Offshoring versus outsourcing for an accounting practice: which one keeps you in control? 

Outsourcing sends jobs to a provider that does them in its own systems and returns the results. Offshoring places a named person in your practice who works only for you, in your software, under your review. Outsourcing suits overflow of simple jobs. Offshoring suits a practice that wants capacity it controls.

Why do the two words get mixed up?

The two words are often used as if they meant the same thing. Both describe work done by someone outside your office, and both can involve another country. A practice owner who searches for either one will usually find the same set of providers.

The difference is not where the person sits. It is who runs the work. In outsourcing, the provider runs it. In offshoring, you run it, and the person belongs to your practice in everything except the building they work from.

That one difference decides how much control you keep, how client data is handled and how the arrangement grows. It is worth settling in your own mind before you ask anyone for a quote.

Two short definitions help. Outsourcing is an arrangement where you pay an outside provider to complete a defined job with its own people and systems. Offshoring is an arrangement where a dedicated person based in another country works as part of your own team.

What is the difference, side by side?

A pattern runs through the table. Outsourcing is quick to start and asks little of you, but you lose sight of the working steps. Offshoring asks for more effort at the start, and in return you see every step and the knowledge builds up inside your own practice.

Where does outsourcing fit?

Outsourcing fits work that is simple, self-contained and irregular. Say a burst of bank reconciliations lands just before a deadline, or one client needs a one-off clean-up of their records. You hand over the documents, the result comes back, and you check it.

It also suits a firm that wants to try an overseas arrangement without much commitment. A handful of jobs will show you how the provider communicates, how accurate the work is and how reliably it meets deadlines.

Its limits are control and learning. The provider's person may not know your client from one job to the next, and every round of corrections costs your reviewer time. If client files move into the provider's systems, you also need to think carefully about where that data goes and who can see it.

Where does offshoring fit?

Offshoring fits a practice with steady, repeatable work that wants capacity it can shape. A dedicated person comes to know your clients, your templates and your standards. Over time, quality tends to rise and the load on your reviewer tends to fall.

It also suits a firm that cares about control. Because the person works inside your software, every step is visible to you. Access can be removed in minutes, and client files stay exactly where they are today.

Its limits are effort and commitment. You have to write down your methods, set aside reviewer time in the first weeks and let the work build up in stages. It has more in common with hiring than with buying a service.

Many practices use both. A dedicated offshore team member takes the steady work, and an outsourcing provider absorbs the occasional peak. If you go this way, apply the same rules on data and review to both, so the standard does not depend on which route a job took.

What does each choice mean for client data and your duties?

Either route can mean personal information is sent to, or reached from, another country. Australia's Privacy Act includes Australian Privacy Principle 8 on cross-border disclosure. The Office of the Australian Information Commissioner says that, before disclosing personal information to an overseas recipient, an entity must take reasonable steps to ensure the recipient does not breach the Australian Privacy Principles, and that the entity can stay accountable for the recipient's acts.

Whether a particular arrangement counts as a disclosure depends on the facts, including who controls the information. That is a question for your own adviser. What you do control is the design. Fewer copies of client data, fewer people who can see it and a clear written agreement make any arrangement easier to defend.

Your professional duties as a practitioner also stay with you, whichever route you take. Review, supervision and confidentiality do not pass to the provider. Check the current position with your professional body before you begin.

What should you ask any provider, whichever route you choose?

• Who exactly will do my work, and will it be the same person each time?
• Where will my client's data be stored, and who can see it?
• How do you handle confidentiality, and what do your people sign?
• What will my reviewer need to do, and how many hours a week should I plan for?
• What happens when a person leaves or is away?
• How quickly can access be removed if I end the arrangement?
• What do I get in writing before I start?

The answers tell you which model is really on offer. Some providers sell outsourcing under the name of a team. Ask the questions plainly and write the answers down.

How do you choose?

Start from your work and your goal. If the need is occasional and the jobs are simple, outsourcing is a sensible, low-commitment place to begin. If the need is steady and you want more capacity under your own control, offshoring is the better fit.

If you are still unsure, test one small job type through either route and judge the result honestly. The next article in this series sets out which work to hand over first. The pillar article explains the offshore model in full.

What happens when the work changes?

Practices change. A firm may take on a new type of client, add a service or lose a large account. With outsourcing, you simply send less or more work and pay for what you use, which makes it easy to scale down.

With a dedicated person, a change in volume calls for a conversation. The person can take on other kinds of work in your practice, which often suits a growing firm. If volume stays low for a long stretch, the arrangement may need a review. Ask any provider how changes in volume are handled and what notice each side gives.

Frequently asked questions

These are the questions practice owners ask most often about the two models.