AUDITING

BUSINESS PROCESS
OUTSOURCING
INDUSTRY (BPO)
 OBJECTIVES
➢ Know the nature and background of
the particular specialized industry

➢ Learn the overview, statistics, and

updates of the specialized industry
in the Philippine setting

➢ Identify the different audit

considerations and trends for the
industry
 OVERVIEW
> Today, many multinational
organizations are going through
finance, tax, or IT transformation
project to drive efficiency and reduce
costs.
> Philippines has also
consistently ranked among the
top five outsourcing destinations
in the world.
TOP 10 BIGGEST BPO COMPANIES IN THE
PHILIPPINES
1. Accenture 6. Sitel Philippines Corporation
2. IBM 7. Alorica
3. Teleperformance 8. TTEC (Teletech)
4. JPMorgan Chase & Co 9. Telus International
5. Sutherland Global Services 10. (24)7.ai
Philippines, Inc.
 NATURE AND BACKGROUND OF
SPECIALIZED INDUSTRY

> Business process outsourcing

(BPO) is the practice of contracting a
specific work process or processes
to an external service provider. The
services can include payroll,
accounting, telemarketing, data
recording, social media marketing,
customer support, and more.
 TWO MAIN TYPES OF SERVICES
BACK-OFFICE BPO FRONT-OFFICE BPO

• Front-office services pertain

• Back-office services include
to the contracting company’s
internal business processes,
customers, such as
such as billing or purchasing.
marketing and tech support.
• Includes public-facing
• Refers to internal functions such
business operations like
as finance, tax planning, and
sales, customer support,
Human Resources (HR).
and marketing.
 THREE CATEGORIES
OFFSHORE VENDORS NEARSHORE VENDORS ONSHORE VENDORS

• are located in countries • operate within the same

• are located outside of country as the
that neighbor the
the company’s own contractor, although they
contracting company’s
country. may be located in a
country.
different city or state.

> For example, a U.S.

> For example, in the > For example, a company
company may use an
United States, a BPO in in Seattle, Washington,
offshore BPO vendor in could use an onshore
Mexico is considered a
the Philippines. nearshore vendor.
outsourcing vendor located
in Seattle, Washington, or in
Huntsville, Alabama
 Each BPO company will specialize in specific services.
THEY MAY BE GROUPED AS FOLLOWS:
1.CUSTOMER 2. BACK-OFFICE
INTERACTION SERVICES TRANSACTIONS
> The BPO company would cover a
> This includes check, credit, and
business’s voicemail services,
debit card processing; collection;
appointment schedules, email
services, marketing programs, receivables; direct and indirect
telemarketing, surveys, payment procurement; transportation
processing, order processing, quality administration; logistics and
assurance, customer support, warranty dispatch; and warehouse
administration, and other customer management
feedback.
3. IT AND SOFTWARE 4. FINANCE AND
OPERATIONS ACCOUNTING SERVICES
> These technical support > These functions include
functions include application billing services, accounts
development and testing, payable, receivables,
implementation services, and IT
general accounting,
helpdesk.
auditing, and regulatory
> For example, manual data
compliance.
entry can be replaced with
automated data capture,
increasing data intake and
reducing cycle time.
 5. HUMAN RESOURCE 6. KNOWLEDGE
SERVICES SERVICES

> These higher-level processes

> BPOs can help address
may include data analytics, data
workforce challenges. They can
mining, data and knowledge
also cover payroll services,
management, and internet and
healthcare administration, hiring
web research, as well as
and recruitment, workforce
developing an information
training, insurance processing,
governance program and
and retirement benefits.
providing the voice of customer
feedback.
 HOW DOES BPO
WORK?
> Organizational executives arrive at the
decision to outsource a business process
through a variety of avenues. Startup
companies, for example, often need to
outsource back-office and front-office functions
because they do not have the resources to build
the staff and supporting functions to perform
them in-house.
 SCOPE OF WORK

> Executives should identify the workflows and

processes impacted by this shift and adjust, if
necessary, those workflows and processes to
accommodate the outsourcing of the work.

> Executives should also identify the key

objectives for outsourcing a function -- whether
it's cost savings, increased quality, quicker
turnaround or some other objective -- and then
use that criteria to determine which provider
would be best suited to handle the work.
 UPDATES, STATISTICS OF
THE SPECIALIZED
INDUSTRY IN THE
PHILIPPINES

• Despite the Covid-19 pandemic and recent economic headwinds, the global
BPO industry has grown to an industry with an estimated value of US$164.7
billion in 2022.
• At the end of 2022 BPO industry hits 1.8 million filipino employees. In
addition, to call center employees, the Philippines expands its outsourcing
workforce to non-voice and technical specialization in digital like social
media managers, web developers, data analysts, and more.
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• Government led Philippines Development Plan

• incentivized local and international investments and other tax
benefits
• other contributing factors as well which have played a huge role in
how the BPO industry has changed the face of the island nation's
economy
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• 1992 – First contact center for call center services is setup in the
Philippines by Accenture
• 1995 – the Special Economic Zone Act (RA 7916) is passed by the
Philippine Congress, promising tax incentives to foreign investors
• 1997 – Sykes Asia becomes the first multinational corporation to set
up a BPO center in the Philippines
• 1999 – eTelecare, the first call center in the country is found, and
setup
• 2000 – the BPO industry accounted for 0.075% of the country’s GDP
• 2003 – Convergys Corp. opens two call centers in the Phils. Along
with their expansion in India.
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• 2005 – Philippines is able to account for 3% of the global BPO

market
• 2006 – ePLDT Ventus, a subsidiary of PLDT, hires more than 11,000
people
• 2010 – 525,000 BPO employees and $8.9B in revenues, the
Philippines surpasses India as the world leader in BPO industry
• 2013 – Total revenues climbs up to $15.5B with 900,000 full time
employees
• 2016 – At an annual growth rate of 17%, the BPO industry is
projected to generate 1.3 million new jobs
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• 2017 – DOF assures that the foreign investments in SEZ’s will remain
exempted from VAT and those registered under BOI will retain their
zero-rated status despite implementation of TRAIN.
• 2018 - Philippines ranks second in the Top 50 Digital Nations, while
Manila reclaimed the second spot in the Top 100 Super Cities
ranking for outsourcing, based on Tholons’ Services Globalization
Index, an international ranking of IT-BPO cities and countries
• 2018 - Philippines takes 16 to 18 percent of the total outsourced
services globally
UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES
UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• PEZA investment pledges accounted for PhP 8.14 billion this year,
lower compared to the PhP 25.38 billion during the first quarter of
2021.
• By 2022, 15 percent of the entire global outsourcing market would be
served by Philippine outsourcing services.
• From April to June 2022, the demand for office space accounted for
107,000 sq m or 43 percent by the IT-BPM firms.
• The IT-BPM sector, which employs over 1.4 million Filipinos,
continued to exhibit a significant multiplier effect and generated an
additional 4.6 million indirect jobs in support industries like retail,
transportation, food, logistics and others.
 UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES

• As businesses take advantage of cost, technology, and talent, more

BPO companies are relocating to the provinces, which now account
for 29 percent of the total 1.44 million workforce.
• In spite of ongoing lockdowns, working from home has helped the
sector grow. WFH adds 23,000 new jobs in 2020, right when the
crisis caused the unemployment rate to reach its highest level in 15
years.
• By the end of 2021, about 60 percent of employees in the IT-BPO
sector worked from home.
• 80 percent of Filipino IT-BPO workers have stated that they prefer a
hybrid work model over going back on-site.
UPDATES, STATISTICS OF THE SPECIALIZED
INDUSTRY IN THE PHILIPPINES
Causes of resignation among BPO staff
members

• Prefer WFH set-up than going back on-site

• Mismatched jobs and skill set
• Lack of collaboration
• Lack of proper training
• Lack of recognition
• Piled up workload
• Team management issues
• Night shift work
• Poor working conditions
• Golden opportunities arise
Contributed to the Growth of BPO Industry in Philippines

FIVE KEY FACTORS

• In the initial years, when the BPO industry was still in its nascent
stages, Bill Gates, the then CEO of Microsoft, donated free Microsoft
Apps Licenses to the PCPS program, ensuring the government
could hit the ground running with its initiative for fast and effective
BPO industry growth in the country, while avoiding huge capital
expenditures.
• Investors in the Philippine BPO industry are offered a sizeable
number of incentives, including tax holidays, tax exemptions on
imported equipment, simplified import procedures, and freedom
to employ foreign nationals.
Contributed to the Growth of BPO Industry in Philippines
FIVE KEY FACTORS
• Filipino employees are not only fluent in Western-accented English
as compared to their Indian counterparts but are also more patient; a
trait which comes in handy when facing irate customers. Their close
affinity to Western culture, and high problem-solving capabilities
also set them apart from other similarly skilled workforce.
• The government is always quick to pass key legislative changes
which favor global organizations looking to outsource to
Philippines. A recent example for the same would be the Data
Privacy Act, which puts into place stringent international quality
data privacy standards, thereby ensuring that sensitive
information being handled daily remain secure.
Contributed to the Growth of BPO Industry in Philippines
FIVE KEY FACTORS

• Philippines focuses on growing industries in both voice and

non-voice sectors such as global in-house centers (GICs),
healthcare information management, animation, and gaming also
ensured future BPO growth in the country.
 REGULATION OF BIR
• The Bureau of Internal Revenue
(BIR) has formed a task force that
started checking on compliance with
the 100-percent return-to-workplace
rule among business process
outsourcing (BPO) firms who had
decided to keep their tax perks.
 THE RISKS OF BPO
SECURITY UNDERESTIMATING THE
In outsourcing, especially when information
COSTS OF SERVICES
systems (IS) are involved, companies face Companies that employ BPO vendors often
communication and privacy risks. Security is underestimate the running costs, especially in
more difficult to maintain when the business upgrades and contract renegotiation. Other
taking care of your IS is not in the same country, hidden costs include vendor selection, currency
especially one with different security fluctuations, hardware and software upgrades,
requirements. Potential data privacy breaches internal transitions, layoffs, and the potential
and vulnerability disclosures are a real threat, decrease in individual worker productivity.
particularly with the current prevalence of
hacking. The internet, which makes BPO for IT
feasible, also may offer a portal through which
hackers enter.
 THE RISKS OF BPO
OVERDEPENDENCE ON
SERVICE PROVIDERS COMMUNICATION ISSUES

Once a company designates a vendor for Language barriers can limit activities when your
specific processes, the vendor becomes a part company hires individual service providers
of the workflow. The company can incur spread across the globe. This can result in
extraneous costs and decreased productivity delays in new processes and curbs on
when the vendor encounters problems or lapses feedback from different departments, and it can
in its work — for example, when the cost of potentially magnify current problems in your
hiring workers increases. Vendors often replace business operations. Further, customer-facing
veteran employees with less experienced services may present language barriers to
workers to keep costs down, and quality suffers third-party vendors.
as a result.
OTHER POSSIBLE
RISKS OF BPO
• Specialization to the point
• Data breaches
that the niche demand is
no longer necessary
• Quality control
• Maintenance of strategic
alignment
• Operation restoration
• Political instability
• Changes in technology
• Nonlocal employees
and exposure to hacking
 TAX CONSIDERATION
> A form of government support for the Philippine
BPO industry is the Special Economic Zone Act
that provides tax incentives, exemptions, and
other privileges to foreign investors.

•Income tax holiday or corporate income tax exemption for four

to eight years
• Option to pay a 5% gross income tax in place of all national
and local taxes after the tax holiday.
• Tax-free and duty-free import of capital equipment, spare
parts, supplies, and raw materials
• Permanent resident status for foreign investors (and their
immediate family members) with an initial investment of
US$150,000
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