Outsourcing is an emotional topic.

Those with the strongest opinions tend to have the least amount of information and knowledge. It is not for every firm, but perhaps your firm should re-examine the concept if you are experiencing any of the following issues:

* An inability to attract and retain experienced staff;

* An inability to turn work around in a timely manner;

* Marginal profitability on personal and business tax returns; or,

* Workload compression.

The outsourcing business has matured, and companies are now offering a broader line of services, including individual, trust and business tax returns. Some outsourcers are also doing write-up and pension and profit-sharing accounting. With this in mind, as well as the shortage of qualified professionals and workload compression, firms should start to look at alternative strategies.

Demand for experienced accountants is increasing, and the supply is limited and decreasing. Approximately one-third of accounting majors select public accounting as a career. Few partners in accounting firms can state that they have recommended or are recommending that their children enter public accounting. Until we can recommend public accounting to our own children, how do we expect to attract our neighbors' children?

Young adults desire to integrate their careers with their personal lives in a balanced manor. Working 60 to 80 hours per week during the busy season is not what people are looking for. Expecting people to enter the profession through a "right of passage" similar to what many partners did 20 to 30 years ago is unreasonable and counterproductive. Tell your partners to "get over it," if they expect to compete for the best and brightest employees.

Firms need to look at creative ways to reduce overtime and allow employees to focus on engagements that are more challenging than organizing and entering tax return information. Review and tax planning are at the higher end of the value chain.

Firms that are outsourcing significant numbers of returns find that:

1. Processes must change, and they will become more efficient (scanning, organizing data and completion of checklists).

2. Employees are thankful for reduced overtime and the ability to work on more meaningful parts of the process (review and planning).

3. The majority of returns are turned around by the outsourcer within 24 hours.

4. The quality of the return stays the same or improves due to the workflow systems that have been developed.

5. The cost per return is reduced, while profitability is increased.

6. The workflow systems can be used on returns that are prepared internally.

Our initial and subsequent reviews of the leading outsourcing companies revealed that outsourcing preparers receive more training, their systems are more secure and their processes are better than those of most firms in the United States. Security, training and scalability were the primary concerns three years ago when firms started outsourcing returns.

Ironically, the most successful firms using outsourcing have been those that have had to overcome a staff shortage or the loss of key personnel, which forced them to commit to changes in processes. Firms that try 50 returns typically are not committed, and only confuse their internal staff with multiple processes. This applies to small firms (one to two owners) as well as larger firms. In many cases, the smaller firm can adjust more quickly and see more significant financial results due to the nature of the practice and workload compression.

Client disclosure is covered by the American Institute of CPAs' Code of Professional Ethics (updated Rule 301 effective July 1, 2005), the Graham-Leach-Bliley Act of 1999 and Internal Revenue Code Section 7216.

Most firms choose to inform their clients through a broad-based policy statement. How outsourcing is presented to clients has a direct impact on their acceptance and response. You can expect a negative response if you simply say, "The firm is outsourcing; do you mind if we outsource your return?" On the other hand, if you say that you are outsourcing parts of the preparation process in order to improve client service and turnaround time, and to manage costs, clients will understand, as most businesses are outsourcing some component of their business today. You must enter into a non-disclosure agreement with the outsourcing company in order to meet the broad-based policy notification standards recently adopted by the AICPA.

Not all outsourcers are created equal; therefore you need to complete your due diligence and select an outsourcer that has adequate security, financial stability and the capability to scale to your demands as well as the anticipated growth in industry demands.

Workflow systems are extremely important, as they reduce time and tend to drive errors and exceptions out earlier in the process. The outsourcers understand that systems, processes and training are the keys to success. Most U.S. firms rely on experienced people to ensure accuracy. If errors can be driven out earlier by the outsourcer, then the review time is reduced and profitability increased.

Many of the outsourcers are certified in Six Sigma, ISO 9001 and BS 7799. The level of professionalism is extremely high in most of the companies. Most of the outsourcers have the luxury of hiring less than 5 percent of those who apply. The intelligence, work ethic, training and the fact that most of these are "day" jobs in India make these attractive jobs.

If you are still worried about security, so are the Indian outsourcing companies.

In an Aug. 16, 2004, Business Week article titled "Fortress India," call centers such as MphasiS BFL Ltd. spoke to the ability to mask sensitive information such as Social Security numbers and client names. Some of the primary security controls utilized regarding employees are background checks, terminals without diskettes or hard drives, control of limited paper (color-coded), access controls (physical), and the prohibition of cell phones, paper, pencils and personal items in the workplace.

From observing several outsourcing companies, firms in the U.S. are more at risk when it comes to identity theft. While there are no guarantees, the outsourcing companies are very concerned and proactive about ensuring security.

Getting started

Here are some suggestions on getting started with outsourcing:

1. Commit to at least 200 returns and/or the workflow system for all returns.

2. Name a director of outsourcing.

3. Conduct due diligence on outsourcing vendors.

4. Select an outsourcing partner.

5. Execute a contract containing a non-disclosure agreement.

6. Develop a written outsourcing policy and procedures.

7. Issue privacy statements and/or engagement letters.

8. Train personnel on new procedures.

9. Continue to update and improve policies and procedures.

The solution to the attraction and retention of quality personnel is multifaceted. Outsourcing may be one of the strategies that can benefit your firm. The economics and reduction of overtime are compelling reasons to consider outsourcing. Speak to firms that are doing several hundred returns and find out about the strategic advantages.

Leadership is all about influencing your people. The major barriers will be fear of change, ignorance of the facts, uncertainty about the future and lack of imagination. Seek out the facts and communicate with your people about the reasons for considering outsourcing.

The risks are relatively low compared to the potential benefits. Once you have established a relationship with a quality outsourcing company, the potential grows exponentially.

It takes commitment and acceptance of change for firms to experience a great outsourcing partnership.

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