Why Due Diligence Matters in Accounting Outsourcing

Before you start any outsourcing arrangement, make sure you have conducted due diligence to guarantee a partnership that is grounded in accountability, transparency, and trust. This article provides information on what you need to know about due diligence in outsourcing.  

Accounting is a sensitive business function. Despite this, it remains one of the most outsourced functions due to its technicality, complexity and constantly changing regulations.  Your firm’s reputation, growth, and profitability are at stake when you enter this business arrangement. Conducting due diligence before you outsource gives you the assurance that your financial records are safe and your internal resources are used wisely. 

 In this blog, we will talk about:

a. What is due diligence in outsourcing?

b. When should you conduct due diligence?

c. Due diligence best practices

What does due diligence mean in the context of outsourcing? 

Due diligence refers to the process of investigating the reliability of an outsourced service provider. It includes the risks associated with entrusting your business functions to them.   

When it comes to outsourcing, due diligence is a two-way process, unlike other arrangements where only the buyer administers the process. As you assess your service provider’s expertise and qualifications, the latter would also check out your proposed outsourcing project and the legitimacy of your organization, especially if it involves contractual agreements and compliance requirements. 

When Should You Conduct Due Diligence? 

Due diligence typically happens after you and your chosen service provider have expressed interest in working together—but before signing any legally binding contractual agreement. This phase usually follows a Letter of Intent (LOI), which outlines the scope of the proposed management service engagement. 

The duration and depth of due diligence depend on the complexity of the services involved and the timeframe agreed upon. This period allows both parties to: 

• Share important company information 

• Exchange confidential documents 

• Ask probing questions 

• Verify the information provided 

• Raise potential concerns 

The way you conduct your due diligence plays a crucial role in the success or failure of your outsourcing initiatives. 

Due diligence best practices 

To do it right, here are the best practices to follow when conducting due diligence: 

1. Seek Professional Assistance 

The first thing you need to do is to always perform due diligence with the aid of a lawyer or accountant to minimize risks you might incur from outsourcing. At the very least, seek out professional help who have knowledge on outsourcing requirements in your jurisdiction. 

In the United Kingdom, there are certain regulations and requirements to consider before pushing through this business activity. For instance, regulatory bodies like HM Revenue and Customs (HMRC) require companies to report their outsourcing arrangements, particularly when it involves payroll and staffing services. 

HMRC reporting is only one side of the equation. A lawyer or an accountant can also give you advise on the following areas: 

• Ways to protect intellectual property 

• Questions to ask regarding data security, technology and other IT-related issues 

• Economic stability in the country of your chosen service provider 

• Areas where conflict of interest may arise 

• Availability of compliance, risk management, business continuity and disaster recovery programs.  

Knowing these pieces of information is critical in mitigating risks and will guide you in making the right outsourcing decisions. 

2. Assess the provider’s track record 

With the help of your lawyer, dig deeper into the company’s reputation. Ask: 

• How long have they been in the outsourcing business? 

• What industries do they specialize in? 

• Can they provide client testimonials or references? 

• What are the common reasons why clients close their accounts?  

It’s essential that your outsourced service provider has the capabilities, appropriate authorisation, reliability and professionalism to handle your accounting operations for the term of the contract.  

3. Curate all information you need 

It’s also good practice to prepare all the information you need prior to performing your due diligence. 

Below is a sample due diligence checklist for outsourcing. It contains details you should include when investigating your service provider’s capabilities. 

• Nature and scale of the service provider (business model, financial health, business reputation, complexity, group structure, professional indemnity cover) 

• Compliance with data protection laws and regulatory requirements 

• The effectiveness of risk management and internal controls to protect confidential data 

• Industry expertise (experience in working with clients from your respective industry) 

• Digital transformation initiatives (technological preparedness to maximise efficiency) 

• Portfolio of previous projects (including client testimonials) 

Preparing and organizing this information ahead of time improves the quality of your risk assessment and makes the time-consuming process of vetting outsourcing companies more efficient. 

4. Perform due diligence on the outsourced service provider’s labour supply chain  

With accounting outsourcing, you are capitalizing on the service, expertise and time of people. It’s critical that you know the working conditions of your potential team to ensure they can deliver quality service.  

GOV.UK, Britain’s official public sector information website, published a three-point advise that you can adapt to due diligence in outsourcing. It lays down key activities to minimise risks in your labour supply chain. 

Here’s the summary: 

• Check - Know your own risks, including those of your suppliers. It includes legal, financial, tax and social obligations risks. You must also check for modern slavery and exploitation risks. Overall, the checking stage ensures that your supplier can help you remain compliant with all applicable regulatory requirements. 

• Act - Once you’ve identified risks, perform the appropriate action to mitigate them or remove them completely. 
  

• Review - Implement continuous monitoring and review of your due diligence procedures and live risk management to protect your business from financial, operational and reputational risks.  

Negligence to do the appropriate due diligence processes will cost your organization more in the long run. You may check the complete guidance set out by the HMRC on this page.  

5. Prepare and review legal agreements and contract obligations 

See to it that you have all regulatory approvals to push through the business activity. The legal agreements and contract obligations you must check are: 

• Compliance with the applicable law in concerned jurisdictions 

• Required licenses for services of outsourcing accounting services 

• Ability to carry out foreign banking transactions 

• Finalised payment schedule and fulfillment of the requirement for any customisation 

• The signing of legal documents such as non-disclosure agreements (NDAs) 

Ensure that all legal documents clearly set forth the rights and responsibilities of all parties to prevent misunderstanding in the long run. 

6. Consider Conducting an Ocular Visit 

If possible, see if you can do an ocular visit to your service provider’s office to check the actual working conditions of its employees. Happy, engaged and organised teams are positive indicators of good service quality since their well-being has a direct impact on the way they work. 

Below are some of the things you should look out for when conducting an ocular visit: 

a. Office security and setup

Look around and see if the office is safe and well-managed.  

• Are there security guards or ID access cards to control who gets in?  
• Is the workplace safe and comfortable for the staff?  
  

Note:  A secure and well-organized setup shows they take both safety and work quality seriously. 

b. Work desks and equipment

Ask if they have an IT team that takes care of their computers and systems.  

• Do employees have working computers, headsets, or other tools they need?  
• Are the tools they use up to date? 

Note: This can tell you a lot about how they get their job done. 

c. Work vibe and team behavior 

Take a moment to observe the people in the office.  

• Do they look focused?
• Are they working together well?
• Is the space clean and quiet enough for them to concentrate?  

Note: A good work vibe usually means the team is motivated and can do their job properly. 

d. Health and safety in the office

Check if the office follows basic health and safety rules.  

• Are walkways clear?
• Is the lighting good?
• Are the air conditioning or fans working?
• Are emergency exits easy to find? 

 
Note: A safe and well-kept space means the company values its people. It also reflects how they handle other parts of their work. 

c. Processes and Systems

Ask how they handle daily tasks.  

• Do they have clear processes for how work gets done?
• Are they using any tools or software to track progress and avoid delays?
• Do they follow a set process when solving problems or handling errors? 

Note: Having clear systems in place is a good indication that they know what they are doing. 

7. Check the Provider’s Data Protection and Security Measures 

After checking the facility and seeing how the team usually works, the next thing you need to check is how they keep their client’ data safe and secure. You're trusting them with sensitive financial information, so it's only right to make sure they have strong security systems in place.

Here are a few questions to ask: 

• How do you store and protect client data? 

• What systems or tools do you use to keep it secure? 

• Do you follow any international data protection standards like ISO 27001 or General Data Protection Regulation (GDPR)? 

• Who has access to client information, and how is that access controlled? 

Note: A reliable provider should be open about their processes and able to show that your data will be in good hands. After all, it's not just about getting the job done, —it’s about doing it securely and responsibly. 

8. Check for Cultural Fit and Work Ethic Alignment 

As we shared in a previous blog, outsourcing partnerships go beyond just skills or services. It’s also about building a good working relationship, and it starts with making sure you’re on the same page when it comes to values, communication, and how you both work. 

Think of it this way: even if the provider has been in the industry for years, if their way of working doesn’t match yours, you’ll likely run into issues down the road. That’s why checking for cultural fit matters. 

Ask yourself: 

• Do they work similar hours, or will the time zone gap be a problem? 

• How do they handle deadlines? Are they flexible or very by-the-book? 

• Do they take feedback well? Are they open to suggestions? 

• Do they seem like they understand what your business is trying to achieve? 

Yes. You don’t have to be exactly alike, but it helps if your work styles and expectations are aligned since it will make collaboration easier. It also prevents misunderstanding in the long run and can save each other time, energy, and frustration. 

9. Understand the Provider’s Onboarding Process  

Once you have all the information you need, the next thing you need to understand is the onboarding process of your outsourcing partner. This is also an important part because it sets the tone for how you’ll work together moving forward. 

Think of onboarding as the “getting-to-know-you” stage. This is where your provider learns about your business, your processes, and what you expect from them. At the same time, you get to see how organized and prepared they are. 

You can ask them simple questions like: 

• What happens right after we sign the contract 

• Will there be a dedicated person guiding you through the process? 

• What do the first 90 days look like after signing the contract? 

• Do they offer training, walkthroughs, or any materials to help you adjust? 

A reliable provider should be able to walk you through each step. Whether it’s setting up systems, transferring data, or scheduling check-in calls, everything should be clear and well-planned. 

If things feel rushed, unorganized, or confusing, that could be a sign that they’re not fully ready to handle your account. At the end of the day, how they handle the start of your partnership says a lot about how they’ll work with you in the long run. 

10. Make due diligence an annual activity 

Ideally, due diligence should be conducted at least once a year to ensure your financial records are in safe hands. It also gives you the guarantee that your outsourcing initiative is producing its intended results.  

This yearly check-in doesn’t have to be complicated. You can simply go back to the same questions you asked at the start: 

• Are they still meeting your expectations? 

• Is the quality of work still good? 

• Are they keeping your data safe? 

• Are there any issues or risks you need to know about? 

Over time, things can change—whether it’s your provider’s team, their tools, or even your own company’s goals. By checking in every year, you get to see if the partnership is still a good fit. 

It’s also a good time to review your contracts or SLAs (Service Level Agreements), especially if they’re about to expire. You can then decide whether to renew them, update some parts, or maybe even make a change. 

Keep in mind that outsourcing can give your accounting firm easy access to new technologies and help you lower costs. These features are big advantages, especially now that accounting work is becoming more digital. 

The Bottom Line 

At the end of the day, due diligence is not just a one-time task—it’s something you should do regularly whether you’re starting a new outsourcing partnership or continuing an existing one. 

Ready to Take the Next Step? 

D&V Philippines values confidentiality, transparency, and accountability. You can count on us to provide all the information you need to have the confidence to outsource your accounting functions to us. Contact us today for more information about our services. 

You may also download our whitepaper, Outsourcing: How to Make it Work, to serve as your guide in your outsourcing journey. 

This post was first published on 28 February 2022 and edited on 09 June 2025.

Edited by: Angelica Garcia