The Dos and Don'ts of Outsourced Accounting

Independent mortgage banks operate in a complex and highly regulated environment. Outsourcing accounting functions can offer significant advantages, including cost savings, expertise, and operational efficiency while minimizing the effects of staff turnover. However, to reap these benefits and avoid potential pitfalls, it’s crucial to understand the best practices for managing outsourced accounting initiatives. The mortgage accounting experts at Richey May have created a guide on the dos and don’ts of outsourced accounting to help you navigate this critical aspect of your business.

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The “Dos” of Outsourced Accounting for Independent Mortgage Banks

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1. Do Select a Specialized Provider and Leverage Their Expertise

For independent mortgage banks, it’s essential to choose an outsourced accounting firm that specializes in the mortgage industry and has a solid reputation. Look for providers with a deep understanding of mortgage lending, servicing, and the specific regulatory requirements that govern the industry. Their expertise will ensure that your accounting practices are aligned with industry standards and compliance needs. Take advantage of best practices a seasoned firm can share and be open to changes focused on building efficiencies in processes and procedures and improving financial reporting. Choose a provider that values becoming a long-term partner and can remain flexible to meet your evolving needs as a company. The success of your accounting impacts the success of your firm, so choose a provider with deep expertise and the ability to tailor solutions to your long-term goals.

2. Do Define Scope, Objectives, and Expectations Clearly

Clearly define the scope of services you require from your outsourced accounting partner. Outline what services you need, such as loan accounting, GAAP accounting, monthly close procedures, hedge accounting, and financial reporting, versus those you will keep in-house. Make sure these requirements are explicitly detailed in your engagement letter to avoid ambiguity. It is also important to establish clear service levels, turnaround times, and expectations for timely completion of deliverables.

3. Do Implement Robust Data Security Measures

Given the sensitive nature of financial and client data in mortgage banking, ensuring data security is essential. Your outsourced accounting partner should follow stringent data protection practices. Verify that they use secure systems for data handling and have robust cybersecurity protocols in place to protect against breaches.

4. Do Maintain Open Lines of Communication

Effective communication is crucial for a successful outsourcing relationship. Schedule regular check-ins and updates to discuss progress, address any concerns, and make necessary adjustments. Maintain open lines of communication to ensure that your outsourced team is fully informed about your business and its evolving needs. Schedule periodic reviews to discuss performance, address any issues, and adjust hours and fees as needed. If circumstances change or support for a special project is needed, expect to be presented with options regarding a change in fees to support those efforts.

5. Do Explore Other Available Services Offered by Your Outsourced Partner

Not all accounting firms or service providers offer the same services. Many firms offer services to clients in the mortgage industry that are critical to operating in an ever-changing environment. Choosing a provider that has a robust advisory practice can provide benefits in other areas such as tax planning and preparation, cybersecurity, internal audit, consulting, M&A support, business intelligence, benchmarking, and analytics. Ultimately, this comprehensive support and expertise will allow you to make proactive decisions to propel your success in the industry.

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The “Don’ts” of Outsourced Accounting for Independent Mortgage Banks

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1. Don’t Overlook the Dangers of Outsourcing Areas Best Served On-Site

Outsourcing areas that are best served with on-site support can lead to significant challenges, particularly when the tasks at hand require nuanced understanding, immediate response, or close collaboration. This can be especially problematic in high-stakes or complex scenarios where real-time adjustments are crucial. While outsourcing things like payroll processing, vendor invoice processing, and accounts payable can work in certain situations, these areas are often best served with full-time dedicated employees who have in-office access to things like human resources specialists, employee files, physical check stock, and mail delivery. If you choose to outsource these areas, be sure to clearly define the process that will be followed ahead of time.

2. Don’t Overlook Compliance Obligations

Compliance with federal and state regulations is crucial for mortgage banks. Don’t assume that your outsourced provider will automatically be up to date with all compliance requirements or take over responsibility for state or federal agency licensing requirements and filings. Clearly outline your compliance needs and ensure the provider has systems and processes in place to meet these obligations consistently or can refer you to compliance or legal specialists when needed.

3. Don’t Neglect the Integration Process

Integration of outsourced accounting services with your internal systems can be complex. Don’t underestimate the importance of a smooth integration process. Collaborate closely with your provider to ensure that their systems are compatible with your existing technology, and plan for potential challenges and delays with login access. Introduce your provider to key members of the organization to build lines of communication and facilitate the flow of information.

4. Don’t Expect Your Outsourced Provider to Manage Your Operations Team

Mortgage banking companies are heavily dependent on sound operational procedures that drive the core data required for complete and accurate accounting practices and financial statements. Understand that it is still management’s responsibility to create and enforce internal company policy. A good outsourced accounting provider will help direct you to areas for improvement in streamlining the operational data to drive accounting entries, but it is management’s responsibility to hold operational staff accountable. For example, holding loan officers, closing specialists, etc. accountable for consistently and completely entering and updating data in the loan origination system is critical to financial reporting success.

5. Don’t Underestimate the Need for Ongoing Management Involvement

Even with outsourced accounting services, your internal team needs to be knowledgeable about the processes and reports provided and committed to continuous improvement. Don’t neglect the importance of ongoing training and support for your staff to understand and effectively use the financial information provided by your outsourced partner.

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Outsourced accounting can be a game-changer for independent mortgage banks, offering expertise and efficiency that can drive your business forward. By following these tailored dos and don’ts, you can ensure that your outsourced accounting services align with industry-specific needs and regulatory requirements. With careful planning, clear communication, and diligent oversight, you can leverage the full potential of outsourced accounting to support and enhance your mortgage banking operations.

The Richey May accounting team has the expertise you need to drive your business forward. To learn more about the outsourced accounting support Richey May provides to the mortgage industry, visit our website or contact us today.

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