by L. Gary Boomer

Outsourcing is an emotional topic in most firms. I have heard the pros and cons from my client firms and read about the advantages and disadvantages in news articles being published about many industries.

Change is difficult to deal with, especially for those who, like accountants, are trained as critical thinkers. They immediately identify all of the obstacles and generally do not give creative thinking much of a chance.

Yet creative thinking is what fosters improvement and transforms industries. Much of the information on outsourcing is second-hand and frequently inaccurate, because many of the authors have not visited the locations where the outsourcing is taking place.

I thought it would be best to check the situation by visiting several of the locations in India, where much of the outsourced work in tax preparation and accounting is actually being performed.

This column is based on my visit there.

Before I tell you about the trip, let me ask you a few questions to see if your firm is ready for outsourcing.

● Does your firm prepare over 250 individual income tax returns?

● Does your firm have high-speed Internet connectivity?

● Do you want to improve turnaround time for better client service?

● Do you want to increase firm profits?

● Are you willing to make staffing changes (reductions or upgrades)?

● Would you like to improve workflow and implement document management?

● Do you utilize one of these software packages: ProSystem fx by CCH, Intuit Inc.’s Lacerte, RIA’s GoSystem or Creative Solutions Inc.’s UltraTax? (New York-based RIA and Creative Solutions Inc. of Dexter, Mich., are Thomson businesses.)

● Do you have a high-speed scanner or copier/scanner with Adobe PDF capabilities?

● Do you have someone who will champion and manage the outsourcing project?

If most of your answers are “Yes,” you should read on to learn more. If most of your answers are “No,” read on to learn what some of your competitors are up to and how the world economy is changing.

The trip to India was educational, enlightening and inspirational. I have followed the outsourcing of accounting and tax services since its inception just over three years ago. Our trip took us to four cities in India: Mumbai, Delhi, Hyderabad and Bangalore.

There are significant differences among the cities as well as in the capabilities and capacities of the outsourcers we visited. That means that choosing an outsourcing company to partner with is not simple.

Too many firms just look at the price of the services and do not consider who their partners really are. Outsourcing of accounting and tax services is not just about price, but rather about partnering with companies that will improve processes/workflow and quality of service.

When looking for an outsourcer, the following criteria are important:

● Capabilities and scalability of the company;

● Financial stability;

● Security (physical, network, desktop and employee);

● Workflow and document management systems;

● Documenting of processes;

● Training programs; and,

● Existing clients.

India has many well-educated young people. Accountants are no exception in that there is a ready supply of chartered accountants who have passed the examinations, but have not met the experience requirements.

Many of the outsourcers disclosed the fact that these people can be hired for as little as U.S. $200 per month. They are bright, willing to learn and motivated to work. All of the outsourcing companies that we visited were committed to training.

The outsourcing operations have dedicated training facilities on site. Most provide more training than U.S. firms do when it comes to tax return preparation (from eight to 16 weeks, depending upon the position). Most U.S. firms spend minimal time in training and expect employees to learn tax law on the job.

The outsourcing companies approach tax return preparation by developing standards, policies and procedures, which provide the basis for the training they provide. Next they test and certify personnel to a particular level.

By comparison, what is the training program for tax return preparation in the U.S? Are there documented standards, policies and procedures in most U.S. firms? The majority of U.S. firms do not have internal training facilities.

Another important fact is that the outsourcers assign account managers and teams to their U.S. clients, so those clients deal with the same group of people. Some U.S. firms have chosen to invite these team members to the U.S. to introduce them to their U.S. peers and for specific training. Adequate planning time is necessary as visas are required for the visit to the U.S.

The outsourcers also utilize workflow and document management systems similar to FedEx to track client data through the process. These Web-based systems provide an efficient process as well as a final product in digital format Ñ tax returns and supporting documents.

Their workflow systems document problem areas, as well as employees who are not performing to established standards. This results in either additional training for the employee, or termination.

What the outsourcers have developed in workflow and document management systems is what U.S. firms are striving for but struggling to implement due to the lack of training and the resistance of a few staff and partners.

The outsourcers also have the capacity to index the file of supporting documents as well as the final returns utilizing bookmarks in an Adobe PDF file. Some also offer this service during the off-season on returns prepared within the firm.

A big advantage in India is the fact that they have not always done tax return preparation a particular way. Therefore they are open to improved processes and take advantage of the available technology. What you don’t know that you don’t know about technology can be a costly impediment. Partner’s attitudes towards change and technology matter.

The security in three of the companies we visited that are currently doing tax returns (Datamatics, Xpitax and MphasiS) is superior to what we see in most U.S. accounting firms. This includes physical security, network security, communications security, desktop security and other safeguards.

In most U.S. firms, employees can readily print or copy information if they desire. This is not possible at the outsourcing companies we visited, due to the fact that they do not have print capabilities or the ability to save files to a local device.

Employees were not allowed to take purses, briefcases or notebooks into the processing facility. In most facilities there are lockers that employees must use. We were not allowed to take briefcases into many of the areas even though management was escorting us.

Outsourcing is not just about tax return preparation. Tax return preparation may only be the tip of the iceberg. We witnessed outsourcers providing the following services:

● Bookkeeping;

● Pension and profit sharing accounting;

● Trust accounting;

● Insurance claims;

● Conversion of client files and financial statements to CaseWare;

● Litigation support;

● Document management and indexing;

● Programming; and,

● Accounts receivable collections and accounts payable management.

The outsourcing of accounting and tax services is in its infancy. There are early adopters and there will be late adopters as well as resistors. You must make the decision that is right for you and your firm.

We see members of firms on both sides of the outsourcing issue, and most of the energy within firms is typically focused internally rather than on the selection of an outsourcer or on the structuring of policies. You must have a champion with documented policies and procedures to succeed.

Why are the Indian companies so interested in getting into the outsourcing of tax and accounting services? For the large outsourcers, the answer is simple. They already have facilities that are being used during the night in India to support U.S. banks and other businesses.

During the day, these facilities and their communications infrastructure are mostly vacant and underutilized. These large outsourcing companies make ideal business partners because of their experience, stability and capacity.

India is full of outsourcing companies doing business with U.S. banks, insurance, health care and technology companies. The accounting industry is a follower, not a leader, in outsourcing.

The primary risks are not security and what clients will think. The primary risk is in choosing the right outsourcer as your partner. Financial stability, security, capability, scalability, workflow and document management systems, training and existing clients are all important factors in your decision-making process.

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