Based on a cost-benefit analysis, management at First Community Bank decided to contract with Technology Solutions, a local data center operator, to host all of the bank’s financial reporting applications. To avoid the significant costs of developing and maintaining its own data center, First Community contracts with Technology Solutions to provide IT server access in a highly secure, environmentally controlled data center facility owned by Technology Solutions. Similar to First Community, other businesses also contract with Technology Solutions to host applications at the same data center. The bank is directly linked through highly secure telecommunication lines to the data center, which allows bank personnel to transmit data to and from the data center as if the data center was owned by First Community. For a monthly fee, Technology Solutions supports the server hardware in an environment with numerous backup controls in the event power is lost or other hardware failures occur. Bank personnel are responsible for selecting and maintaining all application software loaded on Technology Solutions servers, and selected bank personnel have access to those servers located at Technology Solutions data center. Bank personnel enter all data, run applications hosted at Technology Solutions, and retrieve reports summarizing the processing of all bank transactions.
a. What risks might First Community assume with this approach to IT system support?
b. How does the use of Technology Solutions impact First Community’s internal controls?
c. What impact, if any, does reliance on Technology Solutions as the data center provider have on the audit of First Community’s financial statements?