CPA Accountant

We all know that the recession has made a negative impact on the economy. Banks are going bankrupt and countries are falling prey to the financial crisis. The shortage of cash has become a world wide problem. Business has tightened up and companies are looking for all sorts of ways to reduce their cost of operations. One such way is to lay off employees in this time and make the cost reduce to half.

With business getting no sales and prices shooting the stars, most business houses are calling it quits, as they can survive the pressure. If you have a business, be it small scale, medium or big scale, you must be worried about its future prospects. One way to reduce the stress and tension is by opting for accounting outsourcing services. The outsourcing services will reduce the cost of operations drastically and make your business attain global standards.

Since we all know accounting services come in very expensive. There is no other alternative than to take help of a CPA. This does not come in cheap and business houses have to shell out a lot to make their financial statements. Since a good financial statement reflects the health of the company, show casing them in a good way has become mandatory.

There are a lot of people who depend on financial statements such as government authority for taxation purpose; shareholders for future stake in business; stakeholders for further investment; prospective investors and employees all want to know if the financial statements are meeting their expectations. Hence it’s important not to fidget with accounting services. Outsourcing them makes sense, since the business gets all the benefits of accounting services at the cost of one/third the amount the business would have to shell out for a CPA. So it’s taken that accounting services are important and companies need to go for accounting outsourcing services for a better future.

Accounting outsourcing services are done by mostly developing nations since only they can afford to bring the prices of these services so down. There are companies which offer these services and the business, should check them out first on the Internet. A good research is needed to select the type of company to do business with. The company should have previous experience in outsourcing and should also meet all the requirements set out by the business.

A good track record is needed for the business to have faith in the company. After all the Internet research is done, the business firm needs to get in touch with the company and ask for a better rate charged. The executives can also go for a check to the location of the outsourcing nation to see the environment and working standards of the company. After due discussions if they come to a settlement the deal can be made.

The business should make sure that they are getting a good service in exchange of cash. They should opt for a firm that gives them good quality and timely delivery rather then one that is the cheapest because seldom do those firms do really well.

Wash your hands and put your lab coat on.  Today’s experiment:  Outsourcing an income tax return.
Outsourcing was presented to me as a cost savings alternative:  wages in India are comparatively low to wages in the U.S.  So, I’ve tried outsourcing with QuickBooks accounting and I’ve been pleased.  Cost savings do result.

But what I discovered is that I am also saving time.  And I have even less time than I do money (as for lack of money, I think that has something to do with having two teenagers and an eleven year old…)

And I can use more time very productively:  marketing, meeting with my best clients, staff training, going to the beach more often, etc.

But outsourcing tax returns?  Thinking out loud, it would seem that outsourcing tax returns would produce efficiency by separating data management (1099’s, K-1’s, organizers) from data input (I’ll be using Lacerte in our experiment) from providing a great service and doing great work (what CPA’s do).

So, here we go!  I started with outsourcing first.  My client’s tax return is on extension.  He does a great job of completing his organizer.  And he gives me all of his 1099’s and K-1’s and so on.  His tax return is average in terms of complexity, and average in terms of how long it should take to do.  He pays us $1,000 for his tax return.

I first electronically sent my client’s 2005 data file to the Chartered Accountant in India, so she could start from where I’m starting from.

Next, I organized my client’s input (1099’s, K-1’s etc.) in the same order as these items appear on his organizer.

Third step:  I scanned all of the source documents and the organizer, and I electronically transmitted same to the Chartered Accountant.  COMMENT:  If we go to outsourcing, I will have my clerical staff do the scanning part…they are faster than me.

Well, that was easy…33 minutes.

So now on to doing this tax return myself.  First, some background:  My CPA firm is small:  Four CPAs, one entry level staff, and two clerical team members.  Thus, the partners do a lot of their tax returns themselves.

First, I have one of the clerical team members copy the source documents. They come back in no particular order.  This took my lab assistant 6 minutes.

Then, since I’m doing this tax return myself, I follow the firm’s protocol, starting with the indexing of all source documents and the organizer.  We use letters (A to Z).

I first index the lower right hand corner of the organizer in red from page one (“C1”) to the last page (“C22”).

Next, I index each source document in the lower right hand corner in red, in order similar to where items appear on the organizer for example,  “D1” through “D8” for 1099-Int’s and 1099-Div’s, “G1” through “G6” for my client’s K-1’s, “L1” through “L7” for itemized deductions, and so on.

I then reference the source number to the particular organizer page, in red.  For example, for interest income of $57 from Wells Fargo, I put a “C9” (the organizer page) to the right of the $57, and on the organizer I put a “D2” to the left of the $57 (the place the number came from).

After all indexing is done, I do control totals on appropriate organizer pages.  For example, for interest income, for dividend income, for home mortgage interest, etc.

COMMENT:  This is slow.  And my client actually filled out his organizer.  One-half of the clients don’t.  I can’t believe the staff does this during tax season.  No wonder everybody gets so grumpy…

COMMENT:  Why can’t we at least index the organizer pages (“C1” through “C22”) in red in the lower right hand corner BEFORE tax season, like in early January, BEFORE we mail the organizers to the clients.  The clerical team members could do this.  Or better yet my 2 teenagers and my 11 year old and other team members’ children.  This would save so much time during tax season.

COMMENT:  I was slowest on the K-1’s.  One K-1, from a trust, had as attachments the 7 partnership K-1’s that flowed into the trust.  My “G3” exhibit was 47 pages (“G3.1” to “G3.47”).  I had to re-sharpen my red pencil.  Way too slow…

FURTHER COMMENT:  We should stop indexing K-1’s:  too many pages.  Consider side tabs with the K-1’s going in the file in order of organizer appearance with a bottom “K-1’s” tab.

COMMENT:  I thought the firm listed “going paperless” as its number one priority by 2008 year end…I think the Chicago Cubs will win the World Series before we achieve paperless-ness.

COMMENT: I can’t believe partners here actually do quite a bit of this.

COMMENT:  I indexed a lot of immaterial numbers.  Witness the $57 of interest income from Wells Fargo. Consider setting materiality limit, where all we do is make sure the number gets on the organizer.

COMMENT:  I may be getting delirious.  Does the client see any value to such amazing precision and attention to detail?  I doubt it:  the client just wants to feel like they are my favorite client.  And I haven’t ever gotten to the data input yet.  No wonder good staff are getting harder to find.  I’m actually starting to think about converting to Ron Baker’s accounting religion.  I think I see Rod Serling hiding behind the fake plant in the corner…c’mon man, get a grip on yourself.

Okay, okay, I’m coming back to reality.  Subtracting 3 minutes for my brief departure into the Twilight Zone all that took 57 minutes.

Next, I input all data into Lacerte.  I’m not the slowest one here…the two youngest staff are the fastest, but I think I take 3rd place.

COMMENT:  I can’t believe partners here actually do quite a bit of this as well.  I spoke with another CPA who once told me he does all of his own input because he’s just as fast as junior staff and clerical staff.  When I inquired about billing rates, the response was:  he’s at $250/hour, junior staff are at $125 and $140 respectively, and clerical staff is at $60/hour.  If you don’t get my point here, please stop reading this right now….

Anyhow, that took 52 minutes, with no time off for a reality departure.

COMMENT:  So where’s my tax return from India?  I’ve been at this now for 2 hours…how slow can these people be?

COMMENT:  The last comment is a joke.  I’m just killing time while I’m waiting for the printer to finish.  The outsourcing company told me the tax return would be back in 4 days.  (My firm’s average turnaround time approximates 15 days…could outsourcing actually lead to better service?)

The printer stops.  I grab the tax return. I copy the summary pages for federal and California (which I index “A1” and “A2”) and I reference all of the line totals to and from the organizer pages on which my calculated totals appear.

I’m off on dividend income.  I discover one input item where I inputted $282 as $228.  I fix this.  I compare it to the year-end tax projection I did in December.

All of this takes 16 minutes. Then the tax return goes to another team member for review:  he spends 18 minutes.  So that’s 34 minutes of review.

In summary, we spent:
 
 1.  Clerical staff time copying                                                 6 minutes
 2.  My time on data management                                          57 minutes
 3.  My time on data input                                                      52 minutes
 4.  My time on review                                                           16 minutes
 5.  Review time on review                                                      18 minutes
Total                                                                                    149 minutes

That’s 2 ½ hours.  At this point, there should be no difference in subsequent time compared to outsourcing:  the tax return gets assembled, a partner signs it, we send it to the client.

Three days later, I get the electronic tax files back from India, which include the organizer with control totals on it.  I’ve saved my scan of the input data for reference.

I reference organizer totals to tax return (no, I’m not going to look at the tax return that I’ve prepared yet…I’m a scientist, not an accountant).  I take the extra step of reviewing my scanned files, and comparing totals that I add manually to the tax return totals.  I do interest income, dividend income, and home mortgage interest and charitable contributions.  Bingo!

COMMENT:  I need to upgrade to dual screens.  That will make review faster.

Total time:  25 minutes.  Not too bad.  Next, before final review, I take a deep breath, and (drum roll please…) grab the tax return that I prepared.  I start hyperventilating.  I am not tracking my time on this (the hyperventilation or the tax return comparison, because this step would not happen if we outsource tax returns.)

COMMENT:  Maybe I should just file the tax return with the lower balance due.  Maybe we should do all tax returns twice, and pick the better one.

COMMENT:  The last comment is a joke.   Really IRS – I’m just joking.

Anyhow, I put the tax returns side by side, and (oh, wait a minute, I have to use the restroom…and, I forgot to call my wife back…I’ll hurry, I promise…do you watch “Deal or No Deal” too?…)…and, and, and… taxable income and refund are the same!!!

Lastly, onto review.  I pick another team member for the review:  21 minutes. 

COMMENT:  Hey the other guy took  only 18 minutes…what gives???

Here is the outsourcing summary:

1.  I scan and transmit data                                                      33 minutes
2.  My time on review                                                               25 minutes 
3.  Reviewer (the slow one…) time on review                              21 minutes
Total                                                                                      79 minutes

That’s just over 50% of the firm prepared time (149 minutes)!!

COMMENT:  And I went from 125 minutes down to 58 minutes, and if I use clerical staff to scan, I’m down to 25 minutes…plus they scan faster than I do…wow!

COMMENT:  The areas where I will spend more time if I outsource are on data organization and review, in particular on spending time on the scanned files as “input.”  But significant time savings do indeed get created by reducing data management and data input applications.  The outsourcing hypothesis is correct.

By the way, the Chartered Accountant in India spent just over 4 hours on this project.

I promised I wouldn’t disclose my team members hourly pay rates, which are too high (just kidding…) but the outsourcer says their tax return rate is $15/hour.  So yes, a cost savings also results, but I’ll take the extra time please.

Thank you for participating in my outsourcing experiment.  Don’t forget to join me for next week’s experiment:  trying to get an actuary to laugh.

Offshoring and outsourcing are headline news today.  Popular news sources as well as business publications carry daily articles on the virtues and vices of offshoring. How does offshoring affect the local CPA firm?
Let us state some axiomatic truths:

Every business today needs to focus on its key competencies.

The internet has made it possible for any job that can be done across town to be done anywhere in the world.

US wages and overhead are substantially higher than costs in other English-speaking countries.

 

Outsourcing accounting and financial services is growing by 30% annually. Sooner or later, every CPA will have to deal with competitors who are offshoring. It is our contention that CPAs who outsource will have more time to attend to their most profitable clients. They would also be freed from the headaches of recruiting and retaining qualified accounting staff. Making use of outsourced accounting services increases profits in the short run as well as the long run.

Outsourcing the responsibilities of one US staff accountant saves nearly $50,000/year.

Many people think of accounting and bookkeeping outsourcing  as simply a way to reduce cost. This perception misses the greatest benefit to be had – giving the CPA the gift of time.

For the overworked CPA, time is a tyrant. Important business functions which lack urgency are often ignored (e.g. business development, staff development, exit strategy etc.).

By outsourcing the less skilled work, the CPA:

gets the time to attend to the top 10 – 20% of their clients, who contribute 80 – 90% of their revenues. These clients are often the best sources of new business.

gets the opportunity to examine the client’s financial affairs and become a trusted advisor. This opens up a myriad of financial services that the client needs and the CPA can provide.

develops a better understanding of value of the CPAs service to the customer, making value-pricing easier.

trains fewer staff accountants, freeing time and money for in-depth staff training.

can invest in marketing.

can accept new business without having to worry about staff, space and equipment availability. 

 

While the strategic advantages take some time to become effective, CPAs gain immediate benefits from offshoring, including:

A simple solution to the vexing problem of recruiting and retaining bookkeeping staff and staff accountants.

An excellent way to handle peak load, especially during tax season.

Higher quality control: a lighter work load allows for closer review and eliminates the pressure which can lead to mistakes.

Significant cost savings. There are two parts to this cost saving  

 

             a. There is the labor arbitrage factor which can deliver 50-70% cost saving. We estimate that the true cost of a US Staff Accountant is $34/hr worked. When you consider that offshore vendors provide the same service for $10 ±/hr. the cost savings are obvious. We estimate that replacing one US staff accountant saves $47,000/year. (Please see the Excel object at the end of the article. You can substitute your own assumptions and derive your own estimate).

          b. The outsourced accounting provider has significantly larger scale than a single local CPA firm. It allows them to invest in process improvements, systematic staff recruiting and training. 

          c. It is not uncommon to see automation reduce the time required by as much as 90%. The CPA firm using an outsourced accounting services firm can improve its quality and lower cost at the same time.

Improved security: Offshore vendors make substantial investment in security, which is not feasible for a local CPA firm. Contrary to popular belief, offshoring improves security rather than reducing it.

 

 

Is an outsource accounting service right for your firm?  As with all tools, it is most effective when used in service of a strategy.   If you are ready to increase levels of service, grow or diversify your practice, or just have more time to yourself for other pursuits, then it is appropriate to consider offshore accounting as part of your business strategy.