Organizations all over the world are increasingly relying on third parties to carry out tasks that they would normally carry out themselves.
According to research, companies outsource significant portions of their regulated and unregulated activities. These outsourcing arrangements are also becoming more complicated.
Outsourcing has the potential to shift risk, management, and compliance to unregulated service providers operating offshore.
Outsourcing is increasingly being used to both reduce costs and achieve strategic goals. Its potential impact can be seen across a wide range of business activities, including information technology, application development, programming, coding, finance, accounting, back-office activities, processing, administration and call centers.
Outsourcing has been identified as raising issues related to risk transfer and management, frequently on a cross-border basis. Increased reliance on outsourcing may have an impact on a company’s ability to manage risks and monitor compliance with regulatory requirements.
Furthermore, regulators are concerned about how outsourcing may impair companies’ ability to demonstrate to regulators that they are taking appropriate steps to manage risks and comply with applicable regulations.
Companies can reduce these risks by:
- Developing thorough and transparent outsourcing policies
- Establishing effective risk management programmes
- Requiring contingency planning
- Negotiating suitable outsourcing contracts
- Evaluating the service provider’s infrastructure and resources
Our experts work closely with companies and outsourcing service providers to forge simple workable solutions for complex outsourcing arrangements.
Once companies have decided to outsource some of their activities to outsource service providers, the next challenge is to select appropriate service providers who can help companies remain compliant with regulatory and legal guidelines.
Just as companies are required to have in place policies that ensure their ability to oversee activities being outsourced, outsource service providers, too, must have appropriate governance framework with clearly defined roles and responsibilities throughout the engagement.
Accordingly, companies’ Board of Directors are responsible to ensure that outsourced activities are able to be assessed, supervised and regulated by the supervisory authority at any time for which Internal Audit plays a key role.
We conduct due diligence of outsource service providers by :
- Checking if the service providers are qualified and have adequate resources to perform the outsourcing work.
- Ensuring that service providers understand and can meet the objectives of companies.
- Recognizing service providers’ financial soundness to fulfill their obligations.
- Assessing whether service providers can perform under pressure or during emergencies.
We review outsourcing contracts to ensure that:
- Activities that are going to be outsourced have been clearly defined with appropriate service and performance levels.
- Service providers’ abilities to meet performance requirements in both quantitative and qualitative terms have been assessed.
- If any clauses prevent companies from meeting their regulatory obligations or impede regulators from exercising their regulatory powers.
- Companies have access to all books, records and information relevant to the outsourced activities.
- Companies are able to continuously monitor and assess outsourced service providers so that any necessary corrective measures can be taken immediately.
- Companies are able to smoothly and effectively transfer all operations to third-parties or back to themselves in case of termination of engagements.
- Companies have the ability to exercise choice-of-law or jurisdictions in case of disputes.
- In case sub-contracting is allowed by regulators, the same level of risk management is available to companies as with the original engagements.
We develop plans to ensure that:
- Contingency arrangements are in place for each outsourcing arrangement separately at both companies and outsource service providers.
- Appropriate steps to be taken to assess and address the potential consequences of business disruptions at service providers have been clearly outlined by companies.
- Outsource service providers maintain appropriate IT security and disaster recovery capabilities.
- Criteria exist for taking into consideration, costs of alternate options in case of deteriorating performance by outsource service providers.
- Appropriate steps have been taken to protect confidential customer information by both companies and outsource service providers.
Our experts provide assurance to companies that all outsourcing related risks are assessed, monitored, mitigated and reported on an ongoing basis while we help outsource service providers develop and establish robust policies, procedures, controls and indicators to help their clients comply with regulatory expectations.