At 8:30 on any given morning, much like the scene at offices across the San Fernando Valley, workers from Kellogg & Andelson Accountancy Corp. convene in the firm’s conference room for a staff meeting. But unlike meetings elsewhere, the conference at K & A;’s Sherman Oaks office is taking place across continents. With the help of a video conferencing system, Kellogg & Andelson is meeting with its sister company in Pune, India, reviewing the day’s work and upcoming agendas. It has been three years since K & A; began outsourcing work to India. Its operation, in a suburb of Mumbai, has grown to 40 employees. And at least some work for about 1,000 K & A; client companies is now done overseas. But despite that success, K & A; is one of only a few accounting firms currently using offshore services. Although no firm statistics are available, most say that the use of offshore outsourcing is still limited to the largest of CPA firms. But that, they say, is changing, and it’s happening sooner rather than later. “I can tell you from an anecdotal standpoint, it’s been progressively increasing at a fairly rapid rate,” said Gary S. Shamis, a partner with SS & G; Financial Services in Cleveland, which uses outsourcing, and co-author of a paper on the subject for the American Institute of CPAs. “The way the industry works, innovation generally starts with the Big Four and moves down to the top 100 (accounting firms). Right now, innovation with respect to outsourcing is becoming customary and usual with the larger firms.” Cost advantages, a dwindling U.S. labor supply, particularly for the more basic of accounting tasks and improved technology are all combining to make outsourcing a more favorable alternative. “Tax returns were the entry service,” said L. Gary Boomer, a consultant and recognized authority on outsourcing in the accounting industry. “Now many firms who have developed relationships in India are sourcing back office work. There are several firms who have acquired Indian firms or developed alliances.” K & A;’s efforts began almost by accident. Company Chairman James F. Walters met an Indian CPA who was hoping to develop an American partnership for his firm. “I was hoping to find a less-expensive labor pool, but also to find a labor pool,” Walters said. “SOX drained the marketplace, and there’s been a shortage of bookkeepers and accountants.” Talks with his first contact never came to fruition, but Walters made other contacts, and, after bench-testing work out of several different firms, eventually acquired a small operation in Pune, fired its clients and began restructuring the company. The earliest efforts were hit and miss. “You make the mistake of sending everything and anything that comes across the desk,” said Walters. “There’s a nomenclature difference. There are quirks. You have to get over there and work with the people and learn the industry. You have to understand what they do well and what they don’t do well.” Time in India Walters figures he and Christian Payne, who is president of K & A;, have each spent about six weeks in India to set up the operation and train the employees. Several other staffers have spent about a month each. The launch, including the newest addition, a videoconferencing system, has probably cost the firm about $1 million. Now, the firm outsources a range of tasks from bookkeeping to accounts payable posting, cash applications for lock boxes, even factoring and litigation support work. And, although the executives won’t provide details, they note that the cost savings has been dramatic. Most recently, K & A; has seen its business boom in another respect. The firm contracts with client companies to provide dedicated staffers in India for their accounting needs. Depending on their needs, clients opt for one, several or even one-half a worker in India at an average cost of about $1,500 a month. It is a service that can be used by small and large companies alike. “If you’re a Fortune 1000 company Accenture has your number,” said Payne referring to a leading outsourcing company. “But a small business is never going to get called. We have guys using one-half a person a month.” Published reports indicate that the average accountant in India earns something in the neighborhood of $250 to $300 a month. That compares with $4,000 a month and more for U.S.-based accountants. “We’ve been adding one to three clients a week,” said Payne. Some concerns The pay differential comes as no surprise to U.S. accountants, but, so far at least, that savings has not been sufficient to persuade most of them to outsource. Concerns over security, quality control and political backlash from clients have kept most from exploring offshore alternatives. “About a year ago, the AICPA (American Institute of CPAs) was recommending that accounting firms outsource tax return processing to India,” said Greg Lippe, managing partner at Lippe, Hellie, Hoffer & Allison LLP. “We decided we didn’t want to do it because we’re very concerned about security with regard to information.” K & A; officials say they found similar concerns until the publication of Thomas L. Friedman’s book, “The World is Flat,” seen by the business community as a primer on the global economy in the 21st century. “With that book, outsourcing became fashionable,” said Payne. But perhaps the greatest argument for outsourcing is simply the need for a larger labor pool to handle many accounting tasks, particularly the more basic ones. “You’d go to fairs and there are 1,000 jobs for 10 employees,” said Walters. “What we do there is at a beginning accounting level, so we kind of eliminated that position because we couldn’t find people. The quality control and service is here, and we’re bringing on higher level, more technical and more senior people here to do that.”
