The Role of Outsourced Accounting in Risk Management

Outsourced accounting may seem like the proper answer to all your finance woes. It is not without its share of dangers.

Outsourced finance has become one of the most coveted options for an in-house accountant in the US. 37% of small companies in the US outsourced at least one business function, according to a 2019 report by Clutch. It has been done with accounting topping the list of most outsourced company operations.

These are pre-COVID numerals. It has been done with the proven success of the remote work model. This was during the pandemic. Outsourced finance has since only increased in publicity. But business people need to understand that while outsourced finance sounds like a dream come true on paper, it may be only some of it was broken up to be in their brains.

The risks of outsourcing finance are less obvious these days. It ensures that almost every business is outsourcing to some extent and reaps excellent returns on investment. But those risks are still there. The growing popularity of outsourced accounting is coupled with the spike in outsourced accounting service providers. It has only exacerbated these risks.

This article outlines some significant risks of outsourced accounting. It also explains helpful risk mitigation strategies to keep your business' finances protected. Entrepreneurs skeptical of outsourced accounting or just curious about the idea will find their concerns labeled in this article.

Outsourced Accounting: Risks

Many risks are there in outsourced accounting. It involves:

1. Sensitive Financial Information

The biggest endanger of outsourced accounting is that you are handing over your extremely sensitive business and financial data to someone on the other side of the world. Entrepreneurs would rightfully be immensely sceptical of ever handing over such facts. The data given to is to third parties whom they may not even be able to hold liable for any data misuse.

The finance function does not just hold data on your business' finances but also on your customer base. Personal data like credit card numbers and expiration dates, names, addresses, and so on is often collected and saved by companies. A 2021 study by Statista found that 71% of companies in the US collect their customers' data in some fashion.

The accounting function has access to information on customers, business vendors, and suppliers in the form of invoices and the like. This sensitive data cannot be handed over to anyone, asserting they will take care of your business's accounting for you.

Due to the booming success of outsourced accounting, fraudulent actors and scammers are keenly aware of its great demand. This is why the most significant danger of outsourced finance is the potential for your information to be compromised by malicious actors.

2. Radio Silence

Another significant risk of outsourced accounting operations is the communications gap. Entrepreneurs cannot consistently ensure that their outsourced accounting work is being performed according to their orders. There is still a degree of division between the accountant and the entrepreneur, but frequent monitoring of the accounting personnel may suffice. It may annoy entrepreneurs who like to have things under total control.

There is no way for you to restore communication and keep the business running smoothly in case a Force Majeure is hesitant about your outsourced accounting functions. For instance, suppose you outsource your accounting to a below-average outsourced accounting firm that constantly needs the infrastructure to keep steady communications up. In that case, there is a huge risk of total radio silence from your accountant.

Many outsourced accounting organizations are giving accounting talent from growing countries. These dangers are not negligible and are definitely a concern that entrepreneurs must address by prospective outsourced accounting aids before they keep them.

3. Compliance with Laws

Any competent outsourced accounting aid follows the Generally Accepted Accounting Principles (GAAP) and other international accounting standards. It also follows legal and regulatory concerns still need to be addressed.

The compliance issue is particularly problematic for the US, thanks to every state's regulation. Businesses are committed to abiding by their state's rules and regulations. As they differ from state to state, offshore outsourced accountants are likely not to need to be well-versed in any particular state's accounting regulations. It is a massive risk to the companies. After all, failure to comply with tax regulations can result in penalties.

Businesses can retain from data breaches and regular radio silence. Also, compliance issues can snowball into a business being blocked and shut down by the government with no chance of retaining. Such a danger is hardly worth taking.

Mitigating the Risks of Outsourced Accounting

Many things mitigate the risks of outsourcing accounting. It involves:

1. Research and Due Diligence

The ultimate strategy for mitigating this danger is some good old-fashioned research. While these risks are debilitating for any company, they are also easily avoidable if entrepreneurs research the outsourced accounting aids they are considering partnering with.

When shortlisting potential outsourced accounting partners, a good rule of thumb is to review their customer history. Any outsourced accounting organization is worth its salt. It will have a decent history of past or current customers. You can contact them and inquire about their experience with the service.

In addition, you can ask such organizations for proof of legitimacy. It includes business registration and a certificate.

By conducting the required due diligence separating the wheat from the chaff. The entrepreneurs should be left with a small yet valuable list of prospective outsourced accounting aids. These aids can then be interviewed before any deal is struck.

Industries can nullify the issues of dropping prey to dishonest outsourced finance aids. It can be done through such research and rigorous investigation. It also can be satisfied with the performance of potential partners based on past customer experiences.

2. Clear Communication

Communication is vital to any successful outsourcing connection. Clearly defining your expectations to the outsourcing firm helps to ensure your necessities. Establishing a communication plan also ensures proper work. Also, ensure that all of the work done is tracked.

3. Importance of Writing Down

It's time to write things down once negotiations are done. You have to make a contract after a business deal. It should be legally binding. Thus, you can hold them in case of any breach of trust. Agreements ensure no shady business happening behind the scenes. It also safeguards your company from fraud, data theft, etc.

Takeaway

With all that said, it would be remiss of us not to recommend Fino Partners’ outsourced accounting operations for all your accounting needs.

Fino Partners is a highly regarded US outsourced accounting services provider. Its unique staff augmentation model of outsourcing addresses the risks of outsourced accounting.

By leveraging Fino Partners’ accounting staff augmentation services, US small businesses can hire and integrate an offshore accounting professional directly into their team, with no pesky intermediary inhibiting communication. Consider Fino Partners’ offshore remote accountants the same quality as in-house accountants working remotely. Entrepreneurs can directly talk to their accountants without being impeded by any communication lapses, thanks to Fino Partners’ infrastructure facilitating the connection.

The Fino Partners' is simply the bridge builder linking the US to the global accounting talent pool, allowing US businesses to harness the power of offshore accounting professionals trained and tailored to suit their work requirements.