Contents
- Why Vendor Compliance Is Non-Negotiable
- Key Legal and Regulatory Frameworks to Know
- Building a Vendor Compliance Program
- Operationalizing Compliance: Monitoring and Maintenance
- Auditing Vendor Compliance
- Common Compliance Pitfalls and How to Avoid Them
- How TalentDesk Simplifies Vendor Compliance
Why Vendor Compliance Is Non-Negotiable
To begin with, it is a legal and operational requirement! No matter where you are based, your organization is governed by certain laws, regulations and standards that you are mandated to follow – and not adhering to them is not an option.
That said, many companies do still operate without proper vendor compliance. This is a terrible idea! It opens up so many risks like cybersecurity, data privacy, unethical labor practices – all with pretty serious consequences.
The risks of non-compliant third party vendor operations include:
- Legal consequences: Breaching compliance protocols can lead to legal notices and enforceable lawsuits! This can mean fines, penalties, heavy litigation costs and expensive settlements.
- Financial consequences: Non-compliance may open you up to co-employment issues – often involving huge fines. The upcoming Finance Bill 25-26 in the UK, for example, makes employers jointly liable for any unpaid taxes by umbrella companies they work with! Additionally, operational delays, project failures and inefficiencies all have financial impact too.
- Attrition of customer trust: No customer likes to find that the data or confidential information they entrusted to you has been compromised – even if it was a third-party vendor who was responsible. Data breaches, cybersecurity issues, and ethical issues all have a negative impact on customer trust and they may hesitate to work with you again.
- Reputational damage: When your vendors engage in unethical or unsustainable practices (say, labor exploitation), it tarnishes your brand reputation by association. Negative PR and loss of clients inevitably follow!
Vendor compliance management thus, is not just risk avoidance - it’s a competitive differentiator. The heavy financial, legal and reputational damages are not easy to recover from. The fallouts from a single risk is sometimes enough to push a smaller player out of the market. That’s why it is so crucial to have a formal compliance process.
Want to strengthen your vendor operations overall? Explore the fundamentals in our guide 👉 What Is Vendor Management?
Key Legal and Regulatory Frameworks to Know
The vendor compliance frameworks you will be governed by will depend on the geography and industry you operate in. Here are some of the key frameworks to consider.
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Key Legal and Regulatory Vendor Compliance Frameworks
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General Data Protection Regulation (GDPR)
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What is it?
This is the EU's highly stringent, comprehensive data privacy and security law that gives people control over their personal data. If you collect or manage data from any individuals in the EU, the GDPR sets out strict guidelines for how you are required to manage that data.
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What it means for vendor management
GDPR holds you accountable for any data that is entrusted to your organization – even if it is processed by third-party vendors. It is your responsibility to vet and select these vendors, conduct data transfers in a legal way, and ensure that GDPR vendor requirements are upheld. Breaching these laws is known to come with exorbitant penalties!
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Health Insurance Portability and Accountability Act (HIPAA)
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What is it?
These are the laws set out by the US Department of Health and Human Services to safeguard Protected Health Information (PHI). They uphold patients’ right to privacy over their healthcare details.
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What it means for vendor management
This makes you responsible for all patient data handled by your organization or by any third-party vendors you work with. Under this, you are required to classify your vendors as Business Associates (BA) based on whether they have access to PHI gathered by you. All BAs would need to come under agreements outlining their security obligations.
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Payment Card Industry Data Security Standard (PCI-DSS)
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What is it?
While these are not laws, they are voluntary security regulations that credit card companies opt in for. They set out rules around how payment account information of customers should be handled and protected.
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What it means for vendor management
If your organization transacts with or accepts payments through any credit card company that has agreed to the PCI-DSS, you would need to comply with those security standards too. Obligations include maintaining secure networks, having the required access control protocols and more. If any of your vendors store or handle customers’ payment card data on your behalf, you need to ensure they are following the regulations too.
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System and Organization Controls (SOC 2)
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What is it?
This is the American Institute of Certified Public Accountants’ security framework that sets out guidelines on how organizations must safeguard customer data against security breaches and unauthorized access. Again, this is not a law – but adhering to the SOC 2 shows your customers and clients that you are serious about your security posture.
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What it means for vendor management
It requires you to assess your vendor’s processes and conduct due diligence to ensure that they are following the required security standards. Failures at their end mean your organization does not pass the SOC 2 requirements either.
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ISO 27001
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What is it?
This is one of the most widely used and accepted international frameworks for information security. It defines how Information Security Management Systems (ISMS) will be operated and improved, safeguarding customer data.
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What it means for vendor management
As with the other regulations, this too holds your company responsible for any vendor breaches. The ISO 27001 Control A.15 outlines your responsibilities around vendor relationship management – setting out access guidelines, security protocols, offboarding requirements and more. Following these regulations are mandatory if your company is to meet the ISO 27001 requirements.
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Vendor compliance also requires you to pay attention to cross-border data transfer and localization mandates – especially if you work with talent suppliers and contractors based in different countries. These mandates prescribe rules around transferring data outside your geography. In some cases, sending data to certain specified countries may be restricted or disallowed (if your country has sensitive geopolitical relations with them). As an example, as per India’s Digital Personal Data Protection (DPDP) Act 2023, the government may notify organizations about any data transfer restrictions that need to be followed.
Building a Vendor Compliance Program
A formal third-party compliance program helps you track and manage vendor-related incidents and breaches, protecting your organization and your clients against the fallouts.
Follow these steps to create a robust compliance process that works for you.
- Step 1: Define compliance standards and documentation requirements
As we have seen above, different geographies and industries are covered by different laws and standards. So the first step is to identify which regulatory requirements, laws and protocols you are required to uphold. Involve your Governance, Risk & Compliance (GRC) team or legal team to ensure you are not missing out on something crucial.
Compile all the requirements to create a single source of truth and make this accessible across the company. This way, you ensure there are no knowledge gaps – no matter who is handling vendor engagements (HR, Procurement, accounts teams, or project managers), everybody knows what’s required, and has standardized processes to follow.
- Step 2: Create vendor policies
Next, set the standards your vendors will have to meet. Develop clear policies around what is required of each vendor – on paper, and practically.
For example, what are their responsibilities around handling customer data? What kind of registrations, licensing and reporting obligations will they have? If you need their workers to have industry certifications, how often will they have to update and submit these? Ensure all of these requirements are clearly outlined in their contracts as formal and legal obligations.
- Step 3: Standardize onboarding
Policy and documentation falls through the cracks when different talent vendors are onboarded in different ways. Standardizing onboarding is key to avoiding this.
Start by making sure that every supplier goes through the same stringent screening and due diligence before being selected. Once you’ve made your selection, have a customized onboarding and vendor certification checklist that lists out all the contracts, information and other paperwork they need to submit. As you gather their data and documentation, do also ensure you are storing them all securely in one centralized platform – so everything is easy to locate, and any gaps or misses are easy to spot.
- Step 4: Set clear SLAs and reporting clauses
Most importantly, ensure complete third-party regulatory compliance! Simply holding your vendors liable is not enough. The top priority should be to make sure that breaches don’t happen in the first place!
Establish clear SLAs that they are supposed to meet – like the project timelines and standards they must maintain or the certifications they must submit. In case of a potential issue, set protocols around how quickly they must alert you to it and the immediate crisis management steps they must follow.
Operationalizing Compliance: Monitoring and Maintenance
Continuous vendor compliance monitoring is the key to a successful and secure engagement. Compliance is not a one-time activity after all. The regulatory landscape is always evolving, which means that based on new rules and laws, your obligations may change. Continuous compliance lets you stay ahead of it all.
- Ongoing compliance checks and certification renewals
Have a process in place for continuous vendor compliance monitoring. Set appropriate controls to track whether your vendors are meeting their contract obligations. For example – are they reporting more than the acceptable threshold of system downtime? How many security incidents do they have and how often? The more business-critical a vendor is, the more frequently you should monitor them to avoid a potential crisis.
Continuous monitoring also helps you identify what needs to change or what can be revisited. For instance, new innovations within your industry may require your contract talent to update themselves through new certifications. Evolving cyber threats may mean that your existing vendor security policies are no longer adequate.
- Using questionnaires, attestations, and compliance scorecards
Have ready templates and assessment tools that make compliance monitoring easy. For example:
- Self assessment and reporting: You may have instruments like questionnaires prepared that you can send out to your talent vendor periodically to fill out. Make sure the questionnaires cover the key areas of risk.
A cybersecurity questionnaire can help you assess their security, threat detection and data risk management capabilities. A data privacy questionnaire gives you insights into what steps they are taking to comply with GDPR/ HIPAA. Similarly, have questionnaires ready to monitor the vendor’s business compliance posture, financial stability, business continuity strategies and so on.
- Review tools: These are the tools you use to assess your vendor compliance performance – like scorecards. After they submit their reports or questionnaire responses, you can use the scorecards to track their performance in the different areas and whether they are falling short of the agreed upon KPIs in any regard.
- Attestations: These are third-party audits like ISO 27001 or SOC 2 that you can ask your talent vendors to undergo. These offer a structured view of the vendors’ performance against internationally recognized standards.
- Automating policy reminders and evidence collection
Many organizations fail to uphold vendor compliance because they rely too heavily on manual checks and follow ups – which are often forgotten. Automating the process can be very helpful.
For example, a good vendor management platform will have the option to trigger reminders and notifications for compliance checkpoints and generate auto alerts when a non-conformity is spotted.
Auditing Vendor Compliance
A structured third-party compliance auditing process helps you understand how your vendors measure up against the KPIs and controls you’ve set.
- Regulatory compliance audits. These tell you whether your vendors are operating compliantly – and knowing this early on helps protect you against penalties and fines. In fact, in some states like Massachusetts, it is a legal requirement for a company’s compliance officer to declare that the required audits have been duly performed.
Conducting these regulatory audits may also be relevant to you in your industry. In the pharmaceutical sector, if your vendors do not adhere to Good Manufacturing Practices (GMP), you may not meet the FDA regulations!
- Contractual audits. These track whether your vendor-provided talent is meeting their contractual obligations. Fewer headcount or greater unavailability can impact your business output of the quality standards of the work.
- Operational compliance audits. These help you understand how effectively vendors are functioning and whether there are any potential business continuity risks you should be aware of.
So how do you go about conducting effective vendor audits?
- Plan the audit. Define the objectives and establish the kind of audit you will be conducting (regulatory, operational risk or something else).
- Create a checklist. Have a compiled list of the regulations that your vendors are to be governed by. These should be the same policies and regulations that are mentioned in the vendor agreement. No new additions or measures can be included!
- Notify your vendor. This ensures that they can be prepared and have all the data and documents ready for you to look at.
- Conduct the audit. This can include anything from digital inspections, to site visits and background checks.
- Evaluate the findings. Assess the data collected and measure it against the contracted KPIs. Note shortfalls or potential areas of concern that may put you at compliance risk.
- Document everything. Even if you find everything in order and your suppliers fully compliant, you’ll need audit-ready vendor documentation to prove that the control checks were done in a structured way. And if you spot gaps or compliance issues during a vendor audit? Read on.
Having the right Corrective Action Plans (CAP) and remediation workflows help you manage the risks – fast!
As a part of your CAP, discuss the gaps you noticed with the relevant vendor right away. Let them know the action they need to take to remedy immediate violations – like tackling lapsed certifications or rectifying invalid talent contracts. Also set a solid timeline by which they need to complete the corrective action.
Also discuss preventive measures, understanding what steps the vendor will take to ensure this doesn’t happen again. Requiring them to submit more frequent reporting can be a potential solution. At your end too, upgrade your controls so that you are able to spot such gaps more easily in the future.
Learn more about how VMS platforms compare and what they offer:
👉 What Is a Vendor Management System
Common Compliance Pitfalls and How to Avoid Them
- Relying on one-time checks instead of continuous verification.
One-time checks don’t take regulatory changes or new risks and threats into account. They lull you into a false sense of security, thinking your vendors are operating compliantly – and you only notice failures after the fact. A structured ongoing compliance strategy and automated compliance checks can go a long way in solving this.
- Poor documentation and lack of audit readiness.
Inconsistent, incomplete documentation and verbal guarantees from vendors reassuring you they will maintain compliance do not hold up during formal audits! You should be able to show proper documentation of how vendor compliance management was done.
This needs to outline the dates, times and findings of each compliance check you carried out. If gaps were spotted, what steps were taken to rectify the issue? All these details will have to be kept ready before your organization itself undergoes an audit.
- Failure to communicate changes in regulations or policies to vendors
Not every non-compliance is malicious. Sometimes, your vendors may not know of the changes in their obligations. Since the employer organization is usually held responsible for upholding compliance, you will need to notify them of these changes.
Automated tracking of the regulatory landscape helps you remain aware of the changes yourself – and send out due notices to vendors as required.
How TalentDesk Simplifies Vendor Compliance
TalentDesk is one of the most effective platforms for ongoing vendor monitoring! It acts as your compliance command center, tracking every aspect of vendor compliance and helping you stay ahead of it all.
TalentDesk’s centralized compliance tracking and document repository gives you a major advantage. It lets you customize your onboarding process, so every time you welcome a new talent provider, you have a structured checklist to tell you what compliance information and documents you need to ask them to submit. It stores all documents in one place – making it easy to notice any gaps immediately.
The platform also generates automated alerts. It monitors contracts, certifications and licenses and sends out notifications for expiring certifications, pending audits or upcoming renewals. This lets you communicate requirements with vendors in a timely manner.
The audit-ready project dashboards give you easy access to vendor performance reports, enabling you to get a quick view of how they are measuring up against KPI. Additionally, it maintains audit trails and evidence logs of exactly when each paperwork was submitted, payments were made and notifications were sent.
These simple, automated solutions go a long way in making your vendor compliance process stress-free and exactly as easy as it is supposed to be!
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