Question

You are a management accountant for Time Treasures Company, whose company has recently signed an outsourcing agreement with Spotless, Inc., a janitorial service company. Spotless will provide all of Time Treasures’ janitorial services, including sweeping floors, hauling trash, washing windows, stocking restrooms, and performing minor repairs. Time Treasures will be billed at an hourly rate based on the type of service performed. The work of common laborers (sweeping, hauling trash) is to be billed at $8 per hour. More skilled (repairs) and more dangerous work (washing outside windows on the 23rd floor) are to be billed at $18 per hour. Supervisory time is to be billed at $20 per hour. Spotless will submit monthly invoices, which will show the number and types of hours for which Time Treasures is being charged. The outsourcing contract is simple and straightforward. Initial

What are some of the internal control problems you foresee as a result of outsourcing the janitorial service with this contract?

Explain recommendations to control risk that would you suggest after reviewing the contract.

Answer 1

Answer:

Some of the recommendations to control risk:-

1. Understand and Monitor Point of Interaction with the system

2. Clarify expectations using Service-level agreements containing protocols, standards, and expectations

3. Monitoring of Spotless Inc. to ensure that her (that is Time Treasure) controls are working

Explanation

1. Understand and Monitor Point of Interaction with the system

Monitoring the performance or activities Spotless Inc. staff would be a necessary function of Internal Control. Time Treasure would have to determine if the interactions are at the control activity or enterprise level. This helps to highlight high risky security point in the system.

2. Clarifying expectation using Service Level Agreements

Getting the Spotless Inc. to sign a service level agreement itemizing expectations concerning protocols, standards, about how those third parties are going to perform relative to the control environment is a great way to mitigate the risks of irresponsibility.

3. Companies monitor how the third parties are performing and verify the activities that third parties are undertaking to make sure controls are operating effectively.

Performance monitoring can be executed through a right-to-audit clause in the Service Level AGreement that gives either the company or auditor permission to perform testing.