Finance and accounting outsourcing : an analysis of the Maltese market

Abstract

PURPOSE: This dissertation aims to investigate the extent to which LLCs registered in Malta outsource finance and accounting processes. Moreover, the main attributes sought for in an SP and the advantages and disadvantages associated with FAO shall also be investigated. The study also intends to explore the typical FAO agreements negotiated in Malta. DESIGN: To achieve the research objectives, a mixed methodology approach was adopted. To incorporate the client side of the FAO agreement, quantitative data was collected from electronic questionnaires distributed to 196 locally registered LLCs. Simultaneously, 13 semi-structured interviews were conducted amongst differently sized SPs operating in Malta. The qualitative findings gathered allowed the inclusion of the FAO supplier’s perspective. FINDINGS: This study has deduced that 64.8% of local LLCs outsource at least one of the finance and accounting processes included within the study’s scope. Meanwhile, 5.7% of businesses plan to outsource in the forthcoming 5-year period, while a further 29.6% of companies maintain their processes in-house and have no outsourcing intentions. Those enterprises which outsource look out for an honest and reliable SP that offers high-quality service. Furthermore, while SPs believe clients are motivated by cost cutting intentions, firms mainly outsource to access professional expertise, albeit they are deterred by the extent of third party reliance. This study has established that tax consultancy and business advisory are the most widely outsourced processes. Moreover, most agreements negotiated are backed up by an LOE and different pricing models are adopted. Like most interviewees, 29.1% of firms engaged in FAO have experienced client-supplier conflicts. Some companies had previously outsourced but have now switched to an in-house function to avoid paying excessive fees to their SP. CONCLUSIONS: It has been concluded that finance and accounting processes are outsourced to different extents. Furthermore, accounting software is facilitating the internal maintenance of transaction-based processes. In fact, the role of an FAO SP is conceptualised to move away from mere data inputting and towards more advisory. VALUE: This dissertation gives a snapshot of the current situation regarding the local FAO market by presenting and discussing the views of local companies and SPs in tandem. It is useful for local LLCs to become aware of the different opportunities available to perform their finance and accounting processes. Meanwhile, SPs are given more insight to understand and manage clients’ expectations better.