Outsourcing accounting functions is not a new concept for businesses, but it’s also a legitimate option for understaffed CPA firms during tax season. Randy Kreider, CPA, president and founder of InHome Accountants, explains the types of work that can be outsourced, client disclosure requirements, and how outsourcers can be managed.

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By: Jim DeLuccia, PICPA Communications Manager

Podcast Transcript

Outsourcing accounting functions can be popular for all types of businesses, including CPA firms that are understaffed or need additional expertise during the tax season. Joining me to explain this concept further is Randy Kreider, CPA, president and founder of InHome Accountants in Wexford, PA. Randy is also a PICPA member.

Randy, I think you're a member of our Northwestern Chapter. Correct?

[Kreider] Yep. I have a tax office in Meadville, Pennsylvania. We have four different staff accountants up there with us.

Why should CPA firms consider outsourcing?

[Kreider] I'd like to maybe talk about a personal story that affected our firm most recently in especially the 2018 tax season. At one point, we were a 12-person CPA firm. We're a full-service accounting, tax, auditing, and then, last year, we had a downsizing not by choice. What happened with our firm, third week in January, a new staff accountant came in that we did hire in October and put a notice in because she felt she wanted to be more of an auditor instead of a tax preparer. Jumping a few more months, we now have ... April 10 comes along, and staff accountant comes in ... the tax season is almost over, comes in with a notice, a letter and says, "Hey, I'm ready to put my notice in. Tax season and public accounting isn't for me." This is also a relatively new staff we had, that she has started with us June the prior year. Then we jump ahead to December 22. Right as we were ready to roll in the tax season this year, we had a staff accountant. She came in my office, shut the door, holding a piece of paper, and all of us knows what that leads to. She also proceeded to put her notice in. Within a 12-month period, we had three staff accountants leave, and that's what made me start going forward with these different ideas. In public accounting, because of the hours and the work environment, it's really hard to keep the younger staff in the profession.

A lot of the staff that we read is you have around 63 percent of staff accountants leave public accounting by the time they're 25, and that's an ongoing problem that not just my firm has faced, but I've talked to different colleagues across the U.S., and we all have the same common problem: keeping our staff involved in the profession, and the outsourcing is definitely a way that, that I know I feel myself, that we can really move forward with. You're able to bring people on there as needed. You can bring people in different levels, but you're really able to get the technical side that you need for that specific time and projects.

One of the main benefits I feel is you don't have to worry about the traditional, “hey, what do we do after tax season? How do we keep our staff busy?” We can keep them there when we need them and they're busy and then, on the off season, we can actually, if you have lower, less work, you can actually work less hours and even maybe shut your office down a little bit if you need to, but that's one of the main reasons that we set the company up as well as outsourcing our office on that avenue because of the staffing, and the turnover rate that we have. If you even read different stats, that's a lot of the ones that the AICPA published, that's the number one issue firms have over the last several years is staffing.

You have a personal story that really ties into this. I think you touched on it briefly, but what types of things can they outsource?

[Kreider] With today's technology, pretty much everything that as a CPA firm that we can do can be outsourced. Starting with your first level of your 1040s coming in, the basic W-2s, interest income and things like that, that you're looking for on the volume side all the way up to your international corporations and partnerships can be done that way too, because you can really bring in either high end expertise that are really trained in these areas, as well as areas like there's a basic tax return that a staff accountant or even a tax preparer can do, will be that side, too.

Some of the other areas, too, would be bookkeeping. We found that in some of the smaller towns, there's not a lot of quality bookkeepers that are able to work onsite for the clients, they rely on us, the CPA, to help prepare their books. This one here is a really good option for the bookkeepers that could be outsourced, too, if they're using a product like QuickBooks Online or Xero or even some of the other ones that are converting these desktop applications for QuickBooks like Qbox, they’re able to convert that to a VPN ... where clients can remote into that too.

And then on the opposite spectrum we now have the audits, there's more and more time demands and quality control that we're doing for these audits. This would be another good area that can be outsourced based on the expertise that can be brought in that are someone doing a very specific portion of the audit, or if someone coming in there preparing our quality control areas, and also the, one of the old standby was always inventory observation, based on multiple locations and travel, sometimes it wasn't convenient for that firm to be able to do that, to do it in a house where they could actually outsource that to any platform that would be that way too. The answer to your question: 100 percent of our work could be outsourced to other areas as we bring in this expertise.

How can they go about it? And what I mean by that is, is this something that's project based or, is it hourly?

[Kreider] There's both options out there for a lot of places. You're typical hourly billing is pretty much the same thing as having a staff accountant in there that has its pros and cons. With hourly billing, your biggest pro is, “hey we've got someone that's really experienced, they can do the work, and they're actually doing ahead of what they really need to be doing.”

The opposite side would be the staff accountant, they might not be experienced or they might not be fully focused on a project that they’re working on, and a lot of time could be going into that project. Just like if they're in-house, and then if the CPA that we notice, our realization rates are going down for that client. The other area - project based - which in my opinion appears to be a much better solution, because as a CPA we know what we're paying for. We now have a fixed cost, so if we're basing cost on the third, third, a third model, we can control our labor by that one third. Here's a project, typical, $300 tax return, I'll pay you a $100 to prepare it. As a CPA, as long as my deadline is, let's say Friday by 5 o’clock is met, to me it doesn't really matter if they spend, an hour, three hours, to get the project done.

I've now cut my cost so I know exactly what I'm looking at. The project one, I prefer based on that reason.

Now, the next thing I wanted to get into, almost like the next two questions, are how can outsourcers be managed and can their quality be monitored?

[Kreider] Yeah, you actually can do both. Through different communication tools, if you're using your own document management system as well as communication tools that are out there: either in-house or outside commercially. You can actually monitor the progress of your accountants from start to end, check the progress, see their work, how they’re doing it, communicate back and forth via if they want to be in chat, if they want to text, email, or even video conference. The outsourcing, even though they physically might be a thousand miles away from you, you can literally bring that person up on your computer and talk to them like they’re down the hallways from you, and to monitor their status. And then the same thing on the quality. Once you find someone that you actually want to work with, you could actually work with this person throughout the whole tax season or really the whole year to monitor that. And same thing with outsourcing, you can bring in different levels. You can have a bookkeeper, a staff accountant, a senior, a supervisor, tax manager, all the way up.

You could actually outsource, not just the preparation, but also the review work. Which is really beneficial for a lot of the small firms that might only have one partner or owner. Based on that, they only have one person and then what happens is they can bypass that bottleneck coming to their office waiting for them to review it. This would take all the stress off an owner of the company because they know, “hey I have preparer here who's doing it that I've known and trust, I have my reviewer either, like I said a supervisor or up to a manager doing it. My end’s a high-end overall view so as an owner I could spend my time growing the practice, rather than working in the practice now.” It's my opinion, that's kind of the main benefit of how you can do that.

I wanted to transition to client disclosure requirements. I have feeling folks listening on this conversation right now may have questions about that. What can you tell me about that?

[Kreider] All of this would come under Section 7216, which was released back in 2009, for the purpose of protecting the individual and the identity of the taxpayers across the U.S., and the IRS came out with some very stringent guidelines for that, that what can be disclosed by doing it. By doing it, like a summary of that is, we need consent to disclose tax information to go to your banker or your broker. We need consent if we're meeting with your financial planning or investment. We need consent if we're having a preparer disclose information to a foreign base preparer from your firm if you're outsourcing that way. And you also would need consent to release any information in the newsletter. And to do any of those four options, there's a letter that the client has to file, or I'm sorry they have to give to the CPA firm that discloses “I'm giving you my release, here's what I'm allowing you to disclose it for, who I'm allowing you to disclose it for,” if there's a duration and then also what years, and then they have to sign that form.

That has to be kept by all CPA firms going forward. Especially, the main one on there is a lot of us as CPAs we already knew that ahead of time especially for other typical “hey the bank calls and says, hey we have a joint client, we need that tax return, can you send that over?” Well, this one’s in place to make sure first, that the client knew about it and we got their authorization for it. As a profession, most of us all knew that. One thing we have found out in the last year is, I don't know if a lot of firms are aware of that if their using any foreign based preparers that they have to have that same information on file, which has to be done there for that client too. And this one, like I said earlier, the IRS puts right in there if things are not followed you could be facing up to a $1,000 penalty plus up to a year in prison. Security is a big issue on the outsourcing and really not outsourcing but disclosures that have to be looked at on all levels for this.

It certainly seems like it’s something that absolutely needs to be clarified and adhered to. To wrap up this conversation, what tools can people use for outsourcing?

[Kreider] There are several out there that are different market places, one of the main reasons that we set up and developed in InHome Accountants was we wanted to focus on, there's 42,000 CPA firms across the U.S., of that there's 41,600 CPA firms who have less than twenty people. And from what our research is finding, those are the ones that really need the assistance. They’re the ones struggling to find and keep the staff, but we really want to find someone that would focus on U.S. based preparers. Also, the stay-at-home moms and dads that left accounting, which happens a lot of times, with that they wanted to do work, but they want to work from their home and they want have that balance between family and work.

And that's one area, like I said, we setup InHome accountants for that area where we're an online market place that allows CPA firms and accountants across the U.S. to match up with each other, where they can find anyone from bookkeepers to tax managers. And they can either set that up and do a broadcast among all of our members, right now we have around 540 accountants on our network. And you can broadcast all of them, or you could broadcast to "hey I've worked with this person before, I know them, I understand their work, they understand me, there's no personality conflicts, so we could actually work directly together.” They could go run it through our platform and then we match them directly to that person." And that was kind of the main process for that on the outsourcing side too. And what also do is we also vet our people, our accountants come and gone, they have to have a background check, a drug test. We also do - if they were a CPA - we also verify their CPA license, and if there's any information we go through if they have any disciplinary actions. Also, we ask them to upload their PTIN too, so that's all on record.

We kind of made this seamless like, for the firms, if you're posting a job or need additional help, after you set up your profile, you could actually create a job within a minute, and have that out there and choose among our accountants, which is growing daily at a between a 10-15 accountant rate. We're trying to grow this at a 10:1 ratio too, where for every CPA firm we have ten accountants to help serve them.