A directive control is a policy, procedure, or guideline that establishes expected behavior to mitigate risks. In the context of outsourcing HR functions, a data protection clause in the contract ensures that the service provider is legally obligated to protect sensitive employee data.

Legal and Regulatory Compliance – It ensures the service provider complies with GDPR, CCPA, ISO 27001, SOC 2, and other data protection laws.

Defines Security Responsibilities – Specifies encryption, access controls, data retention policies, and penalties for non-compliance.

Enforceable Accountability – The contract holds the provider accountable for data breaches or misuse.

Industry Best Practice – Most outsourcing agreements include a Data Processing Agreement (DPA) as part of contractual terms.

A. Require a SOC report – A SOC (Service Organization Control) report assesses the provider’s internal controls, but it does not enforce compliance.

C. Obtain a nondisclosure agreement (NDA) – An NDA is useful, but it only prevents individuals from sharing data; it does not define data security requirements.

D. Encrypt the employees' data before transmitting it – Encryption is a strong preventive control, but it does not provide a directive policy like a contract clause does.

IIA’s International Professional Practices Framework (IPPF) – Standard 2201 – Requires internal auditors to assess contract terms related to risk management.

COSO’s Enterprise Risk Management (ERM) Framework – Recommends contractual agreements for third-party risk mitigation.

ISO 27001 Annex A.15.1.2 – Specifies that security requirements must be addressed in supplier contracts.

Why a Data Protection Clause Is the Most Appropriate Directive Control?Why Not the Other Options?IIA References:✅ Final Answer: B. Include a data protection clause in the contract with the service provider. (Most appropriate directive control).