by Roger Russell

The rapid evolution of the outsourcing business has taken some interesting twists and turns within the tax preparation industry in recent weeks.

Newly launched concern Accountants In India finds accounting professionals in India to work directly for a U.S. firm. AII chief operating officer Wayne Harding said that this is a step up from the traditional outsourcing model, in which work is shipped through a middleman to anonymous workers abroad.
Another firm, Richmond, Va.-based Peoples Income Tax Inc., offers outsourcing by a U.S. firm at prices that are competitive with offshore outsourcing.

In the typical outsourcing arrangement, “the CPA doesn’t know who is working on a project besides the middleman,” said Harding. “In our case, the Indian employee is working directly for the American firm.”

“We help accounting firms find qualified staff at competitive prices,” he continued. “The American firm selects the employee from the résumés we have posted on our Web site, and the Indian employee works directly for that firm.”

The idea to start AII took shape when AII’s chief executive, K.C. Truby, was training accountants in QuickBooks. “He was amazed at the skill level and work ethic and eagerness to serve,” said Harding. “We thought it would be great to combine what we have in technology with their skill sets, and put it to work in a paperless office environment.”

The Indian employee works directly for the U.S. firm on a quarter-, half- or full-time basis. The employee reports to work at a facility in Bangalore, India, that is owned by a local partner of AII. “We pay 20 to 40 percent over the average in India,” said Harding, “because we want to attract really good people.”

“Some of our [Indian] employees are sitting for the Chartered Accountant exam, but they all have at least a four-year degree in accounting from an Indian university, and from one to five years of experience,” he added.

For those who have qualms about sending data overseas, Peoples Income Tax chief executive Charles E. McCabe said that his firm will offer income tax preparation outsourcing services from its Richmond headquarters that would rival the benefits of outsourcing to India and other foreign countries.

“We have the resources and the experience to do it,” said McCabe. “We can prepare any individual or small business return that a Big Four accounting firm could prepare, and do it just as well, and for a lot less money.”

Peoples Income Tax was founded by McCabe in 1987 and operates 15 offices in central Virginia, serving some 10,000 individual and small business taxpayers.

Although McCabe’s projected charge of $75 per return is still higher than the average fee of about $50 for returns prepared overseas, he believes that substantial benefits can be realized by outsourcing tax preparation to a reputable U.S. tax firm.

“Our tax professionals are highly trained and subject to Internal Revenue Service scrutiny,” McCabe said. “We operate a state-licensed income tax school and we are a continuing professional education sponsor registered with the National Association of State Boards of Accountancy. Our textbooks and curriculum are used by tax professionals and colleges nationwide. Also, our tax preparers are supervised by IRS enrolled agents, and all returns are double-checked.”

“Communication with us is easier,” he continued, “because our preparers are located in the U.S. Doing business in the U.S. should provide greater peace of mind and be perceived more positively by the firm’s employees and other stakeholders.”

Meanwhile, outsourcing continues to draw the attention of lawmakers concerned with the loss of American jobs and potential security issues arising from its growth. The Senate recently adopted a measure that, if it becomes law, would bar federal contracts to companies that outsource any job previously done by a U.S. worker, and would prevent the use of federal funds by state and local governments for outsourcing.

In addition, Sen. Dianne Feinstein, D-Calif., called on the chief executives of Citigroup, Bank of America, Ernst & Young, Equifax and TransUnion to establish adequate safeguards to protect the security of the data that they outsource to foreign countries.

“In my view, American companies that are outsourcing consumer data to foreign countries must assume responsibility for the data,” she said. “American consumers simply do not have the resources or legal remedies to address misuse of their information by foreign companies or their employees.”

Feinstein warned the chief executives that if they fail to establish adequate safeguards, she may introduce federal legislation to protect Americans’ personal data when used abroad.

The backlash over outsourcing may be misplaced, according to some observers. Houston-based TPI Inc., an outsourcing advisory firm, reports in its Index Review of 2003 outsourcing activity that “offshore outsourcing is not growing as rapidly as some have reported.”

“2003 growth came in flat compared with 2002,” according to the report.

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