Many startups face the same types of challenges when growing. You’re starting out with very few employees, and you’re all putting the majority of your focus on developing and improving your product or service. You probably haven’t budgeted any time to respond to client security questionnaires and requests for third-party assurance reports from customers who are performing due diligence or vendor management.
For blockchain startups, requests from clients for security questionnaires and third-party assurance reports aren’t going to go away. You’re only going to get more of them the more customers you gain. But what, exactly, is a SOC exam?
What is a SOC exam?
A Service Organization Control (SOC) exam (or SOC audit) is a project to test the design and operating effectiveness of your internal controls. We can define internal controls as the key activities within your business processes you use to provide accurate and secure services to your customers. A SOC exam helps to assure your customers that you have the right controls in place and the right activities in place to help ensure the policies and procedures you established are working. In other words, it helps to assure them that their data is in safe hands with your business.
Blockchain startups may need to perform a SOC 1 exam, SOC 2 exam, or both. This is because a SOC 1 audit examines and reports on internal controls relevant to your customer’s financial statements, and a SOC 2 audit examines and reports on internal controls relevant to the security, availability, processing integrity, confidentiality and/or privacy of your customer’s data. Either one, or both, may be relevant to your organization based on what types of customer data you handle.
Read more: SOC 1 vs SOC 2: What’s the difference?
What are the benefits of a SOC exam?
While customer requests for a third-party assurance report will be the number-one driver of having a third-party perform a SOC audit on your organization, it isn’t the only reason to have one done. Here are three big benefits to be gained from performing a SOC exam:
1. Develop stronger internal controls
Because startups have fewer employees than fully fledged organizations, internal controls tend to be underdeveloped.
For example, segregation of duties is difficult to put into practice when you have don’t have the personnel. But it’s a critical internal control. The person developing code for an application should not be the same person approving it or the same person pushing it to production. These are three different roles that should be held by three different people to ensure appropriate checks and balances. On the accounting side, the person writing checks shouldn’t be the same person approving them, and they shouldn’t be the same person performing bank reconciliations. When roles in your organization are consolidated, you increase the risk for fraud, data breaches or other threats.
Read more: The secrets of fraud prevention
Before having a SOC audit done, you can perform a readiness assessment, which will identify areas where your internal controls are lacking and provide recommendations for improvement. This gives you the chance to develop stronger internal controls — from creating appropriate policies and procedures to implementing a security awareness program to ensuring segregation of duties. And when you have strong internal controls, you can provide assurance to customers and prospects that their data is in safe hands, reduce the risk of fraud, data breaches and other threats and place more reliance on your personnel following the policies and procedures you established.
2. Instill greater discipline and structure
Many startups are proud of their laidback culture, but when you’re handling confidential, proprietary information and sensitive customer data, one slipup puts the entire business at risk. Does your blockchain startup have formal policies and procedures in place? Do employees know what’s expected of them, and do you hold them accountable to those expectations? Do you perform background checks on candidates to validate their qualifications, education, employment history, criminal background, etc.?
A readiness assessment and subsequent SOC exam can point out these areas for improvement, making them great tools for management to build more structure into your organization and ensure discipline in all the areas where it’s critical.
Plus, it can also help you become more efficient. As part of our SOC exam service, Wipfli provides recommendations on where organizations could improve, and sometimes automate, certain processes, which not only makes their internal controls stronger but also frees up employee time to focus on more important priorities.
3. Increase sales and your competitive advantage
As a blockchain startup, you know the struggle of having to explain what blockchain is and how your product works, why your prospective customers need you and why they should put their faith in a developing technology that many are still wary of. You’ve got it tougher than other types of startups.
But you can help combat customer wariness with a third-party assurance report such as a SOC exam. Prospective customers want to know they can trust you. They want to see proof that you have controls in place to protect their data and thus protect them. They want to know that your business maturity levels are higher than a typical startup. When you show them that you have complex business processes and standards, and that you’ve built a mature foundation to grow on, you show them a startup that will confidently be able to grow into a mature business.
A SOC exam helps provide proof of mature processes, standards and controls, and it can be a crucial deciding factor in moving forward with your business.
It can also put you above the competition, making for an effective sales tactic. If a competitor doesn’t have a SOC report ready to show prospects, but you do, that gives you a big leg up over them. Sales calls, RFPs, email marketing, sales collateral — you can promote a clean SOC report to the world.
How blockchain startups can get started
From meeting regulatory compliance and the contractual obligations of customers, to understanding how to better perform due diligence on your own vendors, SOC exams provide a wealth of benefits to blockchain startups even past what we highlighted above.
Are you ready to get started?
Wipfli’s team of experienced SOC auditors are here to help. Whether you want to start with a readiness assessment and identify areas of improvement, or you’re ready for your SOC audit, reach out to us.