The internal audit function has been asked to review the vendor selection process and evaluate each vendor's s tem of internal controls . Senior management has decided sys- company that it wants a 10 percent equity stake in the performs the outsourcing function .

The original terms of the agreement call for 1,000 employees to be moved from the bank's HR function to the company who ultimately receives the contractThe vendor will then be responsible for evaluating the employ- ees' performance and determining which employees will be terminated after a six- month period .

The vendor has the option to determine which computer systems are used. The length of the contract will be either five or 10 years, depending on its pricing structure.

The bank expects to achieve significant financial gains from this outsourcing arrangement , including significant cost reductions associated with the conversion to stan- dard applications provided by the vendor. The vendor will be expected to leverage existing systems , processes , and personnel and be able to make a profit based on the econ- omies of scale , particularly in the systems areas

. A. What role should the internal audit function play in the bank's decision to outsource this function ?

B. What specific areas should the internal audit func- tion review during the transition phase ?

C. What areas of risk should the bank consider during the transition phase ? After the transition is com- plete ?

D. What types of internal audit consulting activities related to the outsourced HR function might be appropriate once the transition is complete ?