Why Insurance Is Critical When Choosing an Accounting Outsourcing Provider

June 3, 2025

Outsourcing is a strategic move for accounting firms, offering access to skilled professionals, lower overheads, and faster turnaround. But not all outsourcing partners are equal. While most firms focus on pricing, credentials, or turnaround times, there’s one factor that’s often overlooked yet critical: insurance.

If your outsourcing partner isn’t insured, your firm could be exposed to significant risks – from client data breaches to costly compliance errors.

In this blog post, we’ll explore why insurance matters when choosing an outsourcing provider, what it tells you about their operations, and share real-world examples of firms that faced serious consequences by overlooking this crucial factor.

What Insurance Reveals About an Outsourcing Provider

Shows Seriousness and Legitimacy

Any provider handling sensitive financial information should carry liability, cyber, and professional indemnity insurance. It shows they take their role and your clients’ data seriously.

If an outsourcing accounting firm operates without this basic coverage, it’s a major red flag. It suggests they may not follow standard industry practices or invest in robust internal controls.

Protects Your Firm from Fallout

Accounting mistakes aren’t just inconvenient, they’re expensive. Whether it’s a miscalculated return, a reporting error, or a missed deadline, uninsured providers leave your firm vulnerable. With proper insurance in place, the financial burden of these errors doesn’t fall squarely on your shoulders.

Ensures Regulatory Peace of Mind

The accounting profession operates in one of the most highly regulated industries. With ongoing scrutiny from the IRS, AICPA, and state boards, firms must ensure that every part of their workflow, including outsourced processes, meets compliance expectations.

Working with an insured provider reduces your liability in the event of an audit, investigation, or legal dispute.

Demonstrates Business Continuity Planning

Insurance is often paired with broader risk management practices like disaster recovery and business continuity protocols.

An insured provider is more likely to have backup systems and structured processes in place to keep your operations running during interruptions, whether from cyberattacks, natural disasters, or system failures.

Mitigates Risk When Clients Ask Questions

Clients today are informed and cautious. If they know you outsource (and many do), they’ll want to know how secure and compliant your partners are.

Choosing an insured, well-audited partner gives you the confidence to answer those questions without hesitation.

What Can Go Wrong? Real-World Lessons from Firms That Took the Risk

Case #1: Low-Cost Tax Prep Led to High-Cost Penalties

A small CPA firm in Ohio outsourced tax return preparation to a provider offering bargain rates. The catch? No insurance. Several returns were filed with incorrect Social Security numbers, resulting in IRS notices and penalties.

With no professional indemnity insurance on the provider’s end, the U.S. firm had to reimburse clients and absorb legal fees, ultimately losing multiple clients.

Case #2: Data Breach Without a Safety Net

An accounting firm in California partnered with an offshore team that lacked cyber insurance. When their system was hit by a phishing attack, client data, including SSNs, addresses, and banking details, was leaked.

The provider had no breach response plan, leaving the U.S. firm to manage the fallout: client notifications, credit monitoring, legal consultations, and long-term reputational harm.

How befree Prioritizes Protection and Accountability

At befree, we understand that your firm’s reputation is on the line with every task you delegate. That’s why we’ve built insurance and risk management into the foundation of our service:

Comprehensive insurance coverage, including professional indemnity and cyber liability
Secure data handling and compliance protocols aligned with the U.S. regulations
Structured SOPs and disaster recovery systems
A proven track record with firms in regulated markets like the U.S., UK, and Australia

Wrapping Up

Outsourcing your accounting work should give you peace of mind, not create more headaches. Choosing a partner without insurance is like driving without a seatbelt. It might be fine until it isn’t. Work with a provider like befree – insured, compliant, and built to safeguard your business.