Outsourcing, Offshoring, Nearshoring: What to Do? Whether You Outsource Locally or Globally, You're Still Responsible for Client Privacy

EXECUTIVE SUMMARY * FANS OF OFFSHORE OUTSOURCING SAY it lowers labor costs; it's efficient; and it lets firms accept new work during periods of peak demand. * SOME LONG-TERM CONCERNS CPAs VOICE ARE: How will outsourcing affect the traditional CPA career path? How will it affect U.S. employees' training? How will accountants who do not perform the tasks associated with entry-level competencies develop true understanding of the services they provide? * FIRMS MUST DISCLOSE THEIR USE of third-party vendors to clients whether the outsource provider is located within U.S. borders or in a foreign country. * PROPONENTS SAY THE PROCESS IS MORE efficient, though firms lose the efficiency that develops when the same in-house staff members service a client from year to year. * OUTSOURCERS OFTEN USE FIREWALLS that are more secure than those used by many U.S. firms. But focus-group participants said they were uneasy about having their personal information sent 7,000 miles away. * BEFORE CONTRACTING WITH A PROVIDER, ask how it screens and monitors employees, how a system breach will be handled, where disputes will be resolved and what the firm's liability insurance covers. If there's a problem, liability will rest with the U.S. firm. ********** New ideas and services can change a business culture with astonishing speed. A generation ago few CPA firms offered business valuation, litigation support or retirement planning, yet those services are mainstream today. Equally common are formerly cutting-edge ideas such as flextime, cross-selling and firm consolidation. Now, as technology makes it easy to move data great distances, another innovation has its foot in the door. It's tax-preparation and financial-services outsourcing--called offshoring when the work is done overseas and nearshoring if it's done in Canada or Mexico. This article describes some pros and cons of business process outsourcing (BPO)--with the emphasis on work done out of the country-and suggests how interested firms of all sizes can research whether it's right for them. WHAT IS TAX OUTSOURCING? The tax-preparation outsourcing process is simple. A CPA firm staff member scans client documents, including W-2s, 1099s and K-1s, into a .pdffile saved in the network, then sends along the prior-year tax file to the outsource provider. The provider, in or outside the United States, then uploads all scanned documents and relevant tax files to a U.S. data center. Outsource workers access the documents via a Web browser, organize them into a Web-based file and prepare the returns. If the provider happens to be in India, chartered accountants using the U.S. firm's preferred tax software follow the same procedures and prepare the returns. Then the firm picks up the returns electronically and reviews and corrects them as needed. WHAT ARE THE GOOD POINTS? Proponents of tax outsourcing cite these virtues: It's efficient. Outsourcing provides seasonal labor without the overhead of permanent hires, which is particularly helpful to firms dealing with a staff shortage. Firms with enough people to handle busy season but that worry about a glut of unused hours the rest of the year may see a benefit, too. Indian providers, who are at work while U.S. workers are sleeping, may offer two- to three-day turnarounds during crunch time, quicker than most firms can deliver internally. Fred Shapss, CPA, partner at Rosen, Seymour, Shapss, Martin (RSSM) & Co., New York, says his firm has found tax offshoring helps relieve busy season overload. The firm outsourced about 150 of its 2003 individual returns to India and upped that number to about 600 returns (out of about 4,000) for 2004. It's a straightforward operation with no complexities he says. We get a 48-hour turnaround. But--like anything else--you have to monitor and manage the process. It lets firms handle more work. …

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