Chapter 10, Problem 2TP

You are a management accountant for Time Treasures Company, whose company has recently signed an outsourcing agreement with Spotless. Inc., a janitorial service company. Spotless will provide all of Time Treasures’ janitorial services, including sweeping floors, hauling trash, washing windows, stocking restrooms, and performing minor repairs. Time Treasures will be billed at an hourly rate based on the type of service performed. The work of common laborers (sweeping, hauling trash) is to be billed at $8 per hour. More skilled (repairs) and more dangerous work (washing outside windows on the 23^rd floor) are to be billed at $18 per hour. Supervisory time is to be billed at $20 per hour. Spotless will submit monthly invoices, which will show the number and types of hours for which Time Treasures is being charged. The outsourcing contract is simple and straightforward.

A. What are some of the internal control problems you foresee as a result of our sourcing the janitorial service with this contract?

B. Explain recommendations to control risk that would you suggest after reviewing the contract.