Many companies are struggling to maintain SOC 2 Type II compliance. That failure extends to service providers, with more severe business impacts. Because service providers are entrusted with customer data, the impact of compliance lapses can cascade through their entire customer base.
While Type I is a point-in-time design check, Type II requires evidence of consistent operational controls. Audits are typically conducted annually to demonstrate effective security. Customers should review the service provider’s annual SOC 2 Type II report as part of their ongoing vendor risk management.
Customers who find a failure or a “Qualified” report should start asking questions to determine the root cause of the problem. If the provider is unresponsive or the failures are severe, customers should begin vetting alternative vendors that meet their security standards.
Why Service Providers Fail SOC 2 Type II Audits
Service providers often fail SOC 2 Type III audits because controls were not consistently executed over the audit period. Delayed revocation of access for former employees is a “high-risk control failure” that frequently appears in service provider audits. Auditors also commonly find shared accounts and excess privileges.
Ironically, service providers often fail because they don’t properly audit their own vendors. If a critical sub-provider has a security gap, it can invalidate the service provider’s SOC 2 report.
When a service provider fails to maintain SOC 2 Type II compliance, the risks to customers are not just technical — they can disrupt the customer’s certifications and contracts. Because security is only as strong as the weakest vendor, a provider’s failure creates a compliance gap that can jeopardize the customer.
The Downstream Consequences of a Failed Audit
Auditors often examine how an organization manages third-party risks. If the service provider cannot prove their controls are working, it may lead to a “finding” or failure in the customer’s own SOC 2 audit.
While SOC 2 is voluntary, its criteria overlap with other laws and regulations, such as GDPR, CCPA and HIPAA. Using a noncompliant provider increases the risk that the customer is also violating these legal mandates, potentially leading to massive fines.
If an organization’s customers, especially large enterprise clients, discover that the organization is using a noncompliant service provider, they may refuse to sign contracts or terminate existing agreements. Insurers may also increase premiums or deny claims if they determine that the organization was aware of a vendor’s noncompliance but failed to take action.
How to Identify an Audit Failure
Because of the risk, organizations should request and thoroughly review the service provider’s annual SOC 2 Type II report. They should look for anything other than an “Unqualified” opinion in Section I. A “Qualified” opinion means the auditor found issues that didn’t invalidate the whole report but showed control failures.
An adverse opinion indicates a direct fail in which controls did not meet SOC 2 standards. A disclaimer of opinion indicates that the auditor couldn’t gather enough evidence to form a conclusion, often a sign of poor documentation.
Section IV of the report lists every test the auditor performed. Even in a “pass” (unqualified) report, individual exceptions might be listed here, such as failing to offboard an employee on time.
What to Do If the Service Provider Fails
Customers who find a failure or a “Qualified” report should request a meeting to understand the nature of the failure and determine if the failed control affects them directly. They should also ask for a formal document outlining how and when the service provider is closing the gap.
The outcome of this review should determine if the relationship should continue or the customer should seek another service provider. If it’s time to make a change, Technologent would be happy to show you our SOC 2 Type II report and the controls we have in place to maintain compliance.
At Technologent, the security of our customers’ data is a top priority. We’d love the opportunity to show you how our people, processes and technologies meet the highest industry standards.
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