1. SOC 2 Reports – A Third Party Risk Management Tool for Cloud Providers
August 2014

2. Agenda Overview of Cloud Computing
Importance of Third Party Risk Management
SOC Reports – A Method of Third Party Risk Management
Alignment of Cloud Security Alliance (CSA) Cloud Control Matrix (CCM) and SOC 2 Trust Services Principles (TSP)
Summary and Conclusion
Q&A

3. What is Cloud Computing
Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources.
Networks, servers, storage, applications, and services that can be rapidly provisioned and released with minimal management effort or service provider interaction.
This cloud model promotes availability and is composed of five essential characteristics, three service models, and four deployment models.

4. What is Cloud Computing

5. Opportunities
Cost savings – Customers pay for only the computing resources used. There are no physical space requirements or utility costs. All dollars are expensed (that is, receive a U.S. tax benefit).
Speed of deployment – The time to fulfill requests for computing power and applications can change from months to weeks, weeks to days, and days to hours.
Scalability and better alignment of technology resources – Companies can scale up or down their capacity without capital expenditures.
Decreased effort in managing technology – Cloud computing provides the organization more time to focus on core purpose and goals; more consistent technology upgrades; and expedited fulfillment of IT resource requests.
Environmental benefits – Significant adoption of cloud computing should yield less overall power consumption, carbon emissions, and physical land use.

6. Risks Some of the typical risks associated with cloud computing are:
Disruptive force
Residing in the same risk ecosystem as the cloud service provider (CSP) and other tenants of the cloud
Lack of transparency
Reliability and performance issues
Vendor lock-in and lack of application portability and interoperability
Security and compliance concerns
Creation of high-value cyber-attack targets
Risk of data leakage
IT organizational changes
Viability of the CSP

7. Changes in the Operating Environment With Cloud Computing
Risks and other cloud computing effects should be incorporated in ERM programs.
Organizations can engage cloud computing solutions while bypassing normal management oversight controls.
Cloud computing solutions are: a) easily adopted within a short period of time, b) require a small monetary investment, and c) involve very few personnel.

8. Shared Control Environment

9. Risk Levels – Shared Control Environment

10. Shared Control Environment
Risk Profile Impact of CSPs and fellow cloud tenants
Using cloud computing converts an organization’s internal environment into a combination of its own internal environment and the internal environment of the contracted CSP.
Why Both?
Data and processes are hosted in a shared environment with other cloud tenants.
Behavior and events of the CSP and fellow tenants could have a direct impact on the organization.

11. Cloud Governance
Cloud governance” refers to the controls and processes in place for cloud planning and strategy, vendor selection, contract negotiation, implementation, operation, monitoring and possible termination and transition of cloud services.

12. Investing in Third Party Risk Management – Disruption of Service

13. Investing in Third Party Risk Management – Data Breach
“On average, third party errors increased the cost of data breach by as much as $43 per record in the US”
Source: “2013 Cost of Data Breach Study: Global Analysis”, Sponsored by Symantec, May 2013, Ponemon Institute

14. Third-Party Risk Management Concerns
Source: "Closing the Gaps in Third-Party Risk Management, Defining a Larger Role for Internal Audit,” December 2013, Sponsored by Crowe Horwath LLP

15. Third Party Risk Management Activities
Vendor management activities performed should be based on risk associated with the vendor
In order to ensure the risks with outsourcing cloud services are properly addressed organizations should consider performing the following activities:
Review cloud provider’s policies and procedures
Request cloud provider respond to internal control questionnaires
Perform an onsite review of cloud provider operations
Review a Service Organization Control (SOC) Report
Organizations can use SOC reports to obtain a level of comfort over a cloud provider’s controls related to security, availability, processing integrity, confidentiality and privacy controls.
The CSA issued a position paper in February 2013 stating that a SOC 2 Type 2 report should meet the vendor management needs of cloud users. (

16. Service Organization Controls (SOC) Reports – Overview
AICPA created separate reports on internal controls over financial reporting and reports on other types of controls.
The AICPA has added additional reporting options. The three reporting options now are:
SOC 1
SOC 2
SOC 3

17. Internal controls related to financial reporting
Types of SOC Reports
SOC 1
Internal controls related to financial reporting
SOC 2
Trust Services Principles
Restricted Use Report
SOC 3
Trust Services Principles
General use report
SSAE 16/ AT 801
AT 101

18. Who May Need to Issue a SOC 2 Report?
Organizations that need to demonstrate how they process transactions and/or data on behalf of their customers
Organizations that need to demonstrate how their security controls operate
Organizations that need to demonstrate how their controls related to system availability function
Organizations that need to demonstrate how their controls related to data privacy or confidentiality operate
A Cloud Service Provider Fits These Characteristics!

19. Trust Services Principles
Security – The system is protected against unauthorized access (both physical and logical).
Availability – The system is available for operation and use as committed or agreed to.
Processing Integrity – System processing is complete, accurate, timely, and authorized.
Confidentiality – Information designated as confidential is protected as committed or agreed to.
Privacy – Personal information is collected, used, retained, disclosed, and destroyed in conformity with the commitments in the entity’s privacy notice and with criteria set forth in generally accepted privacy principles (GAPP) issued by the AICPA and the Canadian Institute of Chartered Accountants (CICA).

20. Relationship Between Principles, Criteria and Controls

21. Example Criteria and Illustrative Controls
Security Principle - Criteria 3.3
Procedures exist to restrict physical access to the defined system including, but not limited to, facilities, backup media, and other system components such as firewalls, routers, and servers.
Illustrative Controls:
Physical access to the computer rooms, which house the entity's IT resources, servers, and related hardware such as firewalls and routers, is restricted to authorized individuals by card key systems and monitored by video surveillance.
Physical access cards are managed by building security staff. Access card usage is logged. Logs are maintained and reviewed by building security staff.
Requests for physical access privileges to the entity's computer facilities require the approval of the manager of computer operations.
Documented procedures exist for the identification and escalation of potential physical security breaches.
Offsite media are stored in locked containers in secured facilities. Physical access to these containers is restricted to facilities personnel and employees authorized by the manager of computer operations.

22. Example Criteria and Illustrative Controls
Security Principle - Criteria 3.4
Procedures exist to protect against unauthorized access to system resources.
Illustrative Controls:
Login sessions are terminated after three unsuccessful login attempts. Virtual private networking (VPN) software is used to permit remote access by authorized users. Users are authenticated by the VPN server through specific "client" software and user ID and passwords.
Firewalls are used and configured to prevent unauthorized access. Firewall events are logged and reviewed daily by the security administrator.
Unneeded network services (for example, telnet, ftp, and http) are deactivated on the entity's servers. A listing of the required and authorized services is maintained by the IT department. This list is reviewed by entity management on a routine basis for its appropriateness for the current operating conditions.
Intrusion detection systems are used to provide continuous monitoring of the entity's network and early identification of potential security breaches.
The entity contracts with third parties to conduct periodic security reviews and vulnerability assessments. Results and recommendations for improvement are reported to management.

23. Service Auditor’s Opinion
SOC Report Sections
SOC 2 Report Sections
Service Auditor’s Opinion
Management’s Assertion
Description of Systems
Test Results
Complementary Controls
Other Information

24. Cloud Control Matrix (CCM)
Developed by the Cloud Security Alliance (CSA)
Establishes a controls framework for cloud providers to follow
Based on industry accepted control frameworks such as ISO 27001/27002, ISACA COBIT and NIST
Provides guidance in the following domains:
Application and Interface Security
Audit Assurance and Compliance
Business Continuity Management & Operational Resilience
Change Control & Configuration Management
Data Security & Information Lifecycle Management
Datacenter Security
Encryption and Key Management
Governance and Risk Management
Human Resources
Identify and Access Management
Infrastructure & Virtualization Security
Interoperability & Portability
Mobile Security
Security Incident Management, E-Discovery & Cloud Forensics
Supply Chain Management, Transparency and Accountability
Threat and Vulnerability Management

25. CCM Controls Map to SOC 2 Criteria
CCM - Change Control and Configuration Management
Control Specification:
Policies and procedures shall be established, and supporting business processes and technical measures implemented, to ensure the development and/or acquisition of new data, physical or virtual applications, infrastructure network and systems components, or any corporate, operations and/or datacenter facilities have been pre-authorized by the organization's business leadership or other accountable business role or function.
SOC 2 TSP Criteria:
(S3.10.0) Design, acquisition, implementation, configuration, modification, and management of infrastructure and software are consistent with defined system security policies.
(S3.12.0) Procedures exist to maintain system components, including configurations consistent with the defined system security policies.
(S3.13.0) Procedures exist to provide that only authorized, tested, and documented changes are made to the system.

26. CCM Controls Map to SOC 2 Criteria
CCM – Datacenter Security
Control Specification:
Physical access to information assets and functions by users and support personnel shall be restricted.
SOC 2 TSP Criteria:
(S3.4.0) Procedures exist to restrict physical access to the defined system including, but not limited to, facilities, backup media, and other system components such as firewalls, routers, and servers.

27. SOC Report Review
Organizations should obtain and formally review SOC reports.
The review should focus on the following:
Report Type
Type 1 or Type 2
Areas of Coverage/Scope
Opinion
Unqualified or Qualified
Subservice Organizations
Description of Systems Content
Test Results/Impact of Exceptions Noted
Evaluation of User Control Considerations
More emphasize on this component

28. Summary and Conclusion
Cloud computing services affect TPRM activities
SOC reports one component of TPRM activities

29. Questions

30. For more information, contact:
Jeff Palgon Direct