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Third-party failures affect 90% of UK organisations, says Deloitte

Jun 12
Tags: Deloitte
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The proportion of organisations that have experienced a third-party failure - such as a supplier losing data following a cyber attack - over the last three years stands at 83% worldwide, and 90% in the UK, according to new research from Deloitte.

Assessing the ramifications of these incidents, the consultancy firm discovered that almost half of third-party failures have had a moderate or high impact on the affected business, ranging from impaired customer service and reputational damage to financial loss and regulatory breaches.

Deloitte has previously calculated that fines issued as a direct result of third-party failures have varied from £1.3 million to £35 million, although the range is much wider for firms with international reach, climbing as high as £650 million. The average decline in share prices caused by such failures stands at 2.55%.

Given the scale of the problem, the report suggests that too few companies have sufficient clarity over the potential risks presented to them by their own supply chains.

Just one-tenth of companies said they have a reasonable ongoing awareness and knowledge of subcontractors hired by their third-party providers - typically referred to as fourth or fifth parties. Only two per cent claimed to identify and monitor all subcontractors, while just eight per cent do identify and monitor their subcontractors, but only across business-critical areas such as infrastructure and IT.

In contrast, the remaining nine in ten respondents said they lack sufficient knowledge or resources to adequately monitor fourth and fifth parties.

Kristian Park, extended enterprise risk management partner at Deloitte, warned: “Companies across the world are increasingly relying on an ever-growing number of third, fourth, and fifth parties to supply everything from readily available consumables like office stationary, to bespoke and highly critical products and services.

“However, many are not ‘brilliant at the basics’ and don’t have appropriate oversight of what is happening across their organisations, leaving them exposed to potential failures they may be held accountable for.”

While they may still be falling short when it comes to assessing subcontractors, half of organisations worldwide said they are currently spending more than $1 million (£784,000) a year to manage third-party risks.

One in ten companies surveyed - representing large, complex global organisations - are investing over $10 million per year on third-party risk management, while employing more than 100 full-time staff dedicated to this area.

Investment is being skewed toward information security and data privacy, leading Deloitte to warn that companies are not spending enough on key areas such as labour rights and geopolitical risks.

“Visibility in areas such as labour rights within a parent company’s supply chain - particularly as regulation to combat modern slavery grows across the world, as recently seen in Australia - is grossly lagging behind,” Mr Park cautioned.

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