Offshoring tax and accounting services

In this roundtable discussion, two members of the Intuit® Tax Council, Kristen Keats, CPA, of Sherwood Tax & Accounting, and Louise Cochrane, CPA, EA, of L.F. Cochrane & Associates, discuss the differences between offshoring and outsourcing in the accounting profession. Kristen shares her experience of working with a team in Mexico and how attitudes toward outsourcing have shifted in recent years. She emphasizes the importance of vetting clients and disclosing the use of an outsourced team. Louise discusses her experience with offshoring in India, and raises concerns about security.

Both highlight the need for firms to find ways to address the talent shortage in the profession, such as hiring virtual assistants and reaching out to junior colleges. They also discuss the importance of creating a positive work culture and finding ways to make the tax and accounting profession more appealing to potential talent.

Scott Cytron: Thank you both for joining us. Let’s jump right in. I learned something before this discussion: There are differences between offshoring and outsourcing. Offshoring is when firms have teams working outside the U.S., while outsourcing is done within the country. It seems that accountants traditionally have frowned on firms that outsource tax prep and accounting services to workers in foreign countries. Do you feel the attitude is justified or is it time to outsource more work overseas?

Kristen Keats: Because my firm has a team in Mexico, I don’t call it offshoring because we’re really on the same continent, so I actually use those words interchangeably—and most of the time, refer to my team as an “outsourced” team. I started working with a team in India about five years ago; it was like this dirty little secret in the industry that, while larger firms were using teams in India, they were not really accessible to smaller firms.

Times have changed. The AICPA and thought leaders in the industry are now advocating for using outsourced or offshoring teams because they know we have a talent shortage and need help.

Louise Cochrane: I had experience working with teams in India when I worked at the Big 4. It was a mixed bag. I mean, yes, that was back in 2011, things have changed, and today there’s an extreme talent shortage. Accounting graduation rates from colleges have been going down since 2019. Offshoring is something that’s facing our industry and definitely something that tax pros have to choose to embrace.

But I still like to employ people who are here in the U.S. I might just be a little paranoid and not comfortable with it personally, but I don’t frown on other accountants who are making the choice. I think it all comes down to where it sits with you as a business owner and where it sits with your clients. I know Kristen is a very responsible tax leader, and her clients know that she has set up business with a team in Guadalajara who are working on taxes outside the U.S. However, she has full control over it and I respect that very much.

Scott: What about offshoring makes you uncomfortable?

Louise: Recourse and jurisdiction. If information is being accessed outside of the U.S. and anything goes wrong, there isn’t a way to pursue any outcome.

Scott: Kristen, in your case, what kinds of pain points does your group in Mexico solve for you? You could employ people in the U.S. if you wanted to, but why Mexico?

Kristen: Yes, we could, but here’s what happened. My partner Martin and I had worked with an outsource team in India. While we appreciated the access to talent and being able to find qualified, trained people, we pivoted to Mexico because it’s a little more culturally aligned with us. It’s also close. I go there about three times a year, and we have the team visit our firm in Oregon. They really are an integrated part of our firm.

One issue I’d want to bring up about offshoring is security. With our team in Mexico, we get asked about security a lot and how we’re disclosing to our clients that we have a team in Mexico. No matter what kind of team you’re working with—and whether they’re in the U.S. or somewhere else—they have to go through the same background checks and security protocols that any staff in a U.S,-based team goes through.

I’ve never had a situation happen with my Mexico team or with the India team that also wasn’t an issue in the U.S., so I feel it’s a false sense of security that we get by saying, “I need to just work with U.S. people.” I could just as easily hire a person who isn’t working or stealing somebody’s Social Security numbers. All we can do is try to be responsible as employers, and ensure due diligence on a person before we hire them.

Scott: What kind of language are you putting in engagement letters that talk about where the staff is located?

Kristen: If we’re disclosing Social Security numbers and other information, we’re required to ask our clients for consent through Section 7216. Otherwise, it’s a little less clear about how much you have to disclose. I err on the side of disclosing everything, but, Louise, I don’t know if Deloitte did the same?

Louise: Back at the Big 4, we used a separate form per the IRS requirements, but the larger issue is that clients are not reading their engagement letters. These days, I don’t think more than 5% read their engagement letter from beginning to end.  So the disclosure becomes just a precaution to protect the preparer: “We had you sign it, it was there. You chose not to read it, but it was there.”

CAMICO and the other insurance companies offering errors and omissions coverage require you to have the language in your engagement letter, and this also extends to working with financial advisors. If you’re sharing a tax return with a financial advisor, you’re supposed to have a 7216, even if the financial advisor’s right down the street. So the issue is not just isolated to sharing information across the ocean or borders.

Kristen: If I’m traveling to Mexico and working in Mexico on my client engagements, I still have to have the 7216 because I’m physically working in a foreign country. And by the way, that includes Canada and Europe. That takes a lot of firms by surprise, especially during the pandemic when we were all working remotely.

Scott: This is all really interesting—and leads me to the next question about the talent shortage. What do you think the profession can do to help with this problem? What are some quick wins?

Louise: We’re forcing our associates to concentrate more on the ad hoc and paperwork instead of the engagement, but should try and take as much of the menial work off our associates plates—and our plates—and hire more administrative staff.. If we can develop the administrative staff and they find a love for taxes, we can convert them to be an associate. This leaves more time for our associates and ourselves to concentrate on technical, advisory, and strategy.

I also think outreach needs to happen at junior colleges. A lot of people are going into junior colleges, and getting associate degrees in accounting and bookkeeping. This would be a really great talent pool to mentor, and we can encourage them to continue with their studies while having a part-time or full-time job.

Kristen: I think our profession is really divided, because I feel the big firms are the ones creating the image problem for accountants. They’re the ones with these crazy billable hour requirements. I would love to get the word out that there are progressive firms like mine, Louise’s, and everyone else on the Intuit Tax Council who are trying to create balance for our employees. We’re looking out for our employees, and vetting clients so that they don’t abuse our employees.

It’s hard for us to get a voice. This is one of the reasons why I like being on the Tax Council because small firms like ours can get the word out there that there is another way.

Scott: Let’s wrap this up. Any final thoughts?

Kristen: Start small. If you’re thinking about offshoring, hire one person and see how it goes. Part of our firm’s best practices is making them a part of your team. You wouldn’t hire somebody, put them in an office, not talk to them, and expect them to get their work done. Bring them into the fold and include them in your meetings. If you make them just as much a part of your team as everyone else, you’re going to set yourself up for success.

Louise: Look at your client list. Figure out the clients you love working with and how many more clients you want to work with. If you have 50 clients and provide year-round services, can you survive and get the revenue you want to live a comfortable life without adding staff? If not, then figure out how much work you need, and what you are comfortable with to offshore or delegate.

Ultimately, this is all about making this world a better place and filling it with kinder people who are doing what fulfills their needs and purposes. It’s also about serving our clients and helping them understand the value of having a worldwide team.

Scott: Thanks to both of you for your time; I know our readers will appreciate your insights.