Mitigating the Risks of Outsourced Accounting Support

As technological innovation continues to drive the finance and accounting industry forward, the limitations of yesterday seem to be nonexistent today. Markets have expanded, opportunities for diversification of assets have multiplied, and sourcing has become easier, free of geographic and legislative limitations. 

What do we mean by sourcing? Every company looks for partners to provide what they need for their day-to-day operations. Whether it be the raw materials for the products you offer, the space you need to conduct operations or the talent you require to get the job done, these are all logistics that keep your firm going.  

In fact, according to a outsourcing services market report, global outsourcing valued at US$620.381 billion in 2020 is expected to reach an all-time high at US$904.948 billion by 2027 as more and more companies look towards outsourcing to efficiently source the services they need.  

For accounting firms or entities that operate in the field of finance and accounting industry, sourcing includes employing professionals who are well versed in the intricacies of the field. 

However, because of the lack of available professionals, there are times when the available talent within your locality is limited. The good thing? Technological innovation easily provided the solution: outsourced accounting support. 
 

Outsourced Accounting Support 
 

Outsourced accounting support refers to outside support who provides you with professional accounting services and finance and accounting talent for your company's needs, who may not necessarily be within your area. With technology, you are now able to employ finance and accounting professionals all over the world, collaborating with them seamlessly through accounting software that utilizes cloud technology.  

With this, outsourced accounting has become a strategic mover for firms who are not only looking for exceptional talent but for those who are looking to reduce their operational costs, improve their efficiency and streamline their accounting processes. Common solutions when it comes to outsourcing are available in the Philippines, India, and Malaysia for example.  

Common Outsourced Accounting Services 

Bookkeeping 

Bookkeeping generally encompasses being able to record, maintain and overall manage a company’s finances. For accounting firms and service providers, it means being able to stay on top of your clients’ financial records and management efforts. 
 
Oftentimes, providing quality bookkeeping services allows them to see where their company is at (financially), giving them the capability to make strategic decisions geared towards their growth.  

Read: A Guide to Outsourced Bookkeeping: How It Works & Why It Matters  

Accounts payable (AP) and accounts receivable (AR) 

AP and AR services are usually tied to bookkeeping services. This shows your client the financial obligations they have, and the financial obligations owed to them. Whether it’s payment to be given to a supplier or payment to be given to them from someone who made a bulk order, tracking your AP and AR allows your accounting team to have accurate books which helps regulatory compliance efforts.  

Payroll processing  

Payroll processing is another accounting function used to make sure that companies’ greatest assets are taken care of.  

Outsourced payroll processing services help you process your employees’ salaries timely and accurately – taking into account additional benefits, leaves and other factors that affect the amount they will receive.  

Tax preparation and Financial Reporting 

One of the main benefits of outsourcing your finance and accounting services is making sure that your taxes and regulatory requirements are all in order even without your own accounting department. With this, firms provide financial reports and tax preparation services that are submitted to stakeholders and regulatory bodies on an annual basis, making sure that they remain operational the next year.  

Outsourcing In a Nutshell 

Outsourced accounting provides you with people who act as an extension of your team, a team that adds value to the table as you achieve your goals. However, given that most outsourced accounting support operates on a remote working relationship – with your extended team oftentimes working from another country, it is only natural to have reservations about the working set up. 
 

• How can you be sure that the financial data you send over to your outsourced partner is kept safe?  
• How can you control the quality of output if you are not there to monitor their work?  
• How can you secure the devices that your outsourced team uses?  
  

All these questions are valid – given the nature of data that is often involved in accounting and financial management, security should be one of your top priorities. 
 
Luckily, there are quite a few ways to mitigate the risks that outsourced accounting possesses. 

Risks in Outsourced Accounting Support 

Data Security and Confidentiality 

With most outsourced accounting support providers working from various countries around the world such as the Philippines, one of the most common risks that is associated with outsourcing is data security and confidentiality. 

A company's financial data is sensitive business information. By employing outsourced support, they are entrusting an external service provider with their financial data, which increases the risk of data breaches, unauthorized access and discrepancies in your finances than if it was just your in-house team managing the financial aspects of your company's operations.  

Regulatory Compliance 

While firms and entities who offer finance and accounting services fall under the same industry, their location, scope of services and other specifics oftentimes means that the regulatory requirements and governing laws that apply to them differ.  

Because of this, companies often hesitate to employ offshore accounting support and outsourcing services – preferring to hire their accounting staff locally so that they are aware of the regulatory compliance requirements that they need to adhere to. 

For example, the Generally Accepted Accounting Principles are oftentimes used as the standard by UK and EU companies while countries such as the US and Canada adhere to the IFRS accounting standards. As regulatory compliance is a must to remain operational, companies prefer those with relevant expertise – someone who can hit the ground running as they offer additional accounting support.  

Communication Concerns 

It is understandable for firms and companies to have reservations on having an outsourced accounting solutions provider due to communication concerns. With a remote team working outside your locality, time zone and geographical differences may prove to be a problem.  
  
Common reasons for this hesitation may be fear of not being able to contact your remote team during an emergency, technical issues that prevent communication between your in-house and your remote team resulting to delays and online miscommunication that may result to incorrect outcomes/financial outputs.  

While all these factors remain to be a risk, it is important to note that all business arrangements carry with them their own set of risks. For companies that source their products’ packaging from a third-party provider to a company that outsources their C-level functions, all of these arrangements carry their own set of risks – and outsourced accounting is no different. 
 
However, much like your other business arrangements, these risks can be mitigated, and, with the right precautions and protocols in place, can still prove to be beneficial for your company, helping you achieve efficiency and increase the quality of your services.  

What Can You Do to Mitigate the Risks? 

Do Your Due Diligence 

Before engaging any outsourced accounting provider, your firm must perform due diligence to check their reliability, competence, and alignment with your needs. By doing this, you are already reducing the risks of the business relationship before it even starts. 

Key aspects to focus on include: 

Industry Experience 

As you choose your outsourced accounting provider, it is important to assess the provider's experience in your specific industry and region. An outsourced accounting team with knowledge of your industry will better understand your company's needs, ensure a smoother integration of services and ensure that your additional support adds value to your operations.  

Client Testimonials and Case Studies 

Review the potential provider’s client testimonials and case studies to gauge the provider's performance with previous clients. You can use these as references to see how they provide high-quality service and prioritize customer experience and customer satisfaction. 

Internal Controls and Risk Management 

You want to make sure you have a provider who not only handles your business well but their internal processes as well. 

Ensure that the provider has established internal controls and with risk management protocols in place to make sure that they are equipped to handle emergencies you or they may face. These systems will safeguard your financial data and ensure compliance with relevant regulations. 

Performing comprehensive due diligence up front can help you identify the right partner, mitigate risks, and establish a strong foundation for a successful outsourced accounting arrangement. 

Establish Clear Communication Channels 

To ensure smooth collaboration during the engagement, it is important to establish clear communication channels prior, during and even after your engagement. Having accessible communication channels from both ends mitigates the risk of misunderstanding, delays and misaligned expectations.  

Here’s what you can do:  

Schedule Regular Check-ins 

Regularly scheduled meetings with your outsourced team are important for you to remain informed. 
 
Set a time for discussing updates, addressing concerns, and reviewing tasks. These check-ins allow you to stay informed about progress, ensure alignment, and resolve any issues quickly. 

Encourage Open Communication 

Foster an open communication environment where both teams feel comfortable sharing feedback, raising concerns, and suggesting improvements, making it clear that communication and transparency is important in your working relationship.  

Establish an Escalation Process 

Define a clear escalation process for addressing urgent issues or those that cannot be resolved through routine communication.  

By having an established path for escalating concerns with the management of your outsourced partner, you can rest assured that they prioritize your experience as a client.  

Implement Advanced Data Security Protocols  

When outsourcing your accounting functions, both you and your provider should agree that the protection of your sensitive financial data is top priority.  

With this, it is important to find a partner with advanced data security protocols that help block unauthorized access, breaches and other cyber threats – securing your financial information as you enter a remote working relationship with them.  
 

Here’s what you can do:  

Implement End-to-End Encryption 

Use end-to-end encryption to protect information passed between your in-house and your outsourced team. This means that even if data is intercepted, it remains encrypted and unreadable to unauthorized parties. Encryption is a key measure in safeguarding sensitive financial data. 

Use Multi-Factor Authentication (MFA)

Introduce multi-factor authentication to strengthen the security of your financial systems.  

MFA requires more than just a password, such as a combination of a password and a second verification method, like a fingerprint or a code sent to your phone. This added layer of security makes unauthorized access more difficult. 

Most offshore accounting partners provide both end-to-end encryption and MFA, prioritizing your company’s data and security regardless of the geographic distance.  

Use Virtual Private Networks (VPNs) and Firewall

Ensure secure remote access by using virtual private networks (VPNs) to encrypt connections, and firewalls to block unauthorized access attempts.  

Together, these tools provide an additional layer of defense against cyber threats, protecting your financial data from external attacks. 

Conduct Regular Security Audits

Conduct regular security audits to identify vulnerabilities and weaknesses in your system. These audits are important, ensuring that your data security measures are always up to date and capable of handling any security threats 

Business Continuity Plan 

Last but not least; to help mitigate potential risks, your chosen provider must have an established business continuity plan that outlines various protocols and processes to implement during emergencies/sudden events and changes in the market.  

Having an outsourced partner with a well-thought-out and implemented business continuity plan that is integrated into their internal controls ensures you that there will be no service interruptions during instances such as industry lock downs or sudden economic changes.  
 
By extension, hiring an outsourced provider with a business continuity plan secures your own business growth as it gives your firm the resources it needs to continue with your operations should an emergency or sudden shift in your market occur.  

The Bottomline 

As stated above, there is no way to completely remove all risks associated with outsourcing your accounting functions. Risks and vulnerabilities will always be present whatever nature a business relationship or arrangement may have. However, having a service provider that prioritizes putting systems in place to mitigate these risks shows that they can be trusted with your finance and accounting needs. 
 
Together, you can agree on how your engagement can proceed to secure your financial data while making the most of the partnership and ultimately using the finance and accounting services they provide to position your firm as a trusted accounting firm for your clients.  

Read Next: How to Choose Finance & Accounting Outsourcing Companies in PH 

Are you Ready to Begin your Outsourced Accounting Journey?  

We have a wide expertise in handling the numbers of companies across various industries. We also make it our duty to stay up to date on the latest trends in the accounting industry to make sure our clients’ data is safe with us. Contact us today and we’ll help you find the right solution for your needs.  

Download our Outsourcing: How to Make it Work guide today and discover how we can help in managing your company’s finances.