Arguments against Outsourcing Services

Outsourcing business processes overseas is increasingly common in the banking, financial services, retailing, insurance, and telecommunications sectors. Economists and accounting professionals expect this trend to accelerate.

One concern about outsourcing tax preparation is the privacy and security risk of posting confidential client information to a facilitator’s website. For example, some clients may not want their information sent to a third party that is not directly supervised by their CPA. Fortunately, the growth in e-filing of tax returns has spurred tighter security controls, which are also available from facilitators. Secure data facilities, private networks, firewalls, and sophisticated data-encryption techniques now mitigate online privacy and security concerns about outsourcing. Although no electronic transmission of data, including the e-filing of tax returns, can ever be completely secure, outsourcing overseas can increase privacy and security concerns because of the interjection of a third-party preparer not directly supervised by the outsourcer.

A second concern about outsourcing is that it limits the tax-preparation experience of entry-level accountants. Veteran CPAs may remember similar concerns in the 1960s and 1970s, when electronic systems replaced manual accounting systems. Newer staff accountants in offices using outsourcing may require new or expanded training to replace experience preparing returns. The role of these staff will likely involve less routine preparation work and more client interviews, expanded tax-planning engagement responsibilities, and an expanded apprenticeship period working with veteran tax consultants to review processed tax returns. Some are concerned that it will take longer for new staff to understand the tax effects of transactions because they will miss the learning that takes place when someone actually works with and comes to understand the internal logic of the forms.

Although outsourcers may also be concerned that political instability in the country of the facilitator may interrupt processing operations, such concerns have not prevented many large financial-service organizations (e.g., Citibank, American Express) from outsourcing operations.

Another barrier to effective outsourcing is technology capability. Hardware, data storage, software, and knowledgeable staff are required to move tax preparation from manual processing to a web-based processing system.

Finally, both clients and CPAs may have concerns about the quality of outsourced services as well as the patriotism of overseas outsourcing.