PODCAST: Modern Courier Delivery Compliance Considerations: Understanding SOX and SOC Compliance

Logistics and supply chain are some of the world’s most complex and regulated industries, which has been further compounded by increasing reliance on data and technology in both fields. As a result, data security and compliance have become a critical component of logistics operations, although implementing adequate controls can present numerous challenges in these complex networks. 

Government regulations like the Sarbanes-Oxley Act of 2002 (SOX) put additional strain on companies to maintain stringent data and financial controls, and often include provisions on how data is maintained by outside vendors and service providers. As companies attempt to manage more diverse supply chains and transportation networks, keeping up with data compliance can become an overwhelmingly complicated task. 

This blog will delve into the modern delivery compliance considerations as they apply to logistics and supply chain, specifically around SOX and SOC. It will explain the various types of SOC audits, how SOC certified service providers can support SOX compliance, and why most courier delivery providers fail to meet SOX requirements. Finally, it will discuss how a last mile delivery platform can solve courier delivery compliance issues through SOC certification. 

Additionally, scroll down to watch OneRail’s Julius Tubbs, Senior Director, Information Security & Infrastructure, and his appearance on Joe Lynch’s “The Logistics of Logistics” podcast.

Understanding SOX and SOC Compliance

From a high level, SOX and SOC compliance both serve as protective agents for consumers and organizations through enhanced data accuracy and security, and greater internal control support. There are, however, several critical differences between SOX and SOC, which can be briefly summarized as:

  • SOX is a government-mandated record keeping and financial information standards law.
  • SOC is a voluntary audit of a service provider’s internal controls to ensure data security and shareholder confidence. 

Let’s take a closer look at SOX and SOC, as well as the SOC types that service providers can obtain.

What Is SOX Compliance?

SOX compliance is an annual obligation derived from the Sarbanes-Oxley Act (SOX) that requires publicly traded companies doing business in the U.S. to establish financial reporting standards, including safeguarding data, tracking attempted breaches, logging electronic records for auditing and proving compliance. SOX is meant to stabilize markets, benefit investors and protect the American public by restoring trust in financial reporting. 

All publicly traded companies, wholly owned subsidiaries, and foreign companies that are publicly traded and do business in the U.S. must comply with SOX. Private companies planning their initial IPO must also comply with SOX before going public. Additionally, all accounting firms that audit public companies must comply with SOX, regardless of their business designation.

The high-level requirements for SOX compliance can be summarized in three steps: 

  1. Provide financial statements that have been audited by a third party to the SEC;
  2. Implement and test adequate internal controls, and submit an annual Internal Controls Report to demonstrate financial data accuracy; and
  3. Report material changes to the public in nearly real-time.

What Is SOC Compliance?

System and Organization Controls (SOC) is a suite of reports from the American Institute of CPAs (AICPA), instituted amidst the rise of cloud computing, which has increased accessibility to applications and data. SOC reports are issued by a third-party auditor after a thorough examination of a service provider’s operations to verify that they have effective controls for security, availability, processing integrity and confidentiality. These reports provide assurance over the design and effectiveness of controls and outlines any potential risks for customers or partners that are considering working with the service provider. 

SOC compliance allows companies to feel confident that their service providers are operating in an ethical manner, and establishes credibility and trustworthiness. For the service provider, SOC compliance provides a competitive advantage and conveys a proactive and accountable approach to data management.

There are several different SOC audits that a service provider may choose to undergo, with subtypes of each. Next, we’ll explore the most commonly issued reports: SOC 1 and SOC 2. 

SOC 1 vs. SOC 2

SOC 1 compliance is an independent validation of a service provider’s controls that relate specifically to financial planning. In short, if the service provider has any bearing on the financial reporting of their customers, they can be audited to ensure financial information is adequately secure. Rather than undergoing individual audits from each customer, a service provider can go through a SOC 1 compliance review and present the results as validation of their data security processes and controls. 

SOC 2 defines criteria for managing customer data based on five “trust service principles” — security, availability, processing integrity, confidentiality and privacy. The SOC 2 audit focuses on the organization’s technological systems, operations and regulatory compliance, and is used when a company outsources technological and data-related services, such as data hosting, colocation, data processing and Software-as-a-Service (SaaS). The SOC 2 report is particularly helpful in areas that include organizational oversight, vendor management programs and regulatory oversight.

Type 1 vs. Type 2: What’s the Difference?

For both SOC 1 and SOC 2, service providers can undergo either a Type 1 or Type 2 audit. The primary difference between the two audits is in their scope and duration. 

  • Type 1: provides a brief snapshot of an organization’s compliance status. The auditor tests one of the service provider’s controls against the company’s description and design. As long as the control meets the required criteria, the company is granted Type 1 compliance. 
  • Type 2: verifies that a company can maintain compliance across all controls over time. The organization’s controls are assessed and audited over a period of time — usually six months or a year — and if the company passes these ongoing assessments, they are granted Type 2 compliance. 

The Type 2 report is far more rigorous and intensive than Type 1, as it covers a greater timespan and requires a more thorough investigation of a system’s design and processes. Most often, customers looking for SOC 1 or SOC 2 compliance will want to see a Type 2 compliance report, which demonstrates that the service provider has the ability to maintain control standards over time.

Why SOC Compliance Matters for SOX Compliance

While SOC reports are not required, they can be useful for publicly traded companies that are bound by SOX regulations. SOC reports help organizations maintain oversight over their financial data (SOC 1), as well as IT systems, processes and vendors (SOC 2). An independently audited SOC report reinforces SOX compliance through a strict review of how outside vendors handle sensitive information and data, so companies should prioritize service providers that are SOC-compliant. 

PODCAST: SOC 2 Compliance for Logistics with Julius Tubbs

The Role of of Data Governance in Logistics for SOX and SOC Compliance

Logistics and shipping is one of the world’s most complex and regulated industries, which has been further compounded by its increasing reliance on data and technology. As a result, data governance has become an essential part of the logistics industry.

What Is Data Governance?

Data governance is the process of ensuring that data is managed and used in an appropriate, secure and efficient way. It includes the development of policies and procedures for managing data, as well as the implementation of systems and controls to monitor a company’s data assets and enforce policies.

Data governance helps companies develop a detailed view of where data is coming from, who owns it and what happens in the event of a security breach. There are five components to a comprehensive data governance process:

  • Data Stewardship – Who owns the data?
  • Metadata Management – What are the attributes?
  • Data Quality Management – How accurate is the data?
  • Information Management Planning – Where is it kept? How much is retained? How long is it held?
  • Compliance Management & Risk Mitigation – Does data management fulfill regulatory requirements (SOX, PCI DSS, etc.)? 

Benefits of Data Governance in Logistics

Data governance is essential for ensuring data is accurate, complete and complies with regulations, but there are several additional benefits for the logistics industry:

  • Improved data quality and consistency through clear guidelines on how data is collected, stored and shared, as well as how it is formatted to maintain standardization across different data sources. 
  • Better data risk management through the identification of potential risks and development of controls to mitigate those risks and protect data in case of a breach.
  • Better decision-making by ensuring data is accurate, complete, consistent and usable, which is critical to optimizing shipping and logistics operations. 
  • Reduces operational costs by defining and automating data collection and management processes, and developing analytic tools to provide insights into trends and inefficiencies. 

Best Practices of Data Governance in Logistics

Considering the large amount of data generated in the logistics industry, data governance is critical. These best practices can help ensure effective and efficient data governance processes:

  • Define clear roles and responsibilities – There are many parties and stakeholders involved in shipping and logistics, so it is essential to determine who has access to which data and establish clear processes for handling data at every stage. 
  • Implement data quality controls – Data quality is essential to logistics operations, so controls to minimize inaccurate, duplicated, inconsistent and outdated information must be established at both data entry and data management levels.
  • Communicate data governance policies and procedures – All employees should be trained on policies regarding how data is collected, stored, used and shared. 
  • Monitor, audit, review and update policies and procedures – Monitoring compliance through regular audits and reviews is essential to maintaining effective data governance. When controls are no longer effective, processes should be updated accordingly to meet data security standards.

The Problem with Courier Delivery in SOX Compliance: Why Shippers Are Turning to SOC 

The rise of e-commerce during the pandemic created an increased need for last mile delivery services, putting pressure on shippers to expand their last mile courier networks to meet consumer demand. Unfortunately, the rapid utilization of couriers as a secondary mode of transport often scaled faster than the company’s ability to implement necessary data governance and compliance processes across the network, leaving them more susceptible to breaches and SOX non-compliance infractions.

There are several indications that a SOX-regulated company may be struggling with courier data security, privacy and governance:

  • No clear contracts with couriers – Failing to establish contractual agreements severely limits control over data handling and management once information is passed to a courier. This increases the company’s exposure to data breaches and puts private customer information at risk.
  • No insurance program – In the rush to onboard last mile delivery couriers, shippers may fail to verify each courier’s insurance status, increasing their risk in freight claims and opening them up to a high level of liability. 
  • No visibility – Fragmented courier networks create challenges to visibility at every level, from shipment tracking to data sharing, further increasing risks to claims and data breaches. 
  • No Proof of Delivery (POD)  Managing PODs is critical for confirming deliveries, as well as communicating and managing damage risks. Failing to implement standardized POD processes puts shippers at a disadvantage and exposes them to unsubstantiated claims. 

The bottom line is this:  most couriers are not SOC compliant, so shippers will not meet data security requirements going directly with couriers. In fact, courier delivery networks that operate independently of an integrated platform have been flagged as a significant SOX risk. Shippers who rely on diverse courier networks can protect themselves from non-compliance risks by utilizing a secure last mile delivery platform.  

OneRail’s Platform Solves for SOX and SOC Compliance in Modern Courier Delivery

OneRail is a last mile delivery fulfillment SaaS platform that provides a single connection to a wide courier network, backed by a SOC 2 Type 2 compliance certification. To meet compliance requirements, OneRail was evaluated on all five Trust Service Criteria:

  1. Security – System is protected against unauthorized access.
  2. Availability – System is available for operation and use as committed or agreed.
  3. Processing Integrity – System processing is complete, valid, accurate, timely and authorized.
  4. Confidentiality – Information designated as confidential is protected as committed or agreed.
  5. Privacy – Personal information is collected, used, retained, disclosed and destroyed in accordance with the privacy notice commitments.

OneRail’s SOC 2 Type 2 certification gives customers assurance that their platform’s controls have not only been tested and evaluated by an independent third party, but that they are consistent in maintaining the controls over a period of time. It also validates that the platform has adequate security mechanisms in place to protect corporate and client data from unauthorized use and disclosure. The SOC 2 report gives customers insight into OneRail’s information security strategy and the steps taken to maintain compliance with the latest privacy, security and confidentiality standards.

OneRail’s SOC 2 Type 2 certification shows that they exercise due care and have undertaken measures to manage and improve operations, performance, security controls and financial health of the company, ensuring clients that their own data will be handled with due diligence to meet critical SOX compliance standards.

The OneRail Platform Delivers Last Mile

OneRail understands that last mile fulfillment shouldn’t mean sacrificing security. Their platform is designed to deliver at every level, while ensuring private data stays safe and compliant. With OneRail, shippers get access to full platform capabilities, including:

  • Courier Network – Get multimodal fulfillment with access to a trusted network of 10 million-plus couriers
  • Logistics Platform – Deliver on time and on budget with rate shopping, smart matching and real-time visibility.
  • Exceptions Assist™ – With eyes on every shipment and every route, their team of logistics experts gets ahead of delays 24/7.
  • Layers of Security – In addition to being built on Microsoft’s trusted Azure platform, OneRail is SOC 2 Type 2 compliant. OneRail has implemented a number of controls and best practices from a variety of frameworks and standards, including ISO 27001:2022, NIST CSF, NIST 800-53, CIS, CMMC, OWASP and CISA to reduce risk across the organization.

To learn more about OneRail’s last mile platform, schedule a demo today.

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