May 2019 Q4 a.
The Minister of Finance in his mid-year review of the national budget hinted that government payroll may be outsourced. The main reason being the guarantee of cost. In April 2017, a bio-metric exercise conducted by SSNIT ensured that 27,000 ghost names were identified and removed from government payroll. In the same year, 23,000 ghost names were removed as a result of headcount of government employees. Resulting from these exercises, GH¢250 million was saved in 2017.
Required:
i) Discuss the effects of payroll outsourcing in this stance. (5 marks)
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Positive Effects
In view of the tremendous savings being achieved as a result of removal of ghost names, it is believed that out-sourcing government payroll will inure to the benefit of the government. Additionally, the government can achieve the following:
- Reduction in cost of preparing the payroll as there will not be the need to engage more people and sophisticated software programme to work on the payroll.
- Payroll will be prepared by specialist which will not have been the case with the staff of government department.
- Service company may provide the government a comfort zone by giving indemnity in event of problems arising.
- It will help the government to focus on its core services of offering social services to the public.
- It may reduce payroll fraud.
Negative Effects
- Staff may be laid off as not all the employees may be maintained. This may result in redundancy which may cost the government.
- Ghost names may still persist as dismissals and terminations may not be advised promptly
- If Government fails, it may have to pay redundancy cost for dismissals and workers may go to court.
ii) Analyse what the service user auditor must do in course of his duties when the outsourcing programme is implemented. (5 marks)
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- Understand the transaction by examining all the contracts and identify potential risks
- Evaluate all the controls at the user entity that relate to the service organization and determine whether that gives the auditor sufficient understanding to provide a basis for assessing risks of material misstatement from the side of the government
If the auditor concludes that this is insufficient, he must carry out one of the following activities: - Obtain Type 1 or Type 2 report from service organization (if Available)
- Contact the service organization to get specific information (with permission)
- Visit the service organization and perform procedures to obtain information (with permission)
- Use another auditor to perform procedures at the service organization (with permission)