Outsourcing is not for every firm. 

In fact, many firms are making statements advertising the fact that they do not outsource. While I am not sure that this is a good strategy for the long term, it may give comfort to those who are less informed about what is currently going on in India and, more important, what has gone on there for the past five years.

As we stood on the first tee in Bangalore, we thought we were in Seattle or Dallas with the large corporate offices overlooking the fairway. A slice would land in Microsoft’s lawn, long and over the green to IBM and a hook into Dell. A real “jerk hook” might even get you to Novell. Within a few miles is the Singapore Technology Park, where there are 700 companies with 24,000 employees located in three large office buildings. On the drive, we saw numerous Fortune 500 companies.

The outsourcing issue is not one of “to do or not to do,” as much as it is “to accept or not to accept.” Outsourcing has already happened in most industries, including software development, manufacturing, banking, law and medicine.

I believe that there are at least 10 questions that firms should ask themselves if they are considering outsourcing. The answers to the questions often require some thought, and perhaps even some information and education.

Outsourcing is a commitment that will have dramatic implications for your firm. Some people will look at these implications as good, while others will resist. It’s the American way. Most accountants are averse to risk and want someone to test the waters before they get in. I tell you that the water has been tested by other industries and U.S. firms. Those who jumped in to swim are reaping the rewards. Those who dipped their toe in the water are not so sure.

Let’s take a look at each of these questions and try to respond with facts rather than with emotions.

1. Is your firm willing to change your processes and procedures associated with the preparation of tax returns?
Outsourcing forces you to think and define your processes. Tax return processing to some accountants is more like a work of art. We call these accountants Michelangelo. Other accountants view tax return preparation as compliance, and desire to build the most efficient system. Let’s call them Henry Ford. Which approach will make your firm the most money and retain satisfied clients? If the answer is Henry Ford, you may want to proceed. Perhaps you can employee Michelangelo in tax planning.

2. Are your partners willing to delegate with the idea that they will spend very little time on the return?
Some partners obtain their charge hours by reviewing tax returns. They tend to have the last bit of information necessary to complete the return accurately. Will they delegate? Will they change and allow others to prepare the return accurately, with them only reviewing a “control and diagnostic sheet?”

3. Does your firm desire to improve your document management system and work flow tracking systems?
Many of the larger outsourcers have had significant experience when it comes to document management and work flow. These industries handle large volumes of documents, such as banking, insurance, accounts payable and litigation support. They utilize industrial strength systems like LiveLink, FileNet and Documentum. In many cases, the software would be prohibitive to a small or midsized firm. Furthermore, most firms do not have the technical skills and experience to efficiently implement these high-end systems.

Outsourcers have developed efficient systems for bookmarking multiple pages of source documents. A 75-page file of source documents takes them less than five minutes to index with their efficient systems. Most firms don’t even attempt such organization due to the amount of time required and the fact that people are already stressed during busy season.

4. Does your firm desire to spend more client time in value-added services and less time in the compliance and busy work of preparing tax returns?
Simply developing a list of additional services that clients want and an estimate of the increased fees will help you decide if you should change your existing strategy.

Strategic planning for clients and individuals is a value-added service that most firms have the skills to provide, but not the time to sell and deliver. These are services that must be sold, whereas compliance services require little or no sales process.

5. Does your firm want to improve turnaround time for clients?
Typically, returns sit for days or weeks within a firm. They get caught somewhere in the process, often at the point of review or completion. This season, the outsourcers’ average turnaround time was less than 24 hours. There may have still been open points and additional K-1s, but the turnaround time decreased while volumes increased by four times over last year.

This should tell you something about the quality of the outsourcers. The processes and systems used by the outsourcers are superior to most of the internal systems that U.S. firms are currently utilizing. Most returns are not sent back to the outsourcer for minor revisions or clearing of points. This is the most efficient method, even though some people can’t resist spiraling the return back through the process so that the person making the error is cognizant of the error.

6. Does your firm want to improve the look of the products delivered to clients?
Source documents can now be indexed in a single PDF-formatted file using an index and bookmarks. This standardizes files and reduces the amount of time required to search for both a file and documents within the file. The outsourcers have built indexing systems that allow them to quickly utilize a standard index, attach pages and then sort the file. This saves the firm an incredible amount of administrative time and enhances search capabilities within the firm.

It can also be important in the future as firms purge files from their systems in accordance with records retention policies. Managing paper files is very expensive. You do not see paper in an outsourcing center. You see split screens, dual monitors or employees who have been trained to use the Alt Tab keys. The final returns can be printed to a PDF file in order to ensure that no changes are subsequently made. These files can even be published to a private client site if the firm offers this service.

7. Does your firm have a vision and a strategic plan that call for new and expanded services to clients?
Without a vision and a strategic plan, firms tend to play the hand that they are dealt. There are generally differences of opinion among the partners, and often no one is really in charge.

New services call for commitment and consensus throughout the firm. Outsourcing should give you the time to plan and execute your top priorities and goals. In many firms, there are too few resources chasing too many projects. Without a plan it will be hard to attract the best and brightest talent.

For reference, most of the outsourcers are hiring 4 percent of applicants. The applicants are all graduates with a degree in accounting and most have worked for one to three years for a local firm. They are provided two to four weeks of training before ever doing a return on a production basis. They are paid approximately three times what the local Indian firms pay them during the three years required to take the final chartered accountant exam.

8. Does your firm have a leader who is passionate about making outsourcing a success, or do you have someone who wants to prove that it will not work in your firm?
Leadership and commitment are required to succeed at any project. A project such as outsourcing has unknowns that require a leader to maintain confidence that, even if there are “bumps in the road,” the firm has the commitment and resources to make the project a success.

Most people do not like change, and outsourcing requires changes in your systems, processes and training. As one outsourcer told us, “with good systems, processes and training, the people factor is significantly reduced.”

Some of the outsourcers are trying to determine how much additional training will be required to fill the gap if they accept 8 percent rather than 4 percent of the applicants. This is an entirely different perspective than we have operated with in the U.S. for the past 15 years.

9. Do you have competitors who are experimenting with or utilizing outsourcing?
Keeping up with the Joneses is typically not a good management philosophy. However, tax prep is a commodity service; maintaining costs while improving processes and systems will be important to most firms. This, coupled with the labor shortage in the U.S. accounting profession, causes firms to at least consider alternatives.

Accounting and tax are some of the last services to be outsourced. The risks are far less than you read in the paper. The major outsourcers have operated with two distinct strategies. The first is to sell tickets and then produce the show. The second is to build it and they will come. The latter strategy is much stronger and generally adopted by companies with experience, capital and diverse outsourcing experience. The advantage to U.S. accounting firms is that someone outside our industry is finally looking at our processes and improving them.

10. What would your clients think about outsourcing if they were told they would get better service and your employees would have a better quality of life?
I believe the best policy is to be direct with clients and that client opinion is very important. How you present the question will determine the response.

For example, if you pose the question as, “What do you think about our firm outsourcing your return?” you will get a different response than if you inform clients that you are utilizing outsourcing to improve client service, maintain costs and improve quality of life for the employees of the firm. You also can expect a few clients to be against anything, including outsourcing. Respect their wishes and charge accordingly.

My prediction is that the topic will move off the front pages of the newspapers within a matter of a few weeks. If not, you will see lobbyists for major industries like medicine, pharmaceuticals, law, manufacturing, insurance, software, tech, communications and banking step forward to defend their current investments in India.

We have watched the development over the past four years, and must say that it is most rewarding to see bright young people (23 to 27 years old) who are confident, gaining independence and grateful for the opportunities they have been provided. They look forward to professional development and the chance to become a U.S. CPA.

We live in a global world. We have the ability to create new jobs here in the U.S. based upon client requirements and wants. All you have to do is ask clients to tell you their dangers and then develop the solutions. Won’t that be more rewarding than organizing W-2s and entering data?

We have an opportunity to take accounting and tax-related services to a much higher level.

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