There is a growing problem in the tax accounting industry. Attend a continuing education program for tax professionals and the problem is impossible to miss: the silver in the crowd is worse than Sunday morning church service.
The tax profession is aging. Attracting new people to the profession is difficult because it lacks the glamour of other professions. But sit in any public forum and mention you are a tax professional and you will be inundated with tax questions and offers to take them on as new clients. The tax profession is a good field with ample opportunity to do good, but few even consider accounting or tax as a career option.
Those of us still practicing know the qualified tax professional shortage is bad and getting worse. Hiring a qualified tax professional is as hard as finding a unicorn.
Demand for our services grows while the number of people available to service this demand shrinks. Tax professionals have taken extraordinary steps to fix the problem with automation, reducing client lists and outsourcing. Each action has its unique set of benefits and pitfalls which we will explore.
Getting Work Done Correctly and in a Timely Fashion
For several years now I’ve experimented in my office with a variety of methods to deal with the workflow and demands of regular clients and those seeking to be clients.
These issues are of interest to the client and other tax professionals alike. Each new method instituted (or merely tested) in my office had its benefits and pitfalls. Clients need to understand the difficulty tax professionals have keeping their head about the paper waterline and tax professionals will continue to explore extraordinary means of managing growing demand with a smaller workforce.
The easiest—and most logical—way to solve the problem of too much demand is to cut your client list to a manageable size and decline taking on new clients. While this solution works, it lacks a satisfying outcome. There is an uncomfortable feeling knowing you can help someone and passing anyway.
If no other options exist then a reduced client list is the only choice. If you are nearing the later stages of your career this might be a good way to transition certain types of clients to new tax professionals. For everyone else in the crowd we need better options that both serve your client and allow you to retain your sanity.
I will review 3 solid options with special emphasis on outsourcing tax work.
1: Maximizing the value of experienced staff
Experienced tax professionals probably remember the days when they did all the work alone. They would meet with the client when the return was dropped off, they would prepare all aspects of the return, have support staff print the return and call the client, and finally, meet with the client at pickup to review the results and answer any questions the client has.
The old way of doing things no longer works when there are not enough experienced tax professionals to go around.
The solution used in my office focuses each task of the tax preparation process to different teams. Clients drop off their material with a receptionist; notes are taken for the tax accountant. Most of the tax return is processed by a team scanning and preparing the return for the CPA or enrolled agent. Data processors, many with no tax knowledge, enter the raw data.
Once the data processors enter as much as they can the file goes to the CPA’s desk. For all intents and purposes the CPA moves straight to review unless there are serious tax issues unresolved by data entry.
Experienced staff are always working at their highest capacity under this method. Raw data entry doesn’t consume the tax expert’s time. However, many returns have significant tax issues only an experienced team member can handle. While data processors help, the tax pro still spends significant time with each file, but does avoid the mundane part of the preparation process.
At the end we sit with every client to review the return. This is where we discover if we misinterpreted documentation the client provided and to answer questions.
It’s not a perfect solution, but it allows for the maximum value extraction from each experienced members of the team.
Automation has been an integral part of the tax office for decades. We moved from paper to e-filing; from filing cabinets to digital storage; from hand preparation to tax software.
There are additional automation processes too few tax professionals use. In my office we use Gruntworx, for example.
Depending on the tax software you use, there are similar programs offering the same service to tax offices. I use Drake Software and Gruntworx is built right into the program.
What Gruntworx and similar programs do is enter the basics from standard forms (W-2, 1099, K-1, etc.). Unfortunately this doesn’t offer more benefits to the skilled CPAs in the office. Gruntworx partially replaces the data processors only.
The biggest advantage of Gruntworx is cost. It is a poor use of time entering W-2s when the computer does it automatically for pennies.
There is one pitfall to consider. These programs reading forms and entering data periodically make mistakes. The reviewer must double-check the entire return! The same issue applies to human data processors. The review process is a redundancy designed to reduce errors.
This is what I really wanted to talk with you about. Outsourcing payroll and bookkeeping is rather easy. Tax returns are another issue.
First we need to define what I mean by outsourcing. Gruntworx is not outsourcing! Outsourcing, as I will refer to it here, is the sending of the entire return to another firm for preparation with only a review required at home office end.
My office has tried several outsourcing models the last few years with the gracious permission of a few clients to allow me the luxury. My results are decidedly mixed so if you ever considered outsourcing tax returns you will want to review my experiences.
Outsourcing to a domestic (U.S. based) firm requires less disclosure to the client. I recommend always being upfront with the client and disclosing anyway.
The biggest drawback of domestic outsourcing is cost. I have never been able to find a domestic outsourcing company that was cost effective so I never used one. Therefore, I can’t vouch for the quality of any of these services.
Also be aware that there are several firms claiming to be domestic when they are not! Just because they have a New York office doesn’t absolve you of disclosure rules. My first foray into tax outsourcing was with one of these firms. I outsourced my own return as a test and they crucified the return. At least it didn’t cost me anything.
True Tax Outsourcing
After a few false starts and reviewing several outsourcing firms I found one that had it all put together. They had a good portal to transfer documents and a good team domestically and in India (where most outsourced tax returns go).
Once I was satisfied with their work and security I asked a few clients permission to send their tax file to this firm. (The name of the firm will not be mentioned because they did what they promised. Since I’m pulling the plug at a large loss it would not be fair to them since they did nothing wrong.) This was last summer. The additional test returns came back prepared correctly.
A good outsourcing firm requires money for their service. My firm paid $16,750 for the smallest contract they had. (The low-ball guys are not professional and should be avoided. You want quality first, price second.)
The biggest advantages of outsourcing to a quality firm include better quality preparation and less need to find additional in-house staff (qualified tax professionals).
However, there are serious pitfalls I could not resolve.
It became painfully obvious early in the tax season this year the outsourcing firm lacked the most important qualification: knowing the client. The time it took to ready materials for the outsourcing firm along with the excessive time needed to review the returns they prepared did NOT save meaningful time of experienced tax accountants in my office! It wasn’t their fault. The issues always revolved around knowing the client and they had no way of knowing the client as I do. And the problem is unsolvable.
It is hard to grasp how powerful and valuable the accountant-client relationship is until you see tax work done without the relationship.
This one glaring issue caused me to pull the plug with only $2,000 of the contract used. The rest is a loss for my firm. If it weren’t for this blog I wouldn’t try out so many of these things. But with a large number of tax professionals haunting this blog I feel it my duty to try things and share the results so readers can benefit without the extraordinary expense.
Clients of tax firms also get a peak under the hood of how things work when they submit their return for preparation.
There is one additional glaring issue: disclosure.
I sent a modest number of clients a disclosure statement. If they signed I was allowed to send their return to outsourcing. (Only a few select clients were chosen and they were not required to sign.)
Some signed; other, not.
What brought this home for me is when one client signed the form and later read it completely and called begging we don’t send his return to outsourcing. We complied.
The truth is there is no shortcut. While outsourcing offers the promise of a better back office, anything is further from the truth. Even a good firm with quality preparers can’t give the service required without knowing the client. It’s just too large a hurdle to overcome!
It is my informed opinion that all tax offices should tread lightly and slowly if they are considering outsourcing of tax returns. I can’t find a way to provide the quality I demand for my clients from a distant source so outsourcing is starting to look like a rear view mirror issue for me.
Automation is fine. Gruntworx and similar programs work within the framework of your tax software and is only a data processing system. When it comes to a full outsourcing, total return preparation, there is nothing like handling it in-house where the accountant and client have an intimate relationship built to serve the client; the way it should be.
Even though my outsourcing days are over I still intend to educate myself on the subject and share the inside information with you. In May I’m attending an outsourcing conference to learn more on a variety of outsourcing options. The conference cost a cool $1,000, plus hotel and travel costs. You will get the important information for simply stopping by this blog in late May or June to read all about it.
Now you know why I have ads on this blog and other forms of monitization. I’m not trying to irritate you. I just need funding to try these experiments so you don’t have to.
And unlike other blogs, the experiments we conduct here sometimes cost more than a few dollars.
My goal is to reinvigorate this graying industry. We need to spread the message this is a very good career choice. Even your favorite accountant is looking toward his last decade in the field as a full-time practitioner. (If I didn’t shave my head the gray would be showing on me as well.)
My practice in unlikely to grow much in the future. My job is to teach the next generation and figure out all this new stuff we need to think about.
Thank you for coming along for the ride. If there is something you would like me to test be sure to leave a note in the comments.
New or old hat, our profession is in high demand. People are in desperate need of our services.
If we don’t rise to the challenge, only the wealthiest will have access to quality tax help in the future. The middle class and poor can’t afford that. And we have our work cut out for us.
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