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Outsourcing or offshoring can offer great upsides for accounting businesses. But without due diligence in sourcing and setting up an offshore or outsourced team for success, the tactic could backfire. Here are five common mistakes.
The Philippines is a popular destination for Australian firms looking to outsource or offshore.
In a tight labour market and amid high demand for professional skills, offshoring and outsourcing can appear to offer a quick fix.
However, rushing in will cause critical issues.
“You’ll end up with people who don’t have the skills, the training, or the right cyber security set-up,” David Smith, founding director of accounting practice advisory Smithink, says.
Here's how to avoid five common mistakes.
Outsourcing, particularly offshore, carries ethical risk – Rose Hiquet and Won-Yong Oh identify three major issues: “poor working conditions, child labour and environmental pollution”.
Guarding against all three in an outsourcing or offshoring program is similar to mitigating risk in any supply chain – but with the complications of distance and different worker protections across jurisdictions.
Investigate possible suppliers to ensure you are satisfied they treat and pay their employees ethically, and share your own company’s values and approach to corporate social responsibility (CSR).
This issue is not new – it has been faced across industries, and large corporations manufacturing offshore have particularly needed to address it.
Writing in Harvard Business Review more than a decade ago, former GE Senior VP Ben W Heineman, Jr argued for the adoption of “policies to assure decent working conditions overseas, both in their own facilities and in facilities of third party suppliers”.
Such policies should be recorded and made part of the procurement process. Firms should also establish written processes for ensuring their offshore partners’ compliance with these policies, and record and report on compliance activities.
The Accounting Professional and Ethical Standards Board revised its guidance on outsourcing at the end of 2023.
The IPA, as an APESB member, contributed to the development of the updated APES GN 30 Outsourced Services, which covers the responsibilities of accountants in practice, risk management, agreements and more. It also includes examples of outsourced services.
Download APES GN 30 Outsourced Services.
“There’s a raft of due diligence you need to do on the provider before you find out whether they’re right for you,” Smith says.
He recommends investing heavily in this stage of the process.
“If you’re really serious about it, you should spend the money to fly over and visit the provider to understand exactly how they’re set up, how they look after their people and how the relationship is going to work,” he says.
Questions about how the relationship and processes will work hinge on the accounting business’s unique needs. Smith suggests starting with three:
He also encourages reference checks – ask for names of some of the business’s other customers and speak with them about their experiences.
“It’s such an important part of the practice going forward. If you’re going to do it, that investment is important.”
Careless outsourcing or offshoring risks clients’ data security.
“You have to thoroughly check out the technology side,” Smith says.
“This links to concerns around cybersecurity and privacy of data. You really need to ensure that as far as humanly possible, the provider is doing everything they can to protect data.”
Smith shares an example that he is concerned about – offshore suppliers with staff who work from home. For businesses that don’t outsource, managing sensitive client data in a hybrid or work-from-home model requires stringent processes and close monitoring of compliance with those processes.
Outsourcing, particularly to an offshore supplier, adds complexity to that compliance monitoring.
“I don’t know who is in the home. Can anybody walk in and take a picture of a screen containing client data?” Smith says.
“Most of the high-quality providers have security measures in place to protect data.”
There are three basic outsourcing or offshoring models for accountancy, Smith says.
“Firstly, know which model is right for you,” Smith says.
He suggests that for most accountancy businesses looking to ensure a consistent level of service and quality, balanced against ongoing investment, the right model will likely be the second.
5 Integrating the additional resources
Smith cites a common mistake: assuming the outsourced person or team will do their work relatively independently of the main office, thinking that’s what outsourcing tasks or using an offshore team is about.
That’s a recipe for disaster.
“You need a person in your office who is essentially going to be the manager of the offshoring team. If you don’t have that, it just won’t work,” Smith says.
“How will you set yourself up in Australia to work with the offshore team and make sure they’re busy and engaged? If they have nothing to do, they might not pick up the phone and say they have nothing to do.”
Once a provider is decided upon, due diligence has been run, interviews have been conducted and the outsourced person or team has been onboarded and trained, make them a proper part of your team.
“The businesses that have done it well are the ones that will, once a year or so, fly their offshore staff to Australia, so they get a sense of their Australian colleagues, they get some training, and they feel they’re a part of the organisation,” Smith says.
“As a minimum, have regular video conferences to involve them with your team.”
Outsourcing and offshoring are often economically wise choices, particularly in an environment in which talent is difficult to attract and retain. But it requires investment, planning and a suitable shift in expectations.
“It’s a big strategic decision. You’ve got to agree to invest time and effort, and potentially not see a return for the next 18 months,” Smith says.
“At the end of the day, it’s still often a sensible thing to do.”