Pros and Cons of Tax-Preparation Outsourcing

Source: Journal of Accountancy

In the tax preparation outsourcing process, a staff person scans a client’s documents, saves them in a .PDF file, and sends them with last year’s tax file to an outsourcer who prepares the tax return. Outsourcing companies in India use chartered accountants. The U.S. firm receives the returns electronically and reviews them.

Here are some pros and cons:

Pro:

v      Easy way to acquire seasonal help.

v      Fast turnaround when prepared in India where they are working during our sleeping hours.

v      The firm doesn’t have to turn away profitable work that comes in during tax season.

v      Lower costs.

v      Chartered accountants have training similar to that of CPAs.

v      Privacy is protected by firewalls more secure than those used by many U.S. CPA firms.

Con:

v    AICPA members are responsible for the work.

v    Must inform the client before disclosing confidential information to a third party.

v    Even if client data is secure, the client may be hard to convince.

v    What will be the effect on a CPA’s training and career path? If they do not prepare returns, how will they learn to review them? How will they understand the services provided to clients? (To deal with this problem, some firms reserve complex returns for staff.)

v    Clients may object on the grounds of patriotism.

v    Some firms have found outsourcing did not improve efficiency, especially with respect to state income tax returns. The process in less efficient for small returns than larger ones.

v    Partners say having to manage the outsourcing process makes it more expensive.

v    If errors are found and not reported to the outsourcer, they may make the same mistake again.

v    Loss of continuity of preparers may affect efficiency.

v    Communication may overload network capacity.

Some firms worry that clients, knowing that outsourcing is done to save money, may demand lower prices for their returns.

Before contracting with an outsourcer, find out how it selects and monitors employees, the remedy for a security breach, how disputes are resolved, and whether your liability insurance covers work performed by third party non-accountants.

From Journal of Accountancy, June 2005. Click on the following link for the complete article:
http://www.aicpa.org/pubs/jofa/jun2005/shamis.htm.