Going global is an attractive option for Australian accounting practices but there are risks to be managed.
Updated 9 August 2016
Pamela Pointon had growing problems. The Queensland public practice she had established in late 2010, Australian Taxation Accountants, was going strong, but Pointon, former Queensland president of CPA Australia, was keen to build it further. One year on it had become clear that her compact team of three might soon struggle to meet increasing client demand.
Pointon needed more qualified accountants and finding them locally was problematic. Compounding her dilemma was the space factor; there was no room for a new employee to work on the premises and the lease on the firm’s Surfers Paradise office had another 18 months to run.
So she began researching the idea of developing offshore accounting services, embarking on a virtual professional journey exploring the abundance of business process outsourcing (BPO) operations in South-East Asia and the subcontinent. Months later she settled on a team of accountants in Bangalore, India, run by a subsidiary of Sydney company Back Office Shared Services (BOSS).
Under an agreement with BOSS, Pointon decided to employ an experienced accountant in India for two days a week to help with the practice’s growing compliance workload – a cost-effective and time-efficient solution that would free her to focus on advising clients and training staff.
Outsourcing – in particular, offshoring – is booming globally. Technology has simplified the process of working with finance professionals in other parts of the world and cost-consciousness still rules years following the global financial crisis.
A 2008 survey by US market researcher Global Industry Analysts predicted that finance and accounting outsourcing (FAO), then sitting at just 10 per cent of the global BPO market, would eventually grow to 70 per cent. That remains to be seen, as there are signs that the market is reaching maturity, with growth rates tapering.
With maturity, buyer expectations globally have become more value-centric instead of pure labour arbitratge driven. For example, FAO contractual characteristics are steadily evolving to include technologies such as robotics process automation (RPA), predictive and prescriptive analytics, judgment-oriented processes, and hybrid pricing models.
Regardless, as it has gained popularity, the Accounting Professional and Ethical Standards Board (APESB) has addressed concerns over disclosure by releasing guidance notes, APES GN 30 Outsourced Services which, following a year of consultation with stakeholders, provides guidance on the potential risks of outsourcing and aims to ensure accountants comply with existing privacy laws that require them to provide adequate disclosure to clients.
Compared to their US and European counterparts, Australian accounting firms have been relatively slow on the uptake of outsourcing, but they’re changing their minds and the cheaper cost of professional services in developing countries remains a key driver.
The hourly rate for an accountant with five years’ experience in India is around A$43, with lower rates quoted for those in other Asian nations, such as the Philippines, where it's just $6-7 an hour. For Australian accountants, reducing the wages bill is not only about profit; there’s appeal in being able to keep fees down for smaller business clients in volatile times.
While big firms engage in “captive offshoring” by setting up their own operations in far-flung places, smaller ones – less able to manage seasonal fluctuations – take piecemeal approaches with casual offshoring or, for those with a burgeoning workflow, provide full- or part-time employment for accountants located remotely.
Some sole practitioners run entirely offshore workforces. A few years ago, Michael Adams of Adams Johnston outlined for BRW magazine how outsourcing had enabled him to pick up 15 new clients and increase fees by 30 per cent, “instead of getting bogged down in mundane work”.
For most, however, the decision to bring in services from India, the Philippines, Malaysia, Taiwan and Vietnam is not made lightly and some are sensitive about discussing it, as research for this story revealed.
In the vital relationship of trust between accountant and client, issues of security flash red for many. Are there issues about sending clients’ details offshore? How will clients react? What about the standard of work?
Negating perceptions: Many overseas workers actually are professionally accredited accountants.
“People have a perception of this sort of relationship, but I found the reality quite remarkable,” says early-adopter Anne Turner CPA, who led an initiative at her former south-east Queensland firm, Cordner Wilson Ludeke, that saw five Indian accountants plug a skills gap for the practice over an 18-month period.
“The professionalism, standard of work, attention to detail and the work ethic were excellent,” Turner says.
At the outset, the firm’s 20 Australia-based accountants had qualms about outsourcing. For some clients and employees it was a leap of faith, recalls Turner.
“Everyone was concerned if it was safe,” she says. “That’s why we developed a system with mirror servers, to which the Indian accountants had limited access, so the information never left our office. We provided a set of Excel-based work papers that everyone used and all other paperwork was scanned.”
Communication occurred by Skype or email. “It became like having a staff member in the next office,” Turner says.
Some account managers struggled with delegating to Indian counterparts and had difficulty accepting that their work needed no more review than locally produced work.
Less than a handful of clients raised objections, notes Turner. So what did the firm tell clients?
“We said we’d made a decision to keep a cap on fees and would be using an outsourcing company based in Sydney,” Turner says. “We didn’t say we had [offshore workers] because of client perception; their [limited] knowledge of [overseas workers] came from phone calls they received from call centres.”
One of the challenges practitioners face is the perception by some clients that overseas workers have a low skill set, often driven by media attention to outsourcing. The reality is that many of the employees are professionally accredited accountants and members of overseas professional bodies.
Scepticism runs high, acknowledges former recruiter Lee Court, now solutions expert in the Sydney headquarters of BOSS, which is registered as a tax agent in Australia but employs a team of 35 finance professionals and others in Bangalore.
Support with outsourcing
While there are no black-and-white rules to deal with all facets of outsourcing or offshoring, the Australian Government’s National Privacy Principals provide a great starting point for considering data security and the need to disclose trans-border data flow issues, in addition to the code of ethics for professional accountants.
“IN-resourcing”, as BOSS calls it, is not an easy sell to Australian accountants, but Court has noticed a progressive attitudinal change.
“Outsourcing used to be considered a necessary evil but, with the struggle to get staff and more people using it successfully, it’s becoming more widely regarded as a reliable resource,” he says. To calm suspicions, Court – like Pointon – notes that many Australian credit card and bank accounts are serviced offshore these days.
Nonetheless, caution is advised. As with any developing market, levels of service and security come by degrees.
A self-declared sceptic, forensic accountant Schon Condon FCPA of Condon Associates in Parramatta, Sydney, urges accountants and their clients to be mindful of potential risks.
“There could be issues [with outsourcing] if a company goes into liquidation and all their information is in Hong Kong, Vietnam or the Philippines, for example” Condon says. “A director could be personally liable if unable to retrieve that information and there could be ongoing exposure to the accountant.”
And, he says, there’s a difference between processing a corner store’s tax return offshore and having the accounts of an Australia-based contractor or subsidiary operation in the defence industry worked on elsewhere. Nonetheless, Condon concedes that with secure log-in and encryption, the risks may be little different to working in the cloud or allowing home-based employees remote access. At the same time, however, he points to an ever-growing list of headline-making hacking cases.
Court counters such concerns by stating that BOSS staff members are not only assiduously trained in Australian tax law, but are also reference-checked and only have access to work-related email and internet. The USB ports on their computers have also been disabled. “And staff are only on the premises when a manager is present,” he adds.
For Perth-based outsourcing provider, AccSource, which addresses the seasonal needs of a growing number of Australian practices, security has been a primary consideration from day one, says founder Andrew Noble.
AccSource has about 18 accounting staff in Chennai, India, including managers and operates on a different model, with all work processed through its restricted server.
“Each email is logged with a security setting,” Noble says. “We’ve done our best to ensure information can’t leak out of that loop.”
Noble started contracting to India about nine years ago to meet the needs of his own firm, but soon found other Western Australia practices were in the same boat.
In the state’s south-west, some smaller practices process all their compliance work using AccSource’s software and Chennai-based accountants.
The company does business tax returns and has become a specialist in superannuation funds, about 500 of them at last count.
Indeed, the team in India – which works solely for Australian practices and is fully trained in Australian tax law – has developed a depth of expertise that Noble contends outstrips the know-how at smaller local firms.
“Australian tax compliance law is complex," he says. "Getting the right IP into the team takes time."
“We’ve deliberately built a knowledge processing organisation. It’s not used heavily by people wanting basic tax returns, more by those wanting complex sets of financial statements and working papers. Stuff that really takes work, where you have to pull up debtor and creditor reports, HP schedules and contracts and make sure there are no misallocations, marry up payroll reports and activity statements.”
A myth about outsourcing is that it’s only good for simple tasks. Anne Turner also tested her offshore accountants’ ability to handle complexity. It was mostly compliance work, financial statements and tax returns, along with trust distributions, “but it would go as far as we pushed it”, she says. “The people we employed were all degree-trained and managed by a highly-qualified accountant who’d done his Masters in Australia and was registered as an Australian tax agent.”
But it’s horses for courses and price is no ready reckoner for skills on offer.
A Melbourne small-medium accounting practice, which used a recruiter to hire accountants in the Philippines, recently waxed lyrical about the wage differential. The cumulative wages for seven to eight Filipino CPAs equals one on the job in Australia, the firm claimed.
About 30 minutes out of Manila, Richelle Villegas manages the BPO operation of Account Master Global Solution, which offers services from bookkeeping to web design and social media marketing. Clients are spread from Los Angeles to London and Australia where Account Master has strong connections through its founder, Perth tax agent Apple Villegas.
Richelle Villegas is frank when asked if her team undertakes Australian tax returns.
“Tax returns and BAS need to be done in Australia because of Australian tax laws,” she says, but – running on referrals – the company’s bookkeeping and other services are in high demand. Most work is transmitted by email and one of the principal appeals of Account Master’s services is in the hourly rate, which is significantly less than for an Australian bookkeeper, Villegas says.
Eva Tsahuridu, CPA Australia’s professional standards and governance policy adviser, highlights the importance of conducting due diligence before signing up to an outsourcing arrangement. She says the code of ethics for professional accountants requires members to comply with the principles of professional competence and due care and confidentiality.
“Utilising or providing outsourcing services is not necessarily inherently riskier and sometimes it is an important part of a risk-management plan, if appropriate controls and processes are in place,” Tsahuridu says.
“Issues of confidentiality, competence and transparency have to be considered and managed by appropriate quality control and processes, as required by applicable standards and the code."
Tsahuridu adds that APESB guidance note also provides valuable insight to utilising outsourced services.
“The client should be aware if an outsourced service will be utilised,” she emphasises. “Importantly, responsibility for the provision of the service remains with the member who undertakes the engagement.”
Following months of research, Pamela Pointon chose to outsource to India, not least because – with its historical links to the UK – its tax legislation is not so removed from Australia’s. She had plenty of time to look before she leaped but raises a potential ethical dilemma.
“If I had the space, I might have felt that I should be training someone in Australia,” she says.
“We need to take responsibility for bringing on the next generation.”