) and financial losses and penalties (26 percent). As a reminder, here are a few public events:

(Note: I did not highlight the Target hack caused by their HVAC vendor, Fazio Mechanical Services. It’s been overdone and over analyzed. Let’s talk about some other examples for a change. If you must, read the Krebs article.)

Establishing Consequences

Nearly 80 percent of firms contractualize and enforce legal or monetary consequences in the event of a third-party data breach. Consequences include immediate contract termination, legal actions including lawsuits, and financial reimbursement to cover breach costs (technical, legal and PR), and extra damages. Yet only half of firms discontinued their relationship with the guilty vendor, and 69 percent failed to change their risk policies!

Three Steps to Evaluate Vendors

Track record and history of security incidents and data breaches top the list of indicators (65 percent), followed by past operational issues or failures (58 percent), failed audits (52 percent), past complaints or poor reviews (52 percent) and past legal actions against the vendor (50 percent).

Most firms conduct at least annual audits (39 percent). Past performance does seem to be an indicator of future risk. For this reason, the majority of firms use at least three steps or mechanisms to evaluate their third-party vendors including historical review and references:

Nearly three-quarters of firms maintain a complete inventory of all third-parties with whom they share data. Interestingly, U.K. based firms do a better job of this, which is likely related to mature privacy laws like GDPR that mandate this type of registry and control. Yet less than one-third of firms were confident that their vendors notify them when sharing data with additional third parties.

And while they consider their policies effective, only a quarter of firms completely agree that their company allocates sufficient resources to manage third-party relationships. Regardless of company size, all firms need to:

And I made it through this post without using a reference to a weakest link or similar cliché!

About the research

In January 2019 Spiceworks surveyed 600 IT and security decision-makers across a mix of industries and company size who have purchase influence over security solutions for their organization and a

familiarity with third-party risk across a mix of company sizes and industries. Respondents were

based in the U.S., Canada, U.K., Ireland and Scotland. The research quantified market concerns about third-party risk, determined top challenges, and identified potential areas of vulnerability. Learn more here: https://www.esentire.com/third-party-cyber-risk

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eSentire is the Authority in Managed Detection and Response, protecting the critical data and applications of 1200+ organizations in 75+ countries from known and unknown cyber threats. Founded in 2001, the company’s mission is to hunt, investigate and stop cyber threats before they become business disrupting events. Combining cutting-edge machine learning XDR technology, 24/7 Threat Hunting, and proven security operations leadership, eSentire mitigates business risk, and enables security at scale. The Team eSentire difference means enterprises are protected by the best in the business with a named Cyber Risk Advisor, 24/7 access to SOC Cyber Analysts & Elite Threat Hunters, and industry-leading threat intelligence research from eSentire’s Threat Response Unit (TRU). eSentire provides Managed Risk, Managed Detection and Response and Incident Response services. For more information, visit www.esentire.com and follow @eSentire.