An Offshore Thing


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Firms are looking to outsource other functions beyond tax.

by  Carly Lombardo

Imagine this scenario: It’s late in the tax season and returns are piling up. However, in just three weeks, 120 individual returns can be completed. How? By outsourcing.

Partner Insights

This is exactly what the Beverly Hills, Calif.-based firm of NSBM did. Working with Outsource Partners International went so well this year that the firm plans on at least doubling the number of tax returns outsourced to OPI this coming season. “Overall, it was a very positive learning experience,” comments managing partner Ken Miles. “More than cost savings, we reduced our reliance on per-diem workers during the busy season. Before outsourcing, we had to hire approximately five people; now that need is eliminated,” adds Miles. Furthermore, outsourcing returns helped “get our feet wet. After the second season, we are going to explore outsourcing write-up. It costs a lot to prepare write-up, and we can’t bill customers as much as it costs to prepare it. With outsourcing, we could provide the service, and not be financially hurt in the process,” he says.

Outsourcing tax returns is paving the way, but CPA firms and vendors such as OPI, SurePrep, Mphasis, CCH, and Xpitax are gearing up to offer additional accounting and finance outsourcing options.

“When I visited India last month, I saw outsourcers who were developing software and doing accounting work such as write-up, CaseWare file conversion, pension and profit-sharing accounting, trust accounting, accounts receivable, accounts payable, and payroll,” says Gary Boomer president of Manhattan, Kan.-based Boomer Consulting.

He adds, “Once relationships are developed with outsourcers, we will see many of the lower-end bookkeeping and data-entry-type jobs move to India.”

A study jointly conducted by Accenture, a management consulting and technology services company, and the Economist Intelligence Unit supports these opinions. The study examined finance and accounting outsourcing, and consisted of an online survey of senior executives representing a variety of industries across North America, Europe, and Asia. Approximately 30 percent of the companies participating in the survey reported that they outsource finance and accounting functions, with two-thirds of those (65 percent) characterizing the arrangement as successful.

Other key findings of the study include:

● The finance and accounting function most commonly outsourced by the respondents was payroll (27 percent).

● The most commonly cited concerns involved proprietary data falling into competitors’ hands (52 percent), the cost of outsourcing exceeding expectations (48 percent), and the erosion of in-house knowledge (45 percent).

● Two-thirds (65 percent) of companies that outsource finance and accounting functions cited lower costs as the primary benefit of outsourcing.

● Respondents reported that the benefits transcend cost reduction, with 32 percent pointing to increased business productivity.

“Cutting costs and enhancing productivity remain prime motivators, but it’s clear that finance and accounting outsourcing is increasingly being used as a catalyst for business transformation,” says Stewart Clements, global managing partner for Accenture Finance Solutions, which provides finance and accounting services on an outsourced basis.

In 1991, Accenture started providing outsourcing services. It now has approximately 40 clients, and completes about 80 percent of their finance and accounting work. Outsourced services encompass vendor payment, customer collections, employee payment, general accounting, fixed asset accounting, management reporting, and some tax preparation. Clements says, “Companies are looking for all these services. There is a learning phase, so [initially] they outsource a broad set of functions from within a smaller part of their business” such as a department or a division.

Clements feels that companies are looking to get better control by standardizing business processes, and are using outsourcing to bring all things together while improving costs, and re-engineering processes. “Outsourcing has become more popular in the last three years because coming out of the dot-com boom, companies are focused on the fundamentals of business. They want to focus on what differentiates them in the eyes of their customers,” he says.

Meanwhile, Toronto-based Rowie Walker & Associates has been providing outsource services since 1972. Forty percent of its annual revenue now comes from these services. Besides part-time controller services, the company provides training, application development, and computerization services on an outsourced basis. The firm charges $75 to $125 per hour depending on the size of the engagement.

RWA is a Softline BusinessVision partner, and 75 percent of its customers are BusinessVision users. Rowie Walker, president, feels they have an edge over other BusinessVision partners because they offer outsourcing services. For example, “We have set up a system which can catch errors in the set-up of inventory items. A default account structure is put in place wherein new inventory items, which are set up without a sales department, are posted to a suspense account when sold.” This allows RWA to review one specific account at any time, re-allocate the amounts to the appropriate accounts, and modify the sales department for the inventory item(s) set-up erroneously. “When these amounts hit a standard sales or cost of goods sold account, they are often not found,” says Walker.

Venturing Beyond Tax

“As tax outsourcing becomes more and more acceptable, more firms are embracing it and saving money,” says Kishore Mirchandani, OPI’s president.

The outsourcing process is similar among service providers: source documents, including W-2s, 1099s, and K-1s, are scanned. The scanned documents and other relevant tax files are uploaded to a data center in the United States, and the outsourcing company can access the documents via a Web browser and organize the documents into a Web-based file. From there, Chartered accountants in India access the documents and prepare the returns using the firm’s preferred tax software package. Once the returns are completed, the firm can access and review returns.

New York City-based OPI expects to handle at least 10,000 returns this tax season with its Tax Co-Sourcing. This solution teams up OPI with the firm, and OPI runs the firm’s tax department’s processing function, including the entire return cycle. Preparation for a return will cost from $50 to $300, depending on the complexity and type of return.

With firms becoming more comfortable with tax outsourcing, Mirchandani feels interest will increase for OPI’s finance and accounting outsource services. In 2002, the company acquired KPMG’s Business Process Outsourcing (BPO) division, and has the capability of managing either the full finance and accounting functions of a client or certain functions. Functions managed include general accounting, financial reporting, management reporting, accounts payable, billing and collections, payroll, project accounting, trust accounting, fixed assets, and travel and expenses.

“Midsized business clients using Peachtree and QuickBooks don’t always update their books, keep invoices, and check stubs,” says Mirchandani. “In turn, CPA firms have to complete write-up work before doing the returns.” OPI can do the same thing they do with 1040s: take the source documents, do the write-up work, create a trial balance, and then complete the business tax return. “We’re having huge inquiries about this, and see it as a big factor in the upcoming tax season,” comments Mirchandani.

Similar to OPI, New York-based Mphasis serves the accounting and BPO market with its Virtual Tax Room. “The upside of outsourcing for CPA firms is economic value, and the downside is security. We position ourselves as a provider with scalability and strong security,” says K.N. Vaidyanathan, director of BPO accounting and tax services.

The Mphasis Virtual Tax Room provides a choice of two categories of services: Professional and Professional Plus. VTR Professional include: preparation and review of tax returns, preparation of review notes, and organizing and indexing source documents in 1040 order, and the CPA firm can grade and provide feedback on completed returns.

The VTR Professional Plus includes all these same services, delivered by a team dedicated to the CPA firm. Other Plus services include prioritizing returns for fast track processing, clarifications/responses of the CPA firm before sending completed return, CPA firm-specific customization of organizing/indexing source documents and reconciliation statements, and online chat/bulletin boards for CPA firm interaction with domain experts/team leaders.

“If a CPA firm completes 10,000 returns, it should outsource 300 to 500 returns in order to drive economic value. Fifty percent of the volume should be outsourced. Never 100 percent, because preparing returns is an important training tool,” says Vaidyanathan.

In the future, Mphasis will add trust and estates returns, client write-up, pension administration, and insurance claims to its processing arsenal. Also, Mphasis believes there are many IT opportunities with CPA firms, such as Web-related services and application integration. “We can deliver Web-based solutions for larger firms,” notes Vaidyanathan. That would benefit CPA practices that use multiple software packages that don’t always talk to each other. “We want to leverage IT services and build tools to achieve efficiency and integration, and eliminate separate databases,” says Vaidyanathan.

He predicts that in the next 24 months, outsourcing in all these areas will emerge. In the next three to five years, CPAs will take advantage of these opportunities. “It is a big joy to combine BPO with IT outsourcing and it will help build bridges with CPA firms,” he observes.

Forming Alliances

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