Audit Clause Popular in Outsourcing Agreements

How much business do you outsource to a third-party provider, and what kinds of controls have you built in to the relationship?

An 'audit' clause in an outsourcing agreement is becoming more and more popular, especially as businesses continue to outsource tasks that are complex and require third-parties to touch and deal with sensitive data. Experts advise that agreements include a 'right-to-audit' clause so that auditors can examine the financial background and stability of the vendor can be examined

Most often, auditors probably will ensure the standards outlined in the agreement are delivered, as well as assurance of the security issues surrounding an engagement.

Here are five areas to remember about the right-to-audit clause within an agreement:

  • make sure the clause is in writing; verbal agreements are not satisfactory;
  • it has detrimental consequences if contractual expectations are not met;
  • the wording includes any limits on the auditor's access to records;
  • the number of times an audit can occur is included (at least once a year); and
  • the agreement states the outsourcer's time spent with auditors should not be charged.

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