57% of global organisations feel they do not have appropriate visibility of subcontractors engaged by their third parties (referred to as fourth/fifth parties), according to a new survey from Deloitte. A further 21% are unsure of oversight practices, and fewer still (2%) routinely review the risk subcontractors pose to their organisation.
Kristian Park, extended enterprise risk management (EERM) partner, Deloitte, says:”With GDPR coming into force across Europe next month, organisations will already be looking with renewed focus at their third party structures.
“For some, there is still a way to go to implement adequate subcontractor management. Compliance with GDPR not only covers organisations themselves, but also the contractors and subcontractors they engage.
“Under the regulation, subcontractors representing fourth and fifth parties must be appropriately monitored. Whilst the specific responsibilities will depend on whether they’re considered a data ‘controller’ or ‘processor’, such responsibilities typically include demonstrating robust data security safeguards, and reporting data breaches within 72 hours.
“In the run up to May 25th, we’d expect to see more organisations make additional investments to adequately manage multiple layers of outsourcers. There is no one-size-fits-all, and the appropriateness of contractor monitoring for GDPR is defined by the nature of dependency from the perspective of data. The frequency and rigour of monitoring is expected to intensify, the greater the reliance in terms of confidential data.”
Regular monitoring of subcontractors remains low, with just 2% of those surveyed engaging in this periodically, and 10% solely reviewing subcontractors identified as critical to continuity of business.
Park added: “This means that 88% of organisations are either dependent on their third parties to conduct subcontractor risk reviews, or have an unstructured, ad-hoc approach to fourth and fifth party oversight. This figure could also indicate that some organisations are simply unaware of their policy or, more alarmingly, do not have one.
“At the same time, the survey reveals that some organisations are already making additional investments into EERM initiatives. These organisations recognise the business case and see the opportunity to enable growth, innovation and business performance from their contractors and sub-contractors in a risk-intelligent way.”
Reliance on third parties continues to grow this year with over half (53%) of respondents reporting ‘some’ or ‘significant’ increase in dependency. Changing regulation and heightened levels of regulatory scrutiny were considered the two greatest contributory factors to increasing the risk inherent in this.
Despite critical levels of third party dependency, only 20% of organisations have streamlined their EERM systems and processes. 53 percent of this year’s respondents now believe that their journey to achieve EERM maturity is two to three years or more.
“This is a significantly longer journey than anticipated in earlier surveys, when respondents reported that this could be achieved in six months to a year”, said Park. “This reflects a more realistic time-frame, and we’d expect organisations to be closely aligning plans to address the expected regulatory outlook over this period.”