Only 5% of CPA firms in the U.S. planned to outsource a meaningful amount of their 1040s in the 2007 tax season.  This is based on responses from 281 firms in the 2006 Rosenberg MAP Survey, the vast majority of which had annual fees of $2-10 million.  This rejection of outsourcing occurs despite the presence of several compelling factors to outsource:  

1.     Business is booming for CPA firms.  At the same time, the shortage of staff accountants is at an all time low.  Firms all across the country say they could generate more fees if they had more people.  Outsourcing would seem an obvious tactic for stretching the productivity of CPA firms.  

2.     There isn’t a CPA firm partner in this country that isn’t aware of the mindset of today’s young staff: More focus on work-life balance.  Many staff find the tax season so onerous that it discourages their pursuit of public accounting as a long term career option.   Outsourcing presents firms with a perfect opportunity to shift tax season hours away from their staff to India.  And it also enables firms to spare their staff the tedium of keying in large volumes of tax return source documents so that firms can give staff the advanced level work that staff crave. 

3.     Thomas Friedman, in his book, The World Is Flat, presents us with persuasive evidence that the competitive playing fields between advanced and emerging market countries are leveling.  Technological and political forces have converged to produce a global, web-enabled economy that empowers today’s entrepreneurs by allowing players from around the world, regardless of size or economic strength to work together without regard to geography or distance.   Outsourcing is a trend that’s here to stay and is increasing rapidly.  As the Borg in Star Trek say, “resistance is futile.”   

4.     In the U.S., we see much stronger usage of outsourcing with larger firms.  26% of firms with annual fees over $10 million outsource vs. 5% for firms under $10 million.  Although I don’t have hard data on national firms, my pulse of life in that strata indicates a very strong commitment to outsourcing.  If outsourcing is good enough for the industry’s elite firms, shouldn’t it be acceptable to smaller firms? 

Why smaller firms don’t outsource 

This year, we asked firms to tell us why they are not outsourcing.  The biggest reasons were:  

·       Firms have adequate staff to do the work themselves
·       Concern about the clients’ attitudes toward outsourcing
·       Poor quality
·       Confidentiality concerns 
·       Security concerns
·       Firms that didn’t see a meaningful cost advantage
·       Patriotism; a feeling that the work should be done in the U.S.

How pro-outsourcing firms overcome these obstacles

We polled 21 firms in our survey who said they were active in outsourcing.  Here is how they overcame the obstacles listed above:

It’s all about staffing.  Firm after firm tell us that the main reason for outsourcing is to take the edge off the tax season for the staff.  Even though there may be other important reasons to outsource, this factor is #1 with CPA firms.

Poor quality: The consensus:  “Outsourcing is no different than using a staff person down the hall. We don’t expect perfection.”  While some firms pointed out that it took a period of refinement, eventually, the quality concerns were not an issue.

Negative reaction by our clients:  No firm responded that clients opposed outsourcing, or even raised it as a complaint.   Most firms explain their outsourcing policy or disclose it in the engagement letter.  The clients have the option of using the staff, and only one firm said that one client had specifically requested not to outsource their return.

Confidentiality and security concerns:  All the firms felt comfortable that the information was kept secure and confidential.  A couple pointed out that confidentiality and security were no more of a concern for work outsourced to India than in their own offices.

Don’t see a cost advantage: They DO see a cost advantage.  Many went into outsourcing with the perspective, “It’s not the cost; it’s less wear and tear on our staff,” but discovered in the process that there were meaningful cost savings. 

What kind of returns do firms outsource?

There was no consensus on the kinds of returns outsourced; a handful outsourced high-end, a handful low-end, and most disclosed that they had no real pattern in the types of returns outsourced.  The majority of the firms required their partners to use outsourcing. 

How long will it take before firms embrace outsourcing?

With no indication of any slowdown of demand for CPA services and the likelihood that the staff shortage situation will get even worse before it improves, it would seem that it’s only a matter of time until outsourcing becomes standard in the CPA profession.  Couple this with the continued improvements in quality and efficiency that we see in the outsourcing industry, (which is the case with any start-up industry) and the relentless flattening of the global economy, it’s easy to see how outsourcing will become accepted as a normal part of life for CPAs, just like going paperless, using PCs, the demise of the “up-or-out” philosophy, the legalization of marketing, daily time sheets, investment advisory services… 

Marc Rosenberg, CPA, is a management consultant to CPA firms nationwide. For the past three years, Accounting Today magazine has acknowledged Marc Rosenberg as one of the 100 most influential people in the CPA profession and INSIDE Public Accounting has recognized Marc Rosenberg as one of the most recommended CPA firm consultants in the country. He works with firms in partner compensation, retirement and succession planning, mergers, facilitating retreats, strategic planning and practice management reviews.  His firm, The Rosenberg Associates, is based in Wilmette, IL.  You can reach him at (847) 251-7100 and at marc@rosenbergassoc.com.