The two risks involved with outsourcing a business process (the off-shore ministry of health) 1. Does the outsourced vendor have adequate internal controls in place 2. Is the outsourced vendor able to provide the same or better quality of the product or service that could be achieved by keeping the business process in house.
Three recommendations for the two above risks 1. Ensure there are means of monitoring the effectiveness of the outsourced business process 2. Obtain assurance that the internal controls imbedded in the outsourced business process are operating effectively, through internal audits or external reviews of these controls. 3. Periodically Re-evaluate whether the business case for outsourcing the process remains valid.
Limitations of Internal control (5 examples) 1. Human judgment is not perfect(subject to bias) 2. Breakdowns can occur because of errors or mistakes 3. Controls can be circumvented by collusion (two or more people) 4. Management can override controls 5. Controls must be cost effective (costs versus benefits)/ 6. External events outside the organizations control.
Why is important from a governance prospective to have an outside director on the Board of Directors. 1) Management receives direct compensation for their work and makes decisions that benefit the short run instead of shareholders long term goals. Having independent directors who don’t receive direct compensation but receive stock awards tends to shift the boards focus on more long term interests and align with shareholders expectations 2) Objective in their opinions and not biased in their decision making process 3) Independence, evaluate the performance and wellbeing of the company w/o having conflict of interest 4) Bring their own diverse background expertise and perspective and offer a valuable