For small to mid-size firms to compete against their much larger, more sophisticated enterprise companies, requires that they utilize as many resources available to them in the market, all the while trying to minimize cost. Thus, the "outsourcing" industry has become a staple in the American economy (even through these tough economic times). Outsourcing services provides small and medium-sized businesses to get a much larger footprint than they would normally have had, had they tried to do it themself, and at a fraction of the cost. However, with this comes some risk and liability…
The Seattle Post-Intelligencer reported today that restaurant chains and retail stores, more than another industry, rely on outsourcing to third-parties, companies that handle credit card processing, and IT Technology. According to a study conducted by Verizon Communications, Inc., this is partly to blame for an increase in consumer data breaches over the past few years. The director of the Verizon Business Team, who furnished the report, suggests that there is a total lack of accountability by the third-party players, when it comes to data breaches within an organization. This can potentially subject the client/company to third-party liability, for failing to exercise reasonable precautions in managing and monitoring its vendors (also called "vicarious liablity").
Potentially damaging to the company, aside from the thousands of dollars it will have to shell out to the victims and regulatory agency fines, is the fact that liability insurance coverage may fall outside the scope of an insurance policy, leaving the organization to either pay up, or declare bankruptcy, and wind down its business. Either way, businesses need to carefully monitor and manage their vendors, and operate under the idea of "least privilege."
For more information on this article, please click here: Outsourcing Aids Many Data Thefts, Verizon Says