Financial Management:

Outsourcing of Finance and Accounting Functions

AIMD/NSIAD-98-43: Published: Oct 17, 1997. Publicly Released: Oct 17, 1997.

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Pursuant to a congressional request, GAO provided information on the use of outsourcing to achieve cost savings, management efficiencies, and operating flexibility in finance and accounting operations, focusing on: (1) the extent to which selected private-sector and nonfederal public organizations used outsourcing as a strategy to improve financial operations and reduce costs; (2) existing outsourcing vendor capacity to perform finance and accounting operations; and (3) factors associated with successful outsourcing.

GAO noted that: (1) GAO's analysis of the experiences of 15 private-sector organizations coupled with discussions with industry experts and outsourcing vendor officials and a literature review revealed that nonfederal organizations use a variety of strategies to improve their financial operations and reduce costs; (2) while all the private-sector organizations GAO reviewed considered outsourcing as a financial improvement option, they have relied principally on other strategies, such as consolidating systems and operating locations or reengineering business processes, to achieve their financial improvement objectives; (3) to the extent that these private organizations have outsourced any portion of their finance and accounting operations, such outsourcing was generally limited to routine, mechanical tasks, such as check writing or payroll processing; (4) only 3 of the 15 organizations GAO contacted had outsourced an entire process within a finance and accounting function; (5) the existing limited capacity of outsourcing vendors to perform larger, more complex finance and accounting operations may have constrained wider use of outsourcing by these organizations; (6) experts in the outsourcing field have estimated that it may be 3 to 5 years before this type of capacity is widely available; (7) the experiences of the organizations in GAO's review and GAO's analysis of pertinent literature may provide some lessons for future federal agency outsourcing decisions; (8) factors considered as part of the outsourcing decision process and often associated with successful outsourcing were: (a) establishing an outsourcing policy that specifies what process and criteria to follow in making the outsourcing decision that will achieve the organization's overall goals; (b) performing a strategic analysis to determine the organization's core competencies; (c) benchmarking the organization's processes against those of world-class organizations to determine comparable costs and identify any deficiencies in its operations; (d) performing market research to determine whether a competitive market exists for the outsourcing services the organization needs; and (e) considering carefully the ramifications of potential job loss or other possible adverse personnel impacts that could occur as a result of outsourcing; and (9) after an organization decided to outsource, two key factors identified with successful outsourcing arrangements were: (a) maintaining sufficient expertise and control to effectively oversee the outsourcing vendor; and (b) establishing a results-oriented contract that included appropriate performance measures.

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