Outsourcing to India Grows While Legislation Aims to Apply Brakes

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The trend towards outsourcing accounting work to India added another brick to its foundation this week, with the announcement of the launch of a new U.S. based company to assist with the transactions.

Accountants in India (AII) is the brainchild of
accounting profession veterans Wayne Harding (formerly with AICPA's CPA2Biz) and KC Truby (Bridge 21). The outsourcing matchmaker was launched Thursday to help lower costs for U.S. accounting firms by hiring full-time accounting professionals in India.

"Through AII, CPA firms can hire a qualified, college graduate accountant, successfully trained in QuickBooks Pro and other business management applications, for about $8 an hour," said COO Wayne Harding in a press release.

According to the New York Times, 100,000 U.S. tax returns, both federal and state, will be prepared by Indian citizens in Bombay and Bangalore this year. The number of returns is four times larger than last year, and many more times greater than the several thousand of just two years ago.

Meanwhile, pending legislation would curtail the trend. A bill introduced by U.S. Sen. Christopher Dodd of Connecticut would ban the use of federal funds to buy goods and services produced by foreign workers. It would also bar the government from buying goods or services from domestic companies using foreign subcontractors. Federal privatization efforts and state programs using federal funding would also be limited.

Outsourcing has its strong proponents. India's knowledge pool is deep, education is inexpensive and the English-speaking workers accept low wages — an attractive combination for U.S. companies looking to lower costs.

Staff in India are often used for back-office tasks, such as bookkeeping services, data entry and simple 1040 tax returns. Security is a top concern, so AII doesn't ship any documents. Work is done on a paperless, secured ASP environment. "Basically, all of the input we have for our CPA firm is done by the Indian accountant and then one of our U.S.-based CPAs review their work," said Nigel Clayton, partner of Colorado-based Clayton & Associates, according to AII. "This saves us hours of valuable time."

The growth of outsourcing tax returns prompted the AICPA to warn members of the ethical and legal ramifications. CPAs must guarantee privacy, as an accounting firm can be held liable if its Indian partner fails to protect taxpayer information. The firms are also responsible for reviewing all work for accuracy and completeness.

In India, executives say the resurgent economy is helping everyone, and they fear legislation that may dampen the technology boom. Other industries, such as makers of cars, scooters and motorcycles, are also blossoming, fueling hope that India can start attacking poverty and other social issues.

Steven Clemons, executive vice president of the New America Foundation think tank, speaking to the Chicago Tribune from Bombay, said that Congress and the Bush administration should focus not on protectionism, but on encouraging innovation. "There's a culture of inquiry here. I've never met so many smart, so incredibly inexpensive people."

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