Outsourcing is becoming an expected part of business growth, especially for multinational businesses:
As companies grow and take on more workload, then more employees, and even more locations, non-core services such as payroll processing become less and less easy to manage in-house. As a result, companies begin outsourcing to service organizations. While this is a wonderful option and can save plenty of resources and time, there are risks involved.
Just think, how can companies ensure that their business will align well with the service organizations regarding processes and the protection of their employees’ personally identifiable information (PII)? For example, if a company doesn’t take action to protect their team members’ data, the company can face serious penalties and fines, which are implemented by law in many countries. That’s where SOC 1 certification becomes important. It’s a safeguard for companies to check on their vendors’ internal controls, processes, and level of security.
A SOC 1 certification, formerly known as a System and Organization Controls report, is part of the Statement on Standards for Attestation Engagements (SSAE) 16 and is an auditing standard for service organizations. Ultimately, this provides protection for companies and a baseline for expectations.
This certification is the end product of an audit by a qualified independent CPA and created specifically for service organizations. According to AICPA, a service organization provides services to “user entities” that are relevant to these user entities’ internal control for financial reporting. A few examples of service organizations under this definition:
• Software as a Service (SaaS) providers
• Credit card processing
• Payroll processing
A SOC 1 certification conveys critical information for a company and their CPA to understand a service organization’s policies, procedures, and other necessary information about how they handle financial information. In other words, it’s a layer or groundwork that clearly articulates whether the service organization is actually doing what they profess to do with your financial information and employee data. It’s also a way for companies to ensure that they’re remaining complaint, especially when operating in multiple countries.
There is a type 1 and a type 2 SOC 1 certification. A type 1 report is a snapshot of the service organization’s controls at a single point in time. Type 2 reports on the same material, but it looks at the controls over a period of time, typically 12 months. It’s a better way to look at effectiveness over time.
A SOC 1 Certification must have the following three parts to describe the service organization, which is typically written by management:
• Description of their system and controls
• An assertion that the description is a fair representation of the actual system in place and that the controls are designed to meet their respective control objectives
• An auditor’s report that issues an opinion on the above two items.
For type 2 reports, described above, the contents must also include a description of the auditor’s tests of the controls and the results of those tests over the given period of time.
Overall, companies should request SOC 1 certification from their service providers, including global payroll providers to gain a value-added independent opinion that offers peace of mind for your company. It’s also a way to ensure that they are keeping up with changing regulations and keeping their partners, i.e. your business, best interests and critical data safe and top of mind.
Celergo is proud to do voluntary SOC 1 certifications on a regular basis and guarantees compliance in the countries we do service. If you have more questions about how to ensure that your company is protected and payroll is handled properly for overseas operations, give us a call today because we know!
**This article is for informational purposes only. It is not intended to constitute legal advice.