Security Checks You Must Consider While Hiring Offshore Accounting Partner
Due to the massive revolution in international telecommunications from the early 1990s, it has become possible for various business activities to be outsourced by clients, particularly in Western Europe and the United States of America, to vendor firms in foreign locations such as India.
Although many countries provide such vendors, India stands out as the leading location for software, remote customer interaction, data analysis, and most importantly the accounting firms.
Prestigious companies like General Electric (GE), Dresdner Bank, British Telecom, Ford, American Express, HSBC, Citibank, BP, Standard Chartered, EXL (part of Conseco), Deloitte, EY, KPMG & PWC etc., have already transferred portions of their accounting function to third-party vendors and fully-owned offshore branches based in India and many other, mostly East-Asian, countries.
Why choose Offshore Accounting?
Offshore Accounting Partners have become an increasingly attractive option for many companies. This is because of the various advantages it has to offer. Some of them include
- Scalability & flexibility.
- Obtaining expertise.
- Scarce skills.
No doubt there is rapid growth in the Offshore Accounting industry in India. According to India’s software and IT-enabled services trade association, Nasscom, in 2001–02 15,000 people were employed in the Indian accounting sector serving foreign clients generating revenues of the US $300 million. However, like every business activity, certain risks are associated with it when a company chooses offshore accounting.
What are some common risks with offshore partners?
Below are some significant risks identified by financial bodies with Offshore Accounting.
- Risk of network breaches.
- Disclosure or leak of intellectual property.
- Physical access to unlocked data.
- Cultural differences between home and host markets.
- Rising wages Political and regulatory risks in the offshore location.
- Changes to taxation, VAT and transfer pricing regimes.
- Cost overruns Inadequate level of compliance and internal control.
- Political and regulatory risks in the home market.
The first three of the risks mentioned above come under one umbrella of Data Security. It involves implementing standard controls, procedures, and policies to safeguard data against destruction, accidental loss, and unauthorized access.
Here you can read 5 strategies to form a strong partnership with your Offshore Accounting Company
6 security checks while hiring an offshore accounting partner
If a company hires an Offshore Accounting Partner, they will be sharing their valuable data with them. Here, data security is of utmost importance for the client company. That’s why here are some security checks you must consider while hiring an offshore accounting partner.
1. Country information
Here, the risk involves changes to a country’s political landscape, socio-economic conditions, and time zones. These factors may sound minor, but they do impact the ability of the offshore accounting partner to meet its contractual obligations. There have been instances like diversion of funds, setting up of fake call centers, and bribing of employees to access the client’s data.
Hence, we advise you to conduct proper research on the country’s cultural values, related crime statistics, political scenarios, etc. Nobody likes to put their data at risk by choosing a country with political instability, high cybercrime rates, etc.
Most offshore accounting partners display their performance records and testimonials. If they aren’t available on the website itself, better to ask the company to provide them. Check for any adverse events, such as a violation of consumer law, fraud attempts, terrorist use, disruption of service, or poor service.
3. Business outline
Check if the offshore accounting partner has an appropriate business plan or contingency plan to address any operational/transactional risk problems. A proper and well-drafted business outline is a sign of a trusted and reputed firm in most cases.
Make sure to get familiar with the legal compliance of the country where the vendor is located. This includes laws, rules, regulations, internal policies, and ethical standards of that country.
5. Security policy
Inappropriate access or disclosure of information or loss of data integrity through inadequately secured physical facilities can put your business at risk. For example, informal and formal reasons can be there – government access (such as law enforcement or national security requests, or economic or political espionage).
Check for adequate data security facilities like Secure Network Monitoring, Notifiable Data Breach (NDB) Scheme, No Remote Access to Sensitive Data, Two-Step Authentication System, etc.
6. Recovery policy
The recovery policy of an offshore accounting partner plays a significant role in mitigating the risk. It ensures a partial or complete recovery in the loss of accessibility and data integrity because of non-existent or inadequate business continuity or disaster recovery policies and procedures.
Making these necessary security checks can bring your business some advantages without putting it at a huge risk. Also, frequent checks even after hiring can ensure added security to your company’s valuable data. This includes keeping track of what data your employees access and when, having a complete history of all your transactions in one place, etc.
Inculcating these habits in offshore teams helps detect suspicious activity to a large extent.