Risk Management of Outsourced Accounting Functions
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School of Business |
Master's thesis
Authors
Date
2020
Department
Major/Subject
Mcode
Degree programme
Accounting
Language
en
Pages
74
Series
Abstract
The purpose of this study is to investigate outsourcing of accounting and finance functions, especially from the perspective of the risks and problems associated with it. Moreover, the aim is to shed a light on the outsourcing relationship and the control systems used to risk management. This thesis has utilized scientific articles and studies regarding the benefits and risks of outsourcing as well as management control system frameworks in inter-firm relationships. There are hardly any studies on the failures of accounting outsourcing because organizations do not want to publicly disclose their failures. In addition, most of the studies address and highlights control solutions rather than control problems. The study has been carried out as a qualitative case study. Altogether seven different people has been interviewed for the study. The interviewees work mainly at the financial shared service center and represent experts or directors in finance. In addition, one person from the Group's financial functions has been interviewed. The perceptions made on the basis of the interviewee´s views have been aligned with the theory, which has been used to explain risks and risk management of outsourced accounting functions. In general, the potential benefits of outsourcing are highlighted over the risks in the literature. However, the results of the studies indicate that accounting service outsourcing is challenging and involves risks. Moreover, the studies indicate that when making outsourcing decisions, companies focus more on the potential benefits and advantages of outsourcing than on the potential problems and risks. However, up to 70 percent of outsourcing relationships fails. Therefore, outsourcing involves more risks compared to operating activities in-house. The study results indicate that most of the risks presented in the literature have been realized. On the other hand, the company is not even concerned about certain risks, although they should at least be aware of them. Moreover, the results of the study suggest that the company has performed most of the common pitfalls presented in the literature. A selection of good and financially stable service provider is a critical factor for functional outsourcing relationship. It can be concluded that the selection of accounting payable and travel ledger service provider has failed. In addition, the contract is too general in nature and does not involve any sanctions against the service provider. Finally, the results of the study confirm the importance of risk management through controls. However, inter-firm control framework establishment is not straightforward. There are some formal controls over the service provider, but the problem is that the company is not able to measure the actual performance of the service provider due to lack of proper tools and data. On the other hand, informal controls are hardly utilized. No attempt has been made to create common goals, values or culture. Indeed, the outsourcing relationship is largely based on trust, although not in all respects.Description
Thesis advisor
Vaivio, JuhaniKeywords
outsourcing, controls, risk management, accounting functions