“Is my data safe when I outsource my accounting?” The question is straightforward; the answers may be less so. This is true not just for a firm’s internal data, but more so for its clients’ data. Under UK GDPR, as the data controller, the accounting firm is legally responsible for all the data that comes its way. This holds true for data that is being shared with outsourcing partners or vendors that have access, at various levels, to this data.
While the outsourcing partner is responsible for how this data is being handled, it’s incumbent on the accounting firm to ensure the right governance protocols are followed. This includes rigorous security controls to ensure that the confidentiality, integrity, and availability of financial data is maintained. As a result, accounting firms must be both cautious and ensure a stringent process to identify leaks in data, wherever and whenever they may arise.
This blog will guide accounting firms on best practices to keep their data safe and identify red flags from their outsourcing partner/s.
What security measures should an outsourcing provider have in place?
1. Check Their Security Certifications and Compliance
Adherence to an internationally recognised security standard is one of the surest signs of good data protection when evaluating an outsourcing partner. Be it ISO 27001, SOC 2 Type II, or PCI DSS-the list goes on – in essence, they are independent audits that demonstrate a business has established structured, consistent, and comprehensive security procedures from data handling protocols to physical access controls. The relevant standard will depend on your business. Nonetheless, the business should also be able to explain how it supports key fulfilments under the UK GDPR, including clear documentation of data processing, breach notifications, and privacy rights.
Red flag to look out for:
A provider who cannot produce valid certificates or evades questions about audit results should raise serious flags. This reflects a lack of transparency and accountability in security practices. Any organisation that cannot point to verifiable evidence of its adherence to “industry best practices” is likely to have less rigorous formal security systems and protocols in place.
2. How do they stand on encryption standards?
Encryption is the most relevant security control for financial information. Before outsourcing, ensure the business uses strong encryption both in transit, protected by TLS or SSL, and at rest with secure algorithms. Request details on encryption key management and access, as poor management can weaken security.
Red flag to look out for:
Using weak or outdated algorithms like DES, RC4, SHA-1, or RSA with short keys, along with proprietary or custom encryption instead of well-established standards like AES or RSA. Another warning sign is missing encryption during data transmission, which increases vulnerability. Also, vague responses regarding data handling, storage practices, and specific encryption protocols.
3. Review Access Controls and Authentication Methods
A secure outsourcing service provider understands that not all workers need or require access to a particular client’s data. Strong access controls, such as MFA, RBAC, and least-privilege access, provide control to make sure only persons with business reasons can view or update information. You should also verify that they use audit logs to keep track of who accessed what data, when, and why. These logs are essential for accountability; they also help identify unusual or suspicious activity.
Red flag to watch out for:
Failure on the provider’s part to demonstrate the implementation of multi-factor authentication. Monitor the provider’s policy on broad internal access to client files and logging, as failure can indicate major security deficiencies.
4. Assess where the data is stored and how, and what infrastructure is in place to support it
Understanding where data is physically held is vital for both security and legal compliance, particularly concerning data sovereignty and the General Data Protection Regulation (GDPR). Under GDPR, data can be held in data centres with their own set of regulatory requirements and meet the standards of the European Commission. A reliable outsourcing provider will be transparent about where data is stored, which cloud platforms they use, and the certification of those data centres. Look for infrastructure that is ISO-certified and hosted on enterprise-level platforms, such as AWS, Microsoft Azure, or Google Cloud, which maintain high standards of security.
Red flag to look out for:
If a service provider cannot indicate precisely where your information is stored or suggests that it’s on a computer in the office and not on a secure, dedicated server, be aware that this could be a huge red flag.
5. Check their methods of file transfer
Security in data transfer forms the backbone of maintaining sensitive financial information. A reliable outsourcing provider must guarantee that file exchanges are implemented using secure methods, such as encrypted client portals, SFTP, or enterprise-grade transfer solutions. Such systems ensure confidentiality in your data by encrypting the files and allowing only controlled and logged access. The methodology of file transfer implemented must be able to prevent unauthorised users from intercepting or tampering with documents in transit.
Red flag to watch out for:
Either of these requests is a bad practice: when the provider asks you to send the documents via regular email attachments or share them through consumer applications like standard Dropbox, Google Drive personal accounts, and messaging apps.
6. Research their employee screening and training policies
Human error ranks high among the most significant security risks, and thorough employee screening and training are crucial. The professional outsourcing service provider shall conduct thorough background checks, including verification of identity and verification of past employment, on all employees. Employees must be regularly trained in cybersecurity, including phishing, social engineering, and device security, as well as their responsibilities within the domain of data privacy. The regular training will help the staff realise the importance of following procedures and the consequences of not doing so.
Red flag to look out for:
It is a much more concerning risk if the provider allows personal devices for work and cannot demonstrate either that adequate background checks are in place or that employees regularly undertake security training. Both situations are indicative of poor internal controls, which many studies have found to be directly related to the likelihood of a data breach occurring or security vulnerabilities being created within an organisation.
7. Request information about their monitoring and incident response.
Even very mature organisations have security incidents. For this reason, proactive monitoring, combined with a formal incident response plan, is not optional. You may want to ask the provider to describe its threat detection methodology – does it use automated monitoring tools-and how rapidly it can respond to suspicious activity? A good IRP would cover how incidents are escalated, investigated, contained, and reported, including to you as controller under the UK GDPR.
Red flag to look out for:
In fact, those providers who claim never to have had a breach but then cannot explain how such an incident would be handled, or those without real-time monitoring systems, are less prepared against cyber threats and thus increasingly vulnerable to ongoing and emerging cyber risks.
8. Review Their Contracts and DPAs
Your level of legal protection will strongly depend on the quality of your contract and the terms of your DPA. A well-constructed DPA outlines roles and responsibilities, security requirements, breach reporting obligations, and rules for subcontracting. It ensures that the outsourcing provider, as a data processor, is legally compelled to adhere to a strict data protection standard. Lack of a detailed DPA exposes your firm to unnecessary legal and financial risk.
Red flag to look out for:
You should not enter into such a partnership if the contracts are too generic, do not include specific terms related to GDPR compliance, or if a provider simply refuses to sign any DPA.
9. Check their backup and disaster recovery processes
Robust backup and disaster recovery processes safeguard your information against system failures, cyberattacks, or accidental deletions. Inquire about the frequency of backups, where they are stored, and if data is encrypted. The provider should have a formal Business Continuity Plan in place and conduct periodic DR testing to recover data as quickly as possible, thus minimising periods of unavailability.
Red flag to watch for:
If the backup is done manually, unencrypted, and untested, then you are likely to suffer severe data loss or almost complete operational disruption if an incident were to occur. This leaves your system at the mercy of circumstance, more often than not, ensuring you cannot recover vital information as efficiently as possible.
10. Request Client References or Case Studies
Speaking with current or past clients will have real value in establishing how the provider performs in real-world situations, particularly in terms of security, communication, and reliability. Good providers should be willing to provide references or case studies demonstrating their history of safe and compliant data management. Such conversations can reveal how well the provider adheres to their own policies and how they navigate challenges.
Red flag to watch for:
For example, imagine the provider is unwilling to provide references or has on record one or more negative reviews, especially those that point out problems with data handling or operational breakdowns. This tends to be a surefire indicator of underlying issues that can impact their reliability and trustworthiness.
Conclusion
Accounting practices are understandably most concerned about data security, which is why the common question is, ‘Is my data safe when I outsource my accounting?‘ Of course, every client record carries sensitive financial and personal information. As such, the responsibility for that protection extends way beyond internal systems and processes. Choosing the right outsourcing provider requires more than just a cost comparison. It requires accounting practices to understand what security measures an outsourcing provider should have in place a comprehensive understanding of the provider’s security framework, including their technical safeguards, compliance commitments, and overall maturity in managing data risk.
In other words, outsourcing can be safe, strategic, and highly effective to scale your accounting operations-but only if you are partnered with a provider that treats data security as seriously and diligently as you do. With proper due diligence and the right partner, your firm can confidently harness the benefits of outsourcing without compromising the protection your clients expect and deserve.
