The advantages of outsourcing are already well-known, however the disadvantages of doing so are often not considered until it is too late. Therefore, it is important to consider whether outsourcing is the right option – after all, a business can always hire part-time or casual staff to do the tasks and they are likely to care a lot more about the quality of their work and business in general than an external company would.
Popivniak (2019) states that “Particular attention should be paid to the weaknesses and threats of trusting external companies that relate to privacy, trust and control”. As an example, many bookkeepers in Australia use cloud-based accounting software such as Xero and MYOB. As to be expected, they have both had issues relating to phishing attacks (Player 2015, Steven_M 2017), which is likely to be a violation of privacy and trust. I was unable to find any other breaches specifically relating to Xero, but MYOB has also had several other data breaches, mostly relating to bugs in their code such as sending income summaries to the wrong person (Yoo 2019). Whilst a judgement will need to be made for each potential supplier and the software vendors they use, it is important to consider this, particularly when sensitive information is being shared.
However, not everyone agrees that using cloud-based systems increase risk. According to Rountree & Castrillo (2014) and Panko 2017 as quoted by Popivniak (2019), “according to some studies in the cloud environment, the level of security is higher than in the traditional one, and 45% of the surveyed IT professionals consider security to be the main advantage of cloud services”.
Some other considerations include:
- “Dependence on offerings, performance, pricing from providers” (Popivniak 2019).
- Integration with existing systems and the need to adapt business processes (Popivniak 2019).
Example: Outsourcing Common Administrative Tasks
If a business decides to outsource only some administrative tasks, they could use the recommendation below as a starting point:
Sales:
| Task | Recommendation | Justification |
| Client register maintenance | In-house | Since new customers are likely to walk in off the street on a regular basis and they need to be added to the system in a timely manner, it is most appropriate for these to continue to be done in house, however if a customer’s details need to be updated or marked as obsolete etc. this could be outsourced depending on the number of changes that need to be made and the method of communication (eg: if a customer requests their details to be changed via email, it could be appropriate to outsource by simply directing these emails directly to the provider so they can make the changes, however if it is done in person, then it is likely to be more appropriate to do it in-house since communicating the changes to an external company is likely to be just as time consuming as making them). |
| Product register maintenance | Outsourced | Since businesses would likely have been notified about product changes via email (not via phone or in-person), it can easily be outsourced by directing these emails directly to the provider so they can make the appropriate changes. |
| Sending sales invoices | In-house | Since creating and emailing a sales invoice is likely to take around the same amount of time as sending an email with the required details to an external company to do it, it is appropriate to keep this in-house, however if a sizable number of invoices need to be sent by post, it could be worth outsourcing those invoices. |
| Handling of sales invoices | Outsourced | Since most modern accounting systems have BankFeeds, an external bookkeeper should be able to view the transactions for the bank account. Therefore, it is appropriate to get the accountant to handle these and other aspects relating to this such as sending out reminders and overdue notices. |
| Sending note of complaint | Outsourced | Provided there is a clear methodical process, an external bookkeeper should be able to do this without needing to discuss it with the owner of the business, therefore making outsourcing a viable option. |
| Sales ledger maintenance | Outsourced | Since these are likely to be related to financial reports, it is appropriate for an external bookkeeper / accountant to manage. |
Purchases:
| Supplier register maintenance | Outsourced | Since suppliers are likely to be communicating via email in most cases, it is more appropriate to be outsourced, since this can be done by simply directing these emails directly to the external provider. |
| Receiving purchase invoices | Outsourced | Since suppliers are likely to be communicating via email in most cases, it is more appropriate to be outsourced, since this can be done by simply directing these emails directly to the external provider. |
| Handling purchase invoices | Outsourced | Since suppliers are likely to be communicating via email in most cases, it is more appropriate to be outsourced, since this can be done by simply directing these emails directly to the external provider. |
| Handling purchase, travel and other costs | Outsourced | Since suppliers are likely to be communicating via email in most cases, it is more appropriate to be outsourced, since this can be done by simply directing these emails directly to the external provider. |
| Purchases ledger maintenance | Outsourced | Since these are likely to be related to financial reports, it is appropriate for an external bookkeeper / accountant to manage. |
Payroll:
| Personnel register maintenance | In-house | Since payroll deals with a lot of sensitive information, due to the privacy and security risks of trusting an external organization, it is better to do this in-house. There is also only a minimal benefit that could be provided by outsourcing, since all the information (eg: TFN declaration form, employment contracts, personal details etc.) needs to be provided via email to an external provider anyway. |
| Basic payroll data maintenance | In-house | Since payroll deals with a lot of sensitive information, due to the privacy and security risks of trusting an external organization, it is better to do this in-house. There is also only a minimal benefit that could be provided by outsourcing, since all the information needs to be provided via email to an external provider anyway. |
| Payroll calculations | In-house | Since payroll deals with a lot of sensitive information, due to the privacy and security risks of trusting an external organization, it is better to do this in-house. There is also only a minimal benefit that could be provided by outsourcing, since all the information (eg: hour each employee works) needs to be provided via email to an external provider anyway. |
Reporting:
| Preparation of balance sheet and income statement | Outsourced | This task is commonly done by an accountant/bookkeeper, so it should be left to them. |
| Preparation and sending of VAT/GST | Outsourced | This task is commonly done by an accountant/bookkeeper, so it should be left to them. |
| Preparation and sending of annual salary reports | In-house | Since payroll/salary reporting deals with a lot of sensitive information, due to the privacy and security risks of trusting an external organization, it is better to do this in-house. |
| Preparation and sending of annual pension insurance reports | Outsourced | This task is commonly done by an accountant/bookkeeper, so it should be left to them. |
Payments:
| Periodic VAT/GST payments | In-house | Since making payments would require giving the external provider access to the internet banking for the business, due to the privacy and security risks of trusting an external organization, it is better to do this in-house, especially since it is unlikely to be a time-consuming task. |
| Salary payments | In-house | Since making payments would require giving the external provider access to the internet banking for the business, due to the privacy and security risks of trusting an external organization, it is better to do this in-house, especially since it is unlikely to be a time-consuming task. |
| Payments for purchases, travel and other expenses | In-house | Since making payments would require giving the external provider access to the internet banking for the business, due to the privacy and security risks of trusting an external organization, it is better to do this in-house, especially since it is unlikely to be a time-consuming task. |
| Monthly payroll tax payments | In-house | Since making payments would require giving the external provider access to the internet banking for the business, due to the privacy and security risks of trusting an external organization, it is better to do this in-house, especially since it is unlikely to be a time-consuming task. |
Reference List
Fan, Y, Liao, Y, Li, F, Zhou, S & Zhang, G 2019, “Identity-Based Auditing for Shared Cloud Data With Efficient and Secure Sensitive Information Hiding”, IEEE Access, vol. 7, pp. 114246-114260.
Player, C 2015, Xero suffers security breach, viewed 20 April 2021, <https://www.arnnet.com.au/article/587455/xero-suffers-security-breach/>.
Popivniak, Y. (2019). CLOUD-BASED ACCOUNTING SOFTWARE: CHOICE OPTIONS IN THE LIGHT OF MODERN INTERNATIONAL TENDENCIES. Baltic Journal of Economic Studies, 5(3), 170-177. https://doi.org/10.30525/2256-0742/2019-5-3-170-177
Steven_M 2017, Warning – watch out for fake (spam / phishing) emails pretending to be from MYOB, viewed 20 April 2021, <https://community.myob.com/t5/Welcome-to-the-Community/Warning-watch-out-for-fake-spam-phishing-emails-pretending-to-be/td-p/457678>.
Yoo, T 2019, Australian workers’ salaries exposed after MYOB glitch, viewed 20 April 2021, <https://au.finance.yahoo.com/news/peoples-salaries-exposed-after-myob-glitch-005414328.html>.