A Passage To India

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A swelling amount of 1040 data is getting offshored.

By Richard McCausland

Availing itself of the CCH ProSystem fx Outsource service, Brigante Cameron Waters & Strong last year outsourced about 250 individual returns to India. This year, the Torrance, Calif.-based practice expects that number to exceed 350, representing as much as 95 percent of its 1040 paperwork.

Partner Insights

"We try to promote a quality-of-life firm here," where staff aren't obliged to stay late night after night as tax season ramps up, notes principal Carol Kulencavich, CPA. "Also, we try to promote challenging work to the staff." By outsourcing virtually all of the 1040 preparation work, BCWS leaves more time for its associates to focus on wealth planning services for its individual clients, not to mention a full range of business services.

That has resulted in happier employees, which was a driving force behind the shift to outsourcing in the first place. As Kulencavich explains, "The problem facing CPA firms, at least out here, is hiring good quality staff. They're just not around. So we had to do something" to both attract and retain motivated staff.

Brigante Cameron's predicament is shared by a lot of other tax and accounting firms, which increasingly are looking toward Business Process Outsourcing providers to shoulder back-office functions such as tax preparation.

New York-based Outsource Partners International has seen the number of returns handled by its staff in Bangalore, India, "more than double" this tax season versus a year ago, reports president Kishore Mirchandani. He expects the total to approach 20,000 returns. Likewise, "We're projecting 10,000 returns this year," quadruple last year's number, says Xpitax chief executive Mark Albrecht.

The litany of benefits provided by outsourcing is pretty familiar by now: cost savings per return of as much as 60 percent; reductions in overhead such as extra tax season staff, software licenses, and training; less paper as a result of Web-based document management; speedier turnaround; and a less frazzled staff that has more time for more challenging assignments that can generate higher revenue.

Of course, the list of concerns presented by outsourcing--especially to foreign countries--is also pretty familiar by now. These include: How secure is the data? How competent are the preparers? Will there be a communications barrier?

Outsourcing providers have attempted to dispel these concerns by setting up data centers in the U.S., arming their facilities in India with the latest data encryption and firewalling technologies, providing the offshore staff with extensive training in all or many of the leading tax prep packages, and continually stressing that all returns--in keeping with legal and professional requirements--are subject to final review by the outsourcing client.

Their efforts appear to be paying off, judging by the number of strategic alliances between U.S. tax prep vendors and BPO providers. Partnerships include those between RIA and G.K. Management Services, OPI, and SurePrep; between Creative Solutions and both SurePrep and Xpitax; and between CCH and both Datamatics (headquartered in Mumbai, India) and Mphasis Group.

Another sign of outsourcing's growing popularity is the emergence of new market participants. One newcomer is Casper, Wy.-based Accountants in India, which launched in February. AII promotes itself as a global staffing firm, securing trained Indian workers to assist U.S. accounting firms with such back-office functions as bookkeeping, write-up, and tax prep.

Outsourcing's popularity, however, is creating a backlash of sorts. Newly-introduced congressional bills propose to "protect" financial data sent overseas, while Time magazine wonders aloud on a recent cover, "Are too many jobs going abroad?" Some vendors have begun talking about "insourcing" within the U.S., as opposed to "offshoring" to foreign countries, notably India.

A sign of the times: Peoples Income Tax, which operates 15 offices in central Virginia, began offering "USA outsourcing to rival India" earlier this year. There's an average charge of about $75 per outsourced return, according to Charles McCabe, chief executive of the Richmond-based firm.

While acknowledging that this is still higher than the average $50 fee for a return prepared overseas, McCabe stresses that his staff is subject to Internal Revenue Service scrutiny. Also, "Communication with us is easier because our preparers are located in the U.S." Turnaround time is typically 12 to 24 hours.

K.N. Vaidyanathan, director of Tax & Accounting BPO for Mphasis, plays down the controversy over outsourcing, noting that his company offers CPAs the option of preparing a return in-house, outsourcing it to a U.S. site, or offshoring it to India. "This is not about 'either/or' but about 'and/and,'" he says.

AII to CPAs: Be Candid About Outsourcing

Accountants In India, a global employment start-up that matches understaffed U.S. CPA firms with trained tax and accounting professionals in India, is urging American practices to disclose to their clients the extent to which they outsource services.

In a white paper addressed to the accounting community, Casper, Wy.-based AII states, "If you are working with a staff member that is located outside of the United States, we recommend that you disclose to clients the locations of the staff and offices up-front, and reassure them that the same security and supervision applies throughout your organization."

AII's position goes a step beyond the American Institute of CPAs' Code of Professional Conduct, which does not require members to advise clients regarding their use of a third-party service provider. "Such disclosure is at the sole discretion of the practitioner," as the AICPA reminds its membership in an article published in the March issue of the Journal of Accountancy. However, the Code specifically states that a member remains responsible for ensuring the accuracy and completeness of the services rendered by any third party.

In making its own disclosure recommendation, "We're raising the bar as to what needs to be done," says Wayne Harding, chief operating officer for AII. Repeated instances of computer security breaches, "and especially with identity theft skyrocketing," make it mandatory that CPAs be completely forthcoming about their use of outsourcing, he contends. It's especially important that accountants do so to protect their status as "trusted business advisors."

I think the potential demand is large enough for a number of service providers to co-exist," continues Vaidyanathan. "But the key is domain expertise coupled with technology--the former to ensure effectiveness, and the latter to ensure efficiency."

BPO with CPA Roots
Braintree, Mass.-based Xpitax, which handles outsourced individual and business returns, promotes itself as "built for CPAs by CPAs." It's affiliated with KAF Financial Group, an accounting firm also headquartered in Braintree. KAF, in fact, built the Web application that underlies the Xpitax outsourcing service.

Xpitax partners with Aithent in India to provide outsourcing. Clients are provided with a team that will work with them throughout tax season. There is a two-month training program that covers U.S. tax law and various tax prep software applications.

More than 45 CPA firms in the U.S. have signed up. "They're using outsourcing to alleviate that time crunch [that arises during tax season] and to bring quality of life back to the CPA firm," contends Albrecht. "We find that our own [KAF] staff is going home at 6 o'clock in the midst of the busy season."

Xpitax customers feel comfortable with its security arrangements, notes Albrecht. For instance, the facility in India has restricted Internet and email access, and there are no printing facilities. All communication is handled via the proprietary Xpitax Client Manager (Xcm 2.0) application. No client data resides on servers in India, he stresses. "All that [the tax preparers] see in India are screen shots."

Xpitax has a formal partnership with CSI/UltraTax, but preparers are well-versed in all the leading tax prep packages. A return can be completed, reviewed, and sent back in as little as 12 hours. Price spans from $50 for a "kiddie" return, to $110 for a return submitted in March or April, up to $125 and more for returns that exceed 160 pages of source documents. "The average price is $90 or $95," estimates Albrecht.

He's sure on one point: "Outsourcing is absolutely a godsend to this industry." He cites the shortage of young, qualified accounting professionals--a shortage he attributes to "all the crazy hours" that accounting apprentices have traditionally worked during tax season. Outsourcing can remedy that situation, insists Albrecht. "We can bring normalcy back into their personal lives."

Robert Goodman, CPA, who heads his own practice in Chestnut Hill, Mass., turned to Xpitax last year to outsource some of his tax work. Cost-savings weren't the reason, he points out. After all, "I'm not a 1040 factory." Rather, "It made sense with the staffing problems and the workload compression [during tax season] to have this outlet."

Goodman explains, "The big problem in the accounting field is getting qualified people," and once having found them, ensuring they don't become "stressed out" by laborious returns. So he is currently outsourcing "maybe 15 percent" of his 1040s. He cites as a good candidate a return that involves Schedule D capital gains and a multi-page Merrill Lynch statement outlining scores of stock transactions. He's quick to point out that any outsourced return "goes through my normal review process."

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