By Gregory S. Dowell
The outsourcing trend has been around for a couple of decades in the business community and has affected a broad range of services that companies once met with embedded employees. For example, technology jobs have been outsourced (in some cases overseas) as have custodian jobs, quality control positions, legal work, and many other fields. For easily the last decade, the trend has been for companies and organizations to outsource accounting services as well.
In addition to producing financial efficiencies (that is, saving money) outsourcing can also be about creating other efficiencies in the organization. If an organization struggles to keep pace, outsourcing may be a way to keep the financial records current at all times, or to improve the accuracy of the accounting information.
The outsourcing of accounting services continues to be a distinct trend, and virtually every organization should ask a series of what-if questions:
1. Is our current staff competent, and is the work being performed timely?
2. Does our current staff have adequate supervision and oversight to protect the company against error or, perhaps worse, against fraud?
3. Considering the lower, middle, and higher level personnel currently employed in the internal accounting department, is there any part of our accounting process that could be outsourced to produce operating and financial efficiencies?
4. What are the opportunity costs associated with the resources we currently allocate to in-house accounting?
We see this outsourcing trend continuing with accounting services for the following reasons:
1. Accounting personnel are increasingly difficult to find and difficult to retain. Baby boomers continue to retire at high rates, and simply not enough students are choosing accounting as a profession.
2. The cost of accounting personnel continues to escalate. See the above for a basic reminder about supply and demand.
3. In addition to improving performance, real cost savings can usually be found when outsourcing occurs. Employees are prone to inefficiencies that creep into a daily routine, whether it is in the form of excess socializing or making a part-time job look like a full-time job.
4. Oversight of the accounting personnel is difficult for most smaller businesses, as the necessary accounting or financial expertise required to oversee a technical field like accounting does not typically exist in-house.
5. Increasing complexity in the areas of accounting, audit, and tax make it difficult to find qualified accounting staff, and even more difficult to oversee or monitor their performance.
6. Technology continues to make outsourcing more viable, particularly with the ability to remote access computers and systems.
7. Outsourcing can provide the organization with insurance that it has backup at all times and that, regardless of internal turnover, it always has the ability to train current and future staff members on key accounting functions.
In some cases, the need to outsource may be dictated by the external audit firm. Newer audit standards require that clients must have adequate knowledge of their accounting records and must be able to understand more sophisticated financial reports. In these instances, outsourcing certain oversight responsibilities to a CPA firm is the most cost-effective way to placate the auditors.
The decision to outsource accounting should be made on a case-by-case basis, after considering all relevant facts and circumstances. We have seen cases of complete outsourcing being in the absolute best interests of the client. In other cases, clients benefit by retaining certain key functions in-house, and outsourcing all other accounting functions. Some generalities can be made:
1. Complete outsourcing tends to work best with small companies, say fewer than 10 employees. At those small levels, the bookkeeping and accounting needs would simply be a poor use of limited company resources.
2. Somewhere between 10 employees and 75 employees, most companies will benefit if they have some basic bookkeeping capabilities in-house, but all other accounting functions should be outsourced. In general, a company must hit a critical mass before developing and retaining a full-fledged accounting department makes fiscal sense.
3. That critical mass is often determined based on the number of employees; most companies with fewer than 75 employees do not need a full-fledged accounting department.
These are generalities, and the particular circumstances will dictate the best course of action. For instance, a very small company may require a very sophisticated accounting system, perhaps due to reporting requirements for its members or corporate or governmental clients, and that need may dictate that in-house personnel have strong accounting skills. Similarly, a company of 30 employees may be highly automated in terms of production, but heavily reliant on output from the accounting systems on a day-to-day basis. Again, in that case, having in-house staff with strong analytical and accounting skills might be critical. Conversely, some very large companies or organization can run with an accounting system that uses off-the-shelf software, like Quickbooks. Especially if there are remote capabilities that enable the external CPA firm to connect throughout the month, it may be possible to completely outsource all accounting functions, from the bookkeeper through the controller.
The key is that every situation should be looked at objectively to determine if benefits could result from outsourcing. This is where a company’s relationship with its CPA firm can pay huge dividends. The CPA firm that is familiar with a client’s flow of information and that can set aside selfish interests and remain objective can be of great service to management.
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