Outsourcing Sparks Returns

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As the peak of the 2004 income tax season nears, a growing number of accounting firms across the United States have their sights set on India in their perennial search for accountants. Daly, Sirianni & Co is among the firms casting its eyes around the world to find ways to avoid over-taxing the firm's preparers. The bottom line for the firm as to whether it makes its foray into outsourcing this year will be whether it can find seven seasoned, temporary accountants by February to help out during tax season, says Vincent Sirianni, Jr., a partner at the Victor, N.Y.-based firm.

"Right now we cannot find people to do tax returns,'' says Sirianni. But he adds, "I hope not to have to go to India."

If last year is an indicator, it will. The firm, which has $1.1 million in annual revenue, and employs a staff of 13, including three partners, struggled through tax season, unable to find enough seasonal help to relieve the burden on its six staff accountants in preparing returns for the firm's business clientele, which includes physicians and contractors.

Partner Insights

Expecting to outsource the bulk of its anticipated 2,000 individual tax returns this year, Daly, Sirianni, is working with Xpitax, the Braintree, Mass.-based outsourcing affiliate of accounting firm KAF Financial Group. The CPA firm will send 10 test filings to the vendor's chartered accountants in India to assess their performance.

Sirianni's hesitation about using the service is not unusual. Outsourcing to India remains a controversial topic with Americans on Main Street. Some firms contacted for this article did not want to publicly discuss their use of offshore services, saying they are afraid of client reaction if their use was publicly known. Others, comfortable with outsourcing, don't want to give away a competitive advantage.

The benefits of sending returns offshore for preparation have been widely touted. They include reduced staffing costs, since chartered accountants in India, the most common home for tax prep outsourcers, have far lower billing rates than CPAs in the United States. There is a quicker turnaround, since returns can be processed around the world while it is night here, with the results ready for viewing in the morning in America.

On the negative side, there have been questions about whether handing off tax data jeopardizes the security of client data, draws jobs away from the United States, or saves as much money as touted by promoters.

Tax Outsourcing Vendors

CCH Tax and Accounting
Riverwoods, Ill.
(847) 267-7000
www.cch.com

GKM Management Services
Centerville, Del.
(609) 240-5130
www.gkglobal.net

Mphasis
New York City.
(972) 712-7426
www.mphasis.com

Outsource Partners International
New York City
(212) 768-9393
www.opiglobal.com

SurePrep
Newport Beach, Calif.
(800) 805-8582
www.sureprep.com

Xpitax
Braintree, Mass.
(781) 303-0136
www.xpitax.com

Outsourcing vendors say that after testing their services, many firms are embracing them by planning to send higher volumes of returns to the offshore preparers.

"We're seeing a lot of clients we educated last year saying, 'Now we're ready to do it,'" says Xpitax's president Glen Keenan. "Now that they're comfortable with outsourcing they're deciding who [which vendor] to use."

Xpitax expects to handle 200,000 returns this season, double last year's total, and a sharp increase from 20,000 two years ago.

Similarly, New York-based Outsource Partners International expects the volume of forms forwarded to India to increase 100 percent. Its president, Kishore Mirchandani, says the New York City-based firm is on track to send 40,000 filings this tax season, compared to 20,000 last year. The company would expect a higher total, except for the new ethics requirements of the American Institute of CPAs. [See related story Page 40]

"Without [the new AICPA rules,] growth would be even stronger,'' says Mirchandani.

Help Wanted

The bleak prospect of firms finding accountants for future engagements is behind the interest in outsourcing. There simply aren't enough bodies to handle jobs across the profession.

While the number of accountants in the U.S. is expected to rise as fast as the average for all occupations through 2012, it will still not be enough to keep up with the nation's needs.

The Bureau of Labor Statistics reports there were 924,640 accountants in the U.S. as of May 2003. That is up 4 percent from the 888,690 in 2002 and only 0.8 percent from the 881,390 in 2001.

Outsourcing: The AICPA Speaks

Accounting firms have been nervous about client reaction to the use of offshore outsourcing services. Beginning next year, firms will have no choice but to disclose that they are sending client information to a third party.

Through new rules, adopted by its Professional Ethics Executive Committee, the American Institute of CPAs is requiring its members to inform clients-preferably in writing-before firms submit confidential client information to a third-party service provider. It also stated that AICPA members are responsible for all work performed by the service provider. Members must also plan and supervise the work of outsourcers, although existing standards were not extended. If clients object to having their data sent to outsourcers, then firms should either perform the services themselves, or decline the engagement.

The new rules cover all professional services and go into effect for work performed after July 1. However, the Institute is encouraging members to implement them earlier. Outsourcing of administrative services, such as record hosting or software application hosting, is not affected by this decision.

"The need for accountants won't keep pace with the demand,'' says Hall Dillon, senior labor economist at the Office of Employment Projections. "The thing that is hurting the supply of tax preparers is many accountants are specializing."

Increasingly, accountants are taking on the role of financial advisors for clients, managing their assets and investments, devising retirement plans and creating personal budgets, in addition to providing tax and accounting services.

By contrast, industry experts say India annually produces tens of thousands of accounting graduates. The flood of chartered accountants there typically is versed in U.S. tax codes and speaks English.

Despite the apparent widespread interest, Sirianni was among a handful of accountants willing to speak out about outsourcing. Partners at several firms approached for their views declined to discuss the topic, or would do so only on the condition that their names not be used or their firms identified.

Opponents sometimes view outsourcing as taking needed jobs out of the United States. But Carol Y. Kulencavich, a principal at Brigante, Cameron, Watters & Strong, disagrees. "I don't feel that that is the situation at all. If it were, we would have more CPAs in our office," Kulencavich says.

Two years ago, the Torrance, Calif.-based firm tested the waters with 10 returns. Last year, it sent 250 returns to India, via CCH's ProSystem fx Outsource. This year, it plans to increase that number to 350.

Firms like Brigante, Cameron are among the reasons that CCH expects the number of returns handled through the ProSystem fx Outsource service will top 20,000, according to product manager Mike Gamble. In 2001, its first year, CCH outsourced just 3,000 filings.

Another concern has been the quality of Indian accountants and the security of systems in the sub-continent. But that should not be an issue, says L. Gary Boomer, owner of Manhattan, Kan.-based Boomer Consulting.

At November's Creative Solutions users conference, Boomer told attendees that the security in place at the tax preparation operations in India is even more stringent than that in place in the United States.

Tax Software: A Quick Look Ahead

Outsourcing may be a topic of discussion, but for most tax preparers, the features offered in the current crop of tax preparation software is more important for this year's tax season.

Here is a snapshot of the trends and the steps being taken by vendors to address issues.

New interfaces. CCH is giving CCH ProSystem a worksheet view. Petz Enterprises has adopted a true Windows look for CrossLink, while RIA was looking at new screen layouts and organization to make its GoSystem line easier to use. ATX has designed the appearance of its Max software to improve navigation to provide the look and functionality of the Return Manager to its Rollover Manager, Preparer Manager, E-Service Manager, and Bank Manager.

Better documents. Vendors are also trying to make return-related documents easier to assemble. TaxSimple is adopting Word for preparing transmittal letters, invoices, and cover pages. Lacerte has provided a tool to give preparers the ability to more easily edit client letters so that they can customize the documents. Drake is enhancing the formatting of reports, bills, and letters, Orrtax is providing a comprehensive client letter that can include state information for both its IntelliTax Classic and IntelliTax for Windows software. TaxWorks' new letters include Privacy Policy and Nelco is also enhancing its custom letter functions.

Web features. Petz Enterprises is promoting its vTax, Web-based preparation system this year. And while Internet-based preparation may not be the hottest thing, links to the Web are increasing. Creative Solutions has just introduced UltraTax 1040 portals that gives clients a read-only version of completed returns, so that the preparer does not have to print paper returns.

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