Innovation and creativity are traits associated with both risk and reward. This column is about an innovation, which can allow accounting firms to cut their labor costs by 75 percent, while having work done on an outsource basis by qualified accountants.

The accounting profession is generally risk averse, but it still tends to follow trends that are established in other business services industries, such as banking, insurance and law. The banking and insurance industries have been using off-shore processing services for several years in order to reduce costs and improve their turn-around times.

Much of the banks and insurers’ outsourced processing work is being done in India. And, this past tax season, several accounting firms had their tax return processing done in there, too.

There are several good reasons to outsource to India. The following are three of the most important.

  • The Internet allows remote operations to act as your back office;
  • Inexpensive labor; and,
  • Qualified, English-speaking Chartered Accountants.
  • Here are the questions and arguments that may arise at a firm that is considering outsourcing to India or to another foreign country.
  • What do accountants in India know about U.S. tax law?
  • How do I ensure confidentiality and protect against identity theft?
  • Will my professional liability insurance cover me?
  • What is the turn-around time?
  • What do I tell my client about who is doing their return?

Thinking about these questions may produce obvious answers to those who are capable of breaking existing paradigms. To others, the challenge will be greater and they will want to observe what the pioneers are doing.From all reports about the accounting firms that have had their tax work done in India this past season, the results have been very positive and the firms are looking at expanding their relationships in both tax and accounting. While numerous firms have established relationships and tried pilot programs, only a small number of firms did enough volume to classify them as in the production mode.
These firms benefited from reduced labor costs and improved processes. Two of the firms who processed over 200 returns experienced similar results. The first firm is KAF Financial Group out of the Boston area. The second is Horwath Ornstein LLP, from Toronto.

The reason that I use these two firms as examples is that they took totally opposite approaches when selecting which returns to outsource. KAF sent their lower-end returns to India for processing while Horwath Ornstein sent their high-end returns.

Both were happy with the results and intend to expand the number of returns that they lend in the future, as well as look into other areas where they can provide client services at competitive and profitable prices. Both firms had to address all of the issues and obstacles listed above. Other firms who considered the proposition got caught in resistance from one or more partners and decided to wait for the results from the pioneers.

The processes that they used evolved during their pilot projects last fall and during the processing season. Basically, they scanned all documentation for the returns (client organizers, work papers, K-1s, W-2s, etc.) and sent them to India, where they were processed using ProSystem fx and the Go RS system. The documents were tracked through a system developed by Datamatics called Doc-Queue-Works. DQW automates the process of tax return and financial statement preparation through an easy-to-use process management tool.

The software was developed using FileNet and allows for collaboration, workflow, document management, data repository and even a client interface. All firms reported an improvement in processes and procedures utilizing the system over their existing in-house systems. I believe this to be true due to the fact that many firms are still using processes that are redundant and outdated in their back offices. Many still use technology as though it were a 2GHz typewriter.

The primary advantages of outsourcing tax processing are:

  • Cost - the processing fee including accounting time averaged under $100 for a federal and state 1040s this past year.
  • The need to staff is reduced during the busy season.
  • Processes and workflow are improved through the use of available technology.
  • All documents are captured and stored digitally.

Advantage MOTI only processes 1040s for now. It also has the capability to handle large volumes of data entry and bookkeeping work. The cost of duplicate keying in the United States is prohibitive in most situations. Advantage MOTI is a business division of Datamatics Technologies.

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