Outsourcing for Accounting Firms

Accounting professionals face a crisis.
One that, at worst, could
mean the end of the accounting
profession as we know it today.
It’s not because software
has taken away once common
write-up and tax services.
It’s not because of
commoditization of professional
services (at least, not entirely).
The situation is caused by
the natural confluence of
trends.

AICPA research shows a consistent
reduction, over 20 percent
in the past decade, in the
number of newly graduated
accountants. Qualified people
are harder to find. Resource
shortages already inhibit
firm near-term growth in various
parts of the United States.
The path for long-term growth
has become foggy, too.

Some think long-term growth
will flow from merger and
acquisition of firms owned
by aging professionals racing
toward retirement age. With
too few new accounting professionals
entering the profession, consolidation
is inevitable.

This viewpoint may appear
right on the mark, except
for the fact that the accounting
profession will still lack
qualified resources to deliver
services at the same volume
and quality. On top of this
situation, and even with increasing
use of software and technology
by clients, demand for services
continues to rise. Clients
want their accountants to
be their part-time CFOs, their
primary advisors — to
take care of them. Will technology
produce a miracle?

With an average age of 50
years among accountants and
their staffs, how does a profession
with a very large segment
ready to retire in five, 10
or 15 years (20 years at the
outside) face a future without
the qualified resources to
continue its high position
in the business world?

Hearts should be racing not
out of concern, but for opportunity.
Some believe the future re-balancing
of supply and demand is Outsourcing,
that this path into the future
holds dramatic opportunity
and rejuvenation of the accounting
profession. Others follow
a different supply-and-demand
path, believing that resources
will rise in a few years when
young people see the opportunities
for a challenging and rewarding
career. This group also believes
technology has much more to
offer the profession, including
substantial productivity enhancements.

Outsourcing

Regardless of the truths,
half-truths and biased politics
about outsourcing jobs in
the recent presidential campaign,
for the accounting profession,
outsourcing is essential to
survival. When the word outsourcing
is used, most professionals
think of tax return preparation
outsourcing first. In fact,
outsourcing is expanding as
fast as expectations and needs.
Most outsource companies now
offer write-up, payables and
other accounting services,
sometimes with U.S.-based
work forces, though most utilize
charter accountants and trained
accountants in India, Sri
Lanka, Kashmir, Ireland, China,
the Philippines or other countries.

Ranjan Manoranjan, president
of QuickAccountant (a division
of 3SG Corporation; www.quickaccountant.com),
refers to his company’s
business model as “back-office
business process outsourcing.”
He says that “outsourcing
can be strategic or tactical,
but if procedures are not
good, then outsourcing does
not fix a firm’s problems.
Also, outsourcing is partnering.
It can help increase the efficiency
of current staff. Most important,
it eliminates 80-, 90- and
100-hour weeks, increasing
quality of life for staff
and helping the firm to retain
quality staff.”

Mike Gamble, General Manager,
CCH ProSystem fx Outsource
(Tax.CCHGroup.com),
expanded on the quality of
life benefit. “Say a
small firm wants to grow.
Increasingly, the owner acquires
the practice of a retiring
accountant. Too often the
staff retires too. If the
owner can find qualified people
to support growth, he must
then struggle to increase
other service areas so they
can keep people busy.”

Statistics
show many firms report 1,400
billable hours per year for
staff, substantially below
a goal of 1,800 hours. Mr.
Gamble continued: “If
qualified people can’t
be found, then partners and
their staff must put in long
hours during tax season, letting
write-up and other work pile
up for two or three months.
Staff members burn out and
quit, usually heading to a
better quality of life within
a company where 50-hour workweeks
seem like paradise. A growing
solution is outsourcing, not
for cost reduction, but for
the shift of staff to higher
value work. This increases
their quality of work life,
making staff retention easier.”

Glen Keenan, President, Xpitax,
LLC (www.xpitax.com),
and other executives note
that 131 million 1040 tax
returns (60 million done by
paid preparers) were the initial
pain point that sparked the
outsource industry. However,
the industry has expanded
into other areas, relieving
other pains associated with
qualified staff shortages.
Mr. Keenan sees audit tasks
being shifted to outsource
accountants, such as turning
trial balances into financial
statements. Xpitax also offers
write-up services, as does
QuickAccountant, Datamatics
and Outsource Partners International
(OPI). Other interviewed executives
said they are watching this
area closely or are preparing
new offerings for 2005 and
2006.

Sensitive to the political
comments in the past few years,
Mr. Gamble and others noted
customer reports that they
eliminated few, if any, jobs
due to outsourcing. Instead,
they shifted staff from tedious
compliance work and moving
large amounts of data around
to review and client nurturing.
Mr. Keenan expanded on this
observation, echoing the sentiments
of most executives, “Firm
costs may go down, but more
important is the opportunity
for more services —
for more valuable services.”

A good example is Wayne Farrar
of Farrar Financial, a one-man
firm in Texas. While outsourcing
1040 tax return to QuickAccountant
was a satisfactory experience,
the real opportunity came
when he outsourced write-up.
QuickAccountant’s outsource
team in Sri Lanka “organizes
everything, does bank reconciliations
and amortization/ depreciation
schedules, then delivers financials
to me,” Mr. Farrar says.
“I need to spend very
little time with the output.
Instead, I do financial analyses.
My clients recognize my value
as their part-time CFO.”

While the process for tax
returns and write-up outsourcing
can be defined in multiple
detailed steps, the fundamentals
are simple:

The Evolution Of Outsourcing & Percent FTE

The natural evolution of outsourcing
is already beginning. Whether
you call it “Offshore
Staff Leasing” or “Percent
Full-Time-Equivalent (FTE)”
(there is no common name yet),
it involves hiring qualified
resources for a set number
of hours per week or month.
In some cases, staff members
are hired only for a project.

Anand Mazurka, Vice President
North America, Datamatics
(www.DatamaticsTech.com),
has seen Percent FTE evolve
since his company began offering
outsource services in 2000.
“Datamatics has 25 accounting
firms hiring temporary help
for projects from our India
office and our three U.S.
operations centers. Mostly
mid-sized firms request these
people. Chartered accountants
and others come from the team
that worked with them on tax
returns or another project.
They know the firm’s
procedures, and the firm knows
their work. It’s comfortable.

“Sarbanes-Oxley (SOX)
is driving part of the demand,
usually with the need for
quick staff-up. It’s
easier to hire a resource
for a three- to nine-month
project than to spend half
that time trying to find a
qualified person for a limited-term
assignment. Compliance work
also drives demand.”
Mr. Mazurka expects demand
for Percent FTE to grow geometrically
in the next five years. “Our
professional population is
aging. Qualified people will
be increasingly harder to
find to meet demand for SOX
and other compliance work.”

Kishore Mirchandani, president
of Outsource Partners International
(OPI; www.opiglobal.com),
succinctly summarized the
caution shared by most competitors
about Percent FTE: “It
is not about staff alone.”
Percent FTE requires infrastructure,
controls, process, workflow
— the same key factors
found in tax return, write-up
and accounts payable outsourcing.
The main difference is that
SOX, audits and other services
have more shades of gray and
thus demand more management.

Dave
Wyle, founder of SurePrep
(www.SurePrep.com),
agrees Percent FTE is the
future, but he is concerned
about maintaining quality
control. “Part of the
counterbalance will be access
to the same team that a firm
previously worked with. They
will know each person’s
strengths and weaknesses and
will hand out assignments
based on skill set.”
Mr. Wyle also raised questions
typical of bringing a new
“invention” to
market:

Workflow
After making sure that a company’s
ISO 9000-2001 (U.S.) and BSM
7799 (British) process standards
and security are top flight,
the key to success comes down
to workflow. Managing remote
operations halfway around
the world can be a disaster
if workflow is not defined
up front.

That’s why every vendor
and customer interviewed here
emphasizes electronic workflow.
While firms have tried (and
some have successfully implemented)
manual workflow systems, they
are cumbersome to keep up-to-date.
But make that system electronic,
manipulating data from a browser
or program screen, and manageability
leaps forward. Electronic
workflow increases efficiency
and promotes good communication.

While workflow tools included
with outsourcing contracts
are more basic than robust
(though continuing to rapidly
evolve), all incorporate document
management functionality and
speed up and simplify the
tracking process. For example,
SurePrep provides a Dashboard
for tracking work (SurePrep
Tax Center), whether it is
outsourced or done internally
by a firm. In addition to
offshore staff updating the
tool as tasks are completed,
staff assigned a tax return
can do so too. SurePrep also
offers DreamWorkpapers, which
reduce preparation time by
transferring data to the tax
preparation software, and
by allowing drill-down from
the tax return to the source
to save review time.

Other workflow tools add customization,
such as OPI’s Tax Tracking
Tool or communication flexibility
like QuickAccountant’s
electronic sticky notes to
guide an offshore team. QuickAccountant
also supports workflow customization
for both the firm and its
clients, line by line, if
desired. Datamatics, which
uses FileNet, a document management
and workflow tool used by
60 percent of financial institutions
for its exceptional security
and other capabilities, can
also customize workflow procedures.
Some systems, such as ProSystem
fx’s Outsource Status
System, send e-mail notifications
when a processing stage has
been completed. Also, a firm
can view a tax return at any
stage of completion, which
can be helpful for adding
clarifications.

Alternative Path To The Future

Dr. Chandra Bhansali, CEO
of AccountantsWorld, believes
the resolution of outsourcing
issues, at least for the accounting
profession, is not in changed
laws but in innovative use
of technology. “The
Internet is the foundation
for the future, more than
personal computers ever were,”
he says. “It allows
easy and efficient outsourcing
today, but other technology,
like XML, is the better solution.
We need to replace keypunch
with much more intelligent
and efficient harvesting of
data.

“The future is not cheaper
labor; it is about working
smarter. The Internet is the
roadway, and innovation is
the key. For example, most
accounting software today
is designed for end users.
They are told they do not
need accounting knowledge.
On the other hand, accountants
spend most of their time correcting
client mistakes. Clearly,
small business owners need
real-time accounting information
for effective management.”

Dr. Bhansali, among others,
believes the next productivity
boost will come from accountant-client
collaboration. “Accountants
will define workflow for client
operations, giving them access
to specific areas of an accounting
package based on their ability
to handle it. Firm staff will
handle the rest, ensuring
that credit card reconciliations
and other data flows into
the system. They will do far
more review and analysis than
data entry.”

Dr. Bhansali has high expectations
for the future. “Working
smarter means improved productivity,
which minimizes the need for
outsourcing. And when the
professional supply rises
in the next five years, the
people will be far more open
to innovative ways of delivering
services. Their comfort will
drive another renaissance
in productivity beyond what
many can visualize today.
Outsourcing is a temporary
fix that will be replaced
with innovative technology.”

Bottomline

“A few years ago I ran
a 20-employee firm,”
says Jim Baltimore, CPA. “The
future I saw said my firm
was too small to succeed in
the long-term, so I merged.
Now I realize that a small
firm can be exceptionally
profitable, successfully competing
with our 200-plus staff and
partners. Outsourcing can
be just as powerful a resource
for the small firm as it is
for our large firm. It can
help firms of all sizes expand
revenue opportunities. We
can look for client opportunities
— for ways to serve
them better.”

That is the fog clearing from
the path for long-term growth.

In his 22 year career, Mr.
Wolff has consulted with more
than 500 accounting firms
and small businesses in the
area of technology and marketing.
He has also led marketing,
product and support groups
in several software companies,
and consulted with more than
250 software and technology
companies. To date, he has
reviewed more than 500 software
packages.