If you’ve ever been involved with buying or selling software, chances are you’ve heard of SOC audits.
While they tend to be more popular among larger enterprises, completing a SOC audit is becoming increasingly important for SaaS-based startups. And that’s because the repercussions of a security incident are becoming more and more detrimental. According to IBM, the average data breach cost increased to $4.35 million in 2022, climbing 12.7% since 2020.
Clients want to place their trust in companies that care about their data and have implemented structured processes to keep it safe. SOC reports are an ideal way to demonstrate your commitment to security 一 even as a small company.
Many startups tend to put off the SOC 2 audit process because it can cost time and money. But the frameworks and policies required for SOC reports are helpful even if you don’t end up doing an audit right away.
In this post, we’ll discuss how to determine what type of SOC report you need and offer five easy ways to approach SOC 2 compliance early in your startup journey.
Do Startups Need a SOC 2 Type 1 or Type 2 Report?
Not all startups need SOC reports, but having one or more can confer a significant competitive advantage. Having the proper internal controls in place, confirming that you’ve made (and continue to make) accurate risk assessments, and proving that you have a strong security posture can set you apart.
In fact, SOC reports are such differentiators that some enterprise-level clients won’t even consider using your startup’s products or services if you don’t have one. But before you start going through a SOC report to-do list, it’s critical to understand the difference between the two most popular reports: SOC 1 and SOC 2.
Both reports are maintained by the American Institute of Certified Public Accountants (AICPA), but SOC 1 is mainly for service organizations that oversee their clients’ financial reporting, such as custodians of investment companies, payroll processing firms, or healthcare benefits organizations.
SOC 1 reports result from SOC 1 audits in which CPA firms review a company’s set of financial controls 一 procedures and systems they use to process financial information. Auditors verify that the controls align with industry regulations and result in accurate financial reports.
SOC 2 is more commonly associated with SaaS companies. SOC 2 auditors evaluate a company’s ability to protect its own data and its clients’ data, examining protocols related to accessibility, confidentiality, or privacy gaps.
Enterprise clients are particularly interested in SOC 2 compliance because it establishes credibility, showing that a company has invested heavily in its security program. Since prospects often ask for a SOC 2 report during the vendor evaluation process, SOC 2 is typically the report most startups go for.
What’s the Easiest Way to Approach SOC 2 Compliance as a Startup?
Although it can be time-consuming, getting a headstart on SOC 2 can give you a leg up on your competition. Below, we outline five ways you can set up your business operations to start meeting SOC 2 compliance requirements.
1. Establish Clear, Documented Policies
Policies are perhaps the most vital component of your overall security program because they dictate how employees should handle data throughout the company. Your policies should be relatively formal but easy enough for anyone to understand and should be readily available for anyone to read at any point in time.
You should consider crafting policies around:
- Data retention and disposal – What types of data should be stored and for how long?
- Incident response – Who can report issues, who resolves them, and who is notified?
- System/data access – Who gets access to what tools?
- Disaster recovery – What backup systems exist, and who manages them?
- Security training – Who should receive training, and what will it entail?
2. Designate Control Owners and Responsibilities
SOC 2 isn’t just about documenting your controls, it’s also about ensuring everyone knows who is responsible for carrying out the controls when needed. So a key component of SOC 2 compliance is assigning each control to a specific owner and outlining that person’s responsibilities. Reviewing these roles every year or quarter is essential to mitigating security risks.
3. Implement Controls Based on Trust Services Criteria
The five AICPA Trust Services Criteria (TSC) are what auditors use to assess a company’s controls across the organization, at an operating unit level, and for a particular type of information. When pursuing a SOC 2 report, the security criteria is the only mandatory TSC, but it’s still a good idea to institute at least a few measures for each one.
As mentioned, security is the minimum requirement for a SOC 2 audit. To hit this milestone, you need to prove that you are adequately protected against data destruction, software misuse, or other kinds of damage to systems that contain sensitive information. Make sure you have controls for firewalls, email encryption, intrusion detection, and other security measures to protect against unauthorized access.
SOC 2 privacy criteria are based on Generally Accepted Privacy Principles (GAPP). Companies abiding by GAPP pay very close attention to the personally identifiable information they collect about their employees and their customers. Auditors will investigate how a company safeguards personal information like name, social security number, address, race, sexuality, religion, and health status.
Confidential data could be anything from receipts, to customer information, to employee records, to financial documents, to SKU lists, etc. To meet confidentiality criteria, auditors will want to see that you have policies in place to defend this data against cyberattacks such as phishing or whaling, and are constantly educating your employees on confidentiality best practices. They’ll also check your legal documents to confirm they reference the treatment of confidential data as well.
All companies process and host data differently, so this criterion checks that your QA and data monitoring policies work the way you say they do. Auditors will follow your policies to see whether they are complete, valid, and work as intended.
Many companies have service-level agreements they are legally bound to uphold for their clients. SOC 2 auditors will validate that you’re meeting those SLAs, that you’ve documented your approach to disaster recovery, and that you have a response plan in place should a security incident occur.
4. Document and Collect Evidence
It’s one thing to say your company abides by certain procedures, but it’s another to show they actually exist and are working as designed. Therefore, SOC 2 audits require companies to document and collect evidence of each of their security policies and procedures. Coming into an audit equipped with ample proof speeds up the process.
Examples of what to prepare include:
- Service-level agreements
- MSA, NDA, and DPA samples
- Vendor agreements (particularly for cloud data hosting software)
- Photos of physical servers
- Photos of key cards and other physical security measures
- Previous third-party risk assessments or audits
- Recent vulnerability scanning reports
- At-rest and in-flight encryption
- Backup logs
- All administrative security policies
5. Consider an Internal Audit
When you are confident in your policies, have appointed control owners, know which trust service criteria you’re going for, and have the evidence to back up your security program, it’s time to do a dry run. Form an objective internal team 一 using folks with accounting and IT experience is ideal 一 and run through the AICPA SOC 2 standards yourself.
Go through each of your policies and identify what might be missing from an auditor’s perspective. Confirm that you have screenshots or links to all the resources you would present to an auditing firm. Think about questions auditors might ask in an interview and start preparing answers. Be sure to take note of anything you need to update or change along the way.
How to Maintain SOC 2 Compliance as a Startup
It’s important to remember that the preparation that goes into SOC 2 compliance isn’t a one-and-done activity. To obtain a SOC 2 Type 2 report, your company will be evaluated on SOC 2 criteria for up to six months. Even then, your company has to be re-evaluated each year to maintain its SOC 2 status.
At the same time, the security community is always coming up with innovative and improved best practices. And every time you adopt a new security measure, you’ll have to add it to your documentation and evidence. So it’s a good idea to revisit a SOC 2 checklist several times a year to update your policies and processes accordingly. Scheduling a biannual internal audit can help you stay on track as well.
Simplify Your IT Environment and Achieve Compliance with JumpCloud
Starting the SOC 2 process as a small company allows you to implement and enforce strong controls and processes from the start. Because there are fewer people to educate, changes can be made quickly and best practices can be adopted much faster.
However, we know that startups don’t have ample time or resources at their disposal. That’s why JumpCloud can be an excellent solution for startups looking to amp up and streamline their security program.
In addition to providing easy implementation and management for foundational security controls such as MFA and SSO, JumpCloud’s open directory platform accelerates the audit process by providing visibility across all users, devices, and other IT resources. This consolidates data and enables you to easily share insightful reports with your auditing team.
Learn more about JumpCloud’s solution for simplified startup compliance today.