Accounting
A primer for outsourcing for accountants
Sherwood Tax and Accounting owner Kristen Keats was no stranger to outsourcing when she co-founded a Guadalajara, Mexico-based accounting staffing agency about four years ago to help supplement and support her home team in Oregon.
Having previously worked for a firm that outsourced to a team in India, Keats understood the benefits of outsourcing. She also understood the challenges that can arise.
“We had heard that Guadalajara was a great place as far as the number of universities that are there and just the number of people. It is called ‘the Silicon Valley of Mexico,’ so we were excited that it has more of a technology [focus]. So, we looked at expanding into Mexico,” said Keats. “In 2021, I, with my partner, started Cadencia, the outsourcing firm that now has staffed for our firm but we also work with other accounting firms as well.”
Today, Cadencia employs 45 associates, of whom four are dedicated to supplementing the staff at Sherwood Tax and Accounting in Sherwood, Oregon.
Vitalii Vodolazskyi – stock.adob
Establishing an outsourced staffing agency like Cadencia may not be the preferred route for many U.S.-based accounting firms; however, there is no denying that more and more firms are exploring how outsourcing in some capacity, whether domestically or overseas, can help them broaden bandwidth and better serve clients.
“[Outsourcing] was almost like a dirty word, I would say, like five years ago,” said Keats. “It was always thought of in a bad light, in my opinion. And now I definitely feel like that has shifted. I feel like it has become more accepted and there is more understanding, more openness to thinking about it, I think, in the industry. If nothing else, out of sheer necessity.”
Laurence Whittam, founder of South Amboy, N.J.-based Impact Global Solutions, which provides outsourcing-related consulting and implementation services, agreed and said, “[Outsourcing] is definitely a moving area. A lot more firms are really interested in it and moving on it. They are investing quite heavily in it, which is great. Even private equity is getting involved in it. I’m seeing outsourcing firms now even being acquired by both private equity and firms as well.”
Further highlighting the growing interest in outsourcing, the American Institute of CPAs’ 2023 National Management of an Accounting Practice survey found that roughly 40% of respondents said they planned to outsource work domestically, and 35% planned to use offshore talent in the future. Among the top-performing firms, 52% said they planned to use offshore talent and half were looking to outsource work domestically.
Finding an outsourcing model
The findings come as little surprise given the staffing constraints that are facing the profession due in part to seasoned professionals eyeing retirement and a dwindling pipeline of new accounting majors and graduates entering the profession.
That being said, it is important to keep in mind that outsourcing entails more than simply broadening the talent pool. To achieve success, firms must have a strategy in place and be aware of the outsourcing models that are gaining traction.
1. Onshoring model. Onshoring is essentially outsourcing work domestically. Onshore outsourcing can be achieved by collaborating with a local entity to handle specific tasks or using gig workers. Some firms may also turn to a contracting vendor to find U.S.-based contractors who can work closely with the firm.
Onshore outsourcing can ease compliance concerns as the talent is well-versed in U.S. regulations and has a clearer understanding of U.S. business practices. However, firms may find there are limitations to the availability of qualified candidates in today’s competitive labor market.
2. Nearshoring model. Nearshoring is outsourcing work to a nearby country, such as Mexico or Canada. One of the biggest advantages is the close proximity of the outsourced talent. This makes in-person meetings easier, if needed, and the time difference minimal — maybe only an hour or two, if any at all. And compared with domestic outsourcing, it may be easier for firms to find available talent.
3. Offshoring model. Offshoring is similar to nearshoring; however, the talent is located much farther away, typically on a different continent. With that can come significant differences in time zones, cultural differences, and perhaps language barriers — all of which must be considered by a firm looking at offshoring.
India has emerged as one of the most popular countries for offshoring due in part to the lower labor costs, strong English proficiency, and expertise in tax, accounting and audit services. The Philippines is also a popular choice for outsourcing accounting services, and South America is rising up on the list.
However, the differences do not stop there. As Whittam explained, there are “a spectrum” of approaches when it comes to outsourcing.
For instance, some firms may opt to build their own captive, while other firms may choose to work with a business process outsourcing services provider to handle certain business functions or processes. There’s also the employer-of-record model, which is when a firm contracts with a third party to hire talent on their behalf and the third party handles payroll, compliance, and perhaps infrastructure like office space and equipment; or a firm may want to leverage a traditional full-time employee outsourcing model, in which the candidate will work for only the contracting accounting firm.
“[Firms] have generally heard the options, but I think the differences between the models that are available is very important for them to understand because outsourcing comes in a bit of a spectrum,” Whittam said.
Hitendra Patil, CEO of Miami-based consulting firm Accountaneur, agreed, and said it is important that firms first determine what it is they are looking to achieve. “What is the purpose of outsourcing? Is it just an inability to hire locally and volume is growing and you need to make sure that you have enough people, hence, you are outsourcing? So there are multiple ways in which a firm decides on how to create that capacity. Ultimately, outsourcing or not is technically a decision of capacity planning,” he said.
As outlined by Patil, firms that are trying to determine if it is time to outsource may want to ask themselves such questions as:
Is the firm consistently missing deadlines? If yes, this can be a sign that staff is stretched too thin.
Is it hard to hire new staff and is staff turnover on the rise? If so, staff may be overworked, overwhelmed, and becoming disillusioned with the profession.
Does the firm lack capital for growth? Outsourcing can save firms money and time, enabling them to fuel profitability.
Is the firm turning down new clients or not getting new clients? If yes, outsourcing can help expand capacity so the firm can provide more competitive, value-added services.
Employ best practices
As previously noted, outsourcing involves more than simply expanding the talent pool. To help firms achieve success, there are several important best practices to consider before diving into the outsourcing waters.
Kane Polakoff, a principal and CAS practice leader at New York-based Top 100 Firm CohnReznick, suggested talking with peers who are outsourcing to better understand the lessons learned. “Don’t just jump in to jump in,” he said. “Take the time before you go ahead and start that process. Start small. Of course, determining whether you want to do a captive, or you want to do a third party, or you want to do both. You need to have those discussions too, and then determine what that roadmap is. You definitely want to come up with a good plan and then execute on that.”
According to sources, steps to consider when embarking on the outsourcing journey include, but are not limited to:
- Define the firm’s objectives.
- Assess internal processes and take steps to improve efficiencies.
- Establish and maintain comprehensive process documentation to help ensure consistency and compliance.
- Establish strong lines of communication and foster relationship-building between the firm’s home team and the outsourced talent. For instance, conduct regular video conferences and/or on-site visits.
- Invest in training to help the outsourcing team enhance their skills and gain a better understanding of the firm’s processes.
- Ensure the necessary technology infrastructure and software is in place, such as a project management system to help track projects, tasks and schedules.
Successful outsourcing also involves making sure the right security protocols are in place. This means, for instance, ensuring the secure transmission of data and using two-factor authentication to authenticate users, and limiting access control so only authorized individuals and devices can gain access to the appropriate network resources.
“I know that it feels scarier to have that [talent] located outside of the U.S., but in reality, I believe, it is really no different than having a remote employee in the U.S.,” Keats said.
Embrace transparency
Some accounting firms that outsource work may have clients who are concerned about data security, compliance issues, lack of expertise, and language barriers (when offshoring), among other potential issues. The key, according to sources, is to be fully transparent.
“Today, we are very transparent. … We have a global capacity, a global operation, and here’s what we do and here’s how we do it. So that is an expectation that we set with our clients from the beginning and it’s understood. We really don’t have much of any push back on that,” Polakoff said.
Added Polakoff, “I think the worst thing that you can do is to go ahead and do it but you don’t share that with the client, because that will come back and haunt you.”
Keats agreed: “When we initially started working with the [outsourced] team, I did a video that got sent out to all of the clients. We were extremely transparent about it. … In the beginning, we actually allowed clients to opt out of it. We said, ‘You can opt out of it but you have to pay a higher fee,’ and some folks chose to do that. There were some folks that left us. There were some people that just were not comfortable with it at all.”
Today, the firm no longer allows clients to opt out of outsourcing the work, as it became too difficult to segment the client base. All existing clients have transitioned and new clients are informed during the first phone call to ensure full transparency.
“Just remember that these are human beings. I think sometimes firms tend to think of outsourcing as this monolithic strategy or solution for things. It is good to be reminded that the individuals that you will be interacting with — whoever you go with, wherever they are in the world — are people who are all learning, want to do a good job, and want to advance; they want all the same things that we all do,” said Keats. “So I think that is a good thing to keep in mind — to keep the humanity at the forefront when you are thinking about outsourcing.”
The White House today issued an
The reserve will treat bitcoin, the first and most popular blockchain-based cryptocurrency, as a reserve asset. It will be capitalized with tokens owned by the Department of Treasury that was forfeited as part of criminal or civil asset forfeiture proceedings. Other agencies, such as
The U.S. Digital Asset Stockpile, meanwhile, will consist of digital assets other than bitcoin owned by the Department of Treasury that was forfeited in criminal or civil asset forfeiture proceedings. Versus the bitcoin reserve, the government will not acquire additional assets for the U.S. Digital Asset Stockpile beyond those obtained through forfeiture proceedings. Also unlike the bitcoin reserve, the Secretary of the Treasury may determine strategies for responsible stewardship, including potential sales from the U.S. Digital Asset Stockpile.
The executive order also says that agencies must provide a full accounting of their digital asset holdings to the Secretary of the Treasury and the President’s Working Group on Digital Asset Markets.
The administration justified the decision by saying that, with a fixed supply of 21 million coins, there is a strategic advantage to being among the first nations to create a Strategic Bitcoin Reserve, though it did not elaborate. It also said that the government currently holds a significant amount of bitcoin but has not maximized its strategic position as a unique store of value in the global financial system. It decried $17 billion worth of what it called “premature” sales of bitcoin. It also pointed out that there has not been a centralized policy for managing digital asset reserves held by the government, so right now holdings are scattered throughout different departments.
“Taking affirmative steps to centralize ownership, control, and management of these assets within the Federal government will ensure proper oversight, accurate tracking, and a cohesive approach to managing the government’s cryptocurrency holdings. This move harnesses the power of digital assets for national prosperity, rather than letting them languish in limbo,” said the executive order.
Dr. Sean Stein Smith, a Lehman College accounting professor who is also chair of the Accounting Working Group in the Wall Street Blockchain Alliance, said that while the executive order only sets up a framework for now, there will be significant implications further down the road. One possibility is an increased emphasis on crypto audits, as David Sack, AI and Crypto Czar, stated multiple times that one of the first pieces of business to move the E.O. forward would be to conduct on audit of current U.S. holdings. With buy-in from the Executive branch, and the emphasis on the importance of crypto audits, said Smith, the profession has an opportunity to expand efforts to standardize the currently disparate crypto audit practices.
Another impact will be client FOMO, as people may reason “after all if it is good enough for the U.S. government it should be good enough for me?” It will be especially important for accountants to educate clients about the risk and opportunities of crypto investments as well as to provide advisory services to those clients interested in integrating crypto into operations.
“In short the E.O. establishing an SBR and digital asset stockpile are set to further propel interest in crypto investments and utilization at clients of all sizes. The emphasis on high quality crypto audits, internal control and advisory opportunities as more investors (retail and institutional) potentially move into the sector, and the inevitable tax issues that will arise as a result all present opportunities for the profession,” said Smith in an email.
AI governance was a major theme of 2024, and as the technology continues to evolve, oversight and control—as well as ways to demonstrate it to others—will become even more important this year.
This was the assessment of Danny Manimbo, a principal with Top 50 firm Schellman, who is primarily responsible for leading the firm’s AI and ISO practices. Speaking during the firm’s Schellmancon event today, he said that last year saw the release of a number of AI governance frameworks, including the National Institute of Standards and Technology’s AI Risk Management Framework, the International Standards Organization’s ISO 42001, and Microsoft’s revisions to its Supplier Security and Privacy Assurance Program to account for AI. Meanwhile, actual regulation is also gaining momentum, with Manimbo pointing to the EU’s AI Act, South Korea’s AI Basic Act, and a number of state-level regulations such as California’s
“That kind of set the tone for a lot of the inquiries and the interest that we saw, and for the trends on where GRC was going in 2024, maybe not so much immediately in the beginning of the year, because the frameworks were so new, but I think they were boosted by a number of things in the regulatory standpoint,” said Manimbo.
The other panelist, Lisa Hall, chief information security officer for the trust platform SafeBase, added that, given the pace of AI advances, it is likely that last year’s measures were not the end but just the beginning, especially considering how widely used even the current generation of solutions is.
“I think it’s only going to increase, and everyone seems to have some type of AI offering,” said Hall. “Regulations and standards will likely become more demanding, and even with the shadow IT capabilities we have now, I worry that we may be underestimating how often AI technologies are actually used by our employees. And also, on the flip side, how can we best leverage these to make our lives easier?”
Manimbo noted that, with this rise in control frameworks and regulation, this year will also see a rise in demand for ways to demonstrate that one is aligned and compliant with them. The ISO 42001 certification, for which Schellman
Such demonstrations are vital for establishing customer trust in a world that is increasingly connected. Hall noted that supply chains have grown much more complex, which has allowed attackers new opportunities to target vendors or third party software providers and compromise multiple downstream organizations at once. In such an environment, establishing trust with a customer is vital, but it can often involve lengthy and tedious audits filled with manual processes. While she has had success with some automation, such as using AI to reduce time on customer questionnaires and automate access controls, there remain many things that still need human intervention.
“I’ve definitely struggled with that, like where an auditor is asking for data sets, you’re coming back with a sample set, you’re bouncing back and forth from a tool to gather evidence, and it becomes even more complex when you’re dealing with customer audits and you’re talking to more than one auditor, and you can only reuse evidence for so long that evidence goes stale,” she said. “And then a lot of times, auditors have competing platforms and tools that may not integrate with yours. So it’s still a manual process. There’s a ton of back and forth communication there. I’m still copying and pasting, I’m still downloading from here and uploading to here. So I’d love to see this process improve,”
Manimbo noted AI has also been helping processes like this, noting that AI can itself help bolster an organization’s controls through automating routine processes and reducing dependence on manual processes.
“On this front, some of the things that have plagued us in the past is the amount of context that we need as professionals to know if something is something that needs to be addressed immediately as part of a control failure that may be detected. And I think AI will help provide that context there… It may not necessarily be [about] what the controls may be, but how efficient are the models in augmenting existing automation to find those failures in a way that we can effectively address those findings in a way that we can again improve on those and so hopefully reducing additional burden on a team members,” he said.
However, with all these different frameworks coming out, and with current ones being revised to account for AI, professionals may be challenged in keeping up with all the changes. Professionals need to not only know how to apply these frameworks but also how to scale them as time goes on. Hall said that, by maintaining a security-focused mindset and being proactive, so that the organization is more able to respond to change.
“If we build and buy with security in mind and find ways to leverage automation and AI to enable us to quickly adjust, … we’re just going to be way better off,” said Hall. “Instead of looking at ‘here’s the strict regulation, here’s what I have to do,’ [it is] kind of this afterthought, by being more proactive and just having these things in mind. .. I think it’s about us having that mindset of: How is the security built in? How can I be accountable and prove that I’m doing what I’m doing? And think about that before the auditors show up and before the regulations show up.”
The American Institute of CPAs is monitoring the situation at the Internal Revenue Service amid reports of
“In recent weeks, there has been a flood of information regarding the current state of the IRS, some of which has resulted in conflicting reports, creating confusion,” said AICPA president and CEO Mark Koziel in a statement Friday. “The AICPA is having active discussions with IRS officials to clarify this information and we are actively monitoring developments as the IRS continues to assess the immediate and long-term implications. With the volatility of the present environment and rapidly changing events, it is important to reconcile fact from fiction for taxpayers and their advisors. Despite inconsistent reports, we know that the IRS is making every effort to maintain this tax season’s service levels comparable with that of recent years.”
He stressed the importance of the IRS maintaining service during tax season.
“The ability of the IRS to maintain service levels for taxpayers and their preparers is critically important to the AICPA,” Koziel added. “IRS services in combination with modernization efforts, which include technology advancements, have been the bedrock of AICPA’s recommendations for many years. A modern, functioning IRS is essential for Americans to meet their tax obligations and to our country’s financial health.”
The AICPA is also offering recommendations to the embattled agency. “The AICPA continues to provide recommendations to the IRS that will offer some level of relief as we work diligently to understand the impacts to services offered to taxpayers and their practitioners,” said Koziel. “We offer our voice and support to minimize public confusion about current IRS operations.”
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