Question

Payswell Company, a small manufacturer, has been in business for 10 years. Senior management is thinking about outsourcing the company’s payroll process.

a. What are the potential benefits of outsourcing the payroll process?

b. What new risks may arise if the process is outsourced?

c. How should Payswell’s management:

1. Identify the key controls over the outsourced payroll process?
2. Determine whether those controls are designed adequately and operating effectively?

**This is an internal audit question. Pls give a detailed answer for above question.**

Answer 1

a. A third party specialized in payroll processing may have the systems, process, people and controls to ensure all of the payroll objectives are consistently met. These parties may also have the benefit of economies of scale and as a result, may be able to offer the service at a cost less than what the company would incur processing payroll itself.

b. New risks include:

• The outsourcing provider fails to meet its performance requirements.
• The company fails to monitor the achievement of such requirements.
• The outsourcing provider's financial and mental health may change, might be resulting in inadequate performance.

c. The key controls that should be identified over the outsourced payroll process are checking whether they have a secure confidential and employee data, checking some of the work done by outsourcing and correcting and showing the payroll provider, if there are any errors.

Payswell should monitor to determine whether the controls that are designed adequately and operating effectively.

Please up vote. Thanks!