Outsourcing of tax processing has been a hotly debated topic within the accounting profession with industry surveys such as the 2006 Rosenberg MAP Survey showing that it was hovering around 5% particularly for firms in the $2-10Million range.  To better understand outsourcing within AAA member firms, the Association conducted a survey in mid-May 2007, which was completed by 148 member firms with an average office size participating in the survey of 77 personnel.  The survey found that 14.1% (21/148) firms had utilized outsourcing this past busy season, which is higher than the expected average.  This result would be almost triple the findings of other surveys and could be due to a number of factors including that AAA firms tend to have more exposure to new technologies and processes, some firms were only piloting the process, and that those that did respond to the survey tended to be firms that were pro-outsourcing rather than firms that were against it and choose not to respond.

Focusing on the findings of the survey, there were some interesting trends worth noting.  Eight of the 21 respondents were doing more than 50% of their returns utilizing various levels of outsourcing services including bookmarking, as well as processing.  Three member firms were having between 26% and 50% of their individual returns outsourced, while ten firms were doing less than 25% (with the majority of these-six, outsourcing less than 10% of their returns), which would point towards firms in this group piloting the process.  Those firms that were outsourcing more than 50% of their returns included the largest and smallest firms in the survey, but had a median size between 30 and 50 members.

For outsourcing providers utilized, the survey found that CCH accounted for almost half (nine respondents), followed by SurePrep with six firms utilizing their services.  Three of the firms utilized XpiTax XCM and the remaining outsourcing companies OPI, 1040Scan and Trinet were listed as outsource providers for tax or other services.  Reviewing the firms that outsourced more than 50% of their tax returns showed that three firms used SurePrep, and two firms each used CCH or XpiTax XCM.  On the flip side of this, four of the firms that outsourced less than 10% were CCH, which would lead us to guess these firms were piloting the process.  If the firms that did less than 10% were only piloting the software, the overall percentage of firms actually doing production outsourcing would have been closer to 10%.

The firms that promoted outsourcing stated that the process minimized the tax backlog and allowed them to quickly acquire expertise without the corresponding hiring and other staffing issues.  Some mentioned that the tools such as XpiTax allowed them to keep their practice paperless and that the outsourcing companies provided a solid infrastructure so the firm would not have to build one.  This infrastructure also allowed the personnel to work from home via the web-based tools provided, again, which the firm did not have to build themselves.

Within the survey respondents, there were many concerns about their client’s perception.  A number of firms had tried outsourcing in the past and experienced poor quality with too many mistakes.  Other firms stated that while turnaround was reasonable, it was not effective for emergency returns which had to be completed immediately.  They also stated that the process was effective with simple returns or those with significant keypunching, but they were not able to comfortably outsource the more difficult returns.

The economies of business have always pushed production towards the lowest cost of efficient production and many industries have reaped the benefits of outsourcing because of this.  While a number of firms have successfully implemented outsourcing and had a positive impact on the bottom line, the AAA survey showed that the percentage of member firms, while higher than other surveys, did not point to a resounding trend.

Roman H. Kepczyk, CPA.CITP is president of InfoTech Partners North America, Inc. and works exclusively with CPA firms to implement today’s leading best practices and technologies.  Contact him at (480) 706-1728 or roman@itpna.com.