tis' the season...to prepare for your auditors!

For various reasons, not least the cost implications, businesses in the financial services industry are increasingly outsourcing elements of their own operations. This can make perfect commercial sense, but it can also present its own challenges, particularly if there is insufficient visibility over those operations.

Whilst it is perfectly acceptable to delegate the performance of an operation, it is not acceptable to delegate responsibility for it. Therefore, it remains management’s duty to satisfy themselves that outsourced services are being provided in an acceptable manner and within a robust control environment. Ensuring sufficient oversight and monitoring is fundamental to achieving this. 

Where you use outsourced providers, it is also likely that your auditors will pay particular attention to their systems and controls, and may insist on visiting them. Indeed, some of you may provide services yourselves and have experienced your own clients invoking their right to audit your systems and controls.

Whilst we encourage clients to do this as well as develop complementary controls, more and more providers are pre-empting their clients’ expectations and subjecting their own systems and controls to audit, the result of which they can then share. So don’t be surprised to see more providers preparing and distributing controls assurance reports, which should give you comfort over their systems and also assist your auditors.

In preparation for your upcoming audit, if you outsource activities, be they investment management, custody, IT, accounting or simply payroll, ask yourself the following three questions:

1. Does the service provided form an integral and material part of your systems and controls?

2. Do you have sufficient oversight and monitoring of the services provided and how can you prove this?

3. What are the potential implications of a controls failure at the service provider on your own financial records?

If you cannot answer these questions with confidence, or you are a service provider conscious that your clients may have similar concerns, we would be delighted to have a conversation about how we might be able to help.

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