In reaction to the rapid spread of COVID-19, on March 24th, the Indian government passed mandated stay-at-home legislation for private businesses. For many tax outsourcing organizations, this meant temporarily pausing operations. A few outsourcing partners, like Xpitax, were able to implement business continuity plans and maintain security while operating in a reduced, work-from-home capacity.
After nearly two months, on May 11th, the Indian government passed an executive order allowing private companies to open with reduced staffing and the appropriate safety measures in place.
As outsourcing operations increase capacity or start operations back up, I’d like to share some of the lessons we at Xpitax learned during the shutdown. And for those firms who are considering outsourcing as part of your tax season strategy, I’ve included a few questions to ask your outsourcing partner about current and future operations.
Lesson #1: firms were unable to maintain last years’ filing pace.
From internal data as well as candid conversations, we know that firms approached April 15th with two different mindsets. They either acted as though the filing extensions didn’t exist, maintaining workload and productivity to the extent possible, or they took advantage of the extended deadlines, throttling productivity.
Regardless of approach, firms were not able to maintain last years’ pace. As April 15th came and went, the national filing pace slowed. Outsourced returns were no different, dropping year-over-year while remaining at the same current year pace as returns filed domestically.
We know that the slowdown was not by choice. Firms are experiencing a combination of personnel, technology, and client limitations in the wake of widespread business closures and movement restrictions.
Lesson #2: a lack of client documents affected everyone.
During conversations with customers, one of the most common complaints I heard was how dramatically the pace of client information to the firm had slowed. In a recent report run exclusively for our customers, over 5,000 tax returns prepared through Xpitax last year either had no information or were awaiting client information.
This information slowdown is mainly due to shelter-in-place orders and other movement and business restrictions. Firms in locations with more stringent restrictions are experiencing additional challenges in getting the necessary documents.
Geography is another factor contributing to the slowdown. Some states were faster than others in adopting an extended deadline. In states where decisions were delayed, the revenue department may not have communicated their plans to the public, leading clients affected to adopt a “wait and see” mentality.
Lesson #3: an extended filing deadline may not remove compression issues.
With over two months until the federal extended filing deadline, it may sound odd to discuss compression issues. But firms are implementing technology tools to obtain client documents, and states are beginning to remove or modify shelter-in-place orders. Soon, client information will start pouring in.
When this happens, firms may not be staffed at the levels necessary to handle a massive influx of returns.
Right now, the accounting industry is experiencing its normal seasonal staff shrinkage, as well as COVID-19-related furloughs and staff reductions. Combine the lack of seasonal staff and coronavirus-related staff shortages with summer vacations, CAS and audit staff returning to their regular engagements, and increased demand in assistance due to PPP and other stimulus measures, and an influx of client information. There is a danger that the compression usually seen in March/April will simply shift to June/July.
Firms do have an opportunity to spread the workload and avoid high levels of compression, but only if they plan proactively. Firms can take steps right now to reduce compression later, such as moving up activities that usually happen in the summer months to take advantage of existing capacity.
Firms can also plan for future compression levels by implementing the right technology solutions to increase productivity and leveraging tools such as outsourcing. Having a conversation with your outsourcing partner now about their capacity levels in the next 30-90 days is imperative if you plan to utilize their services during June and July.
Questions to ask your outsourcing partner.
Over the past few weeks, we have not only fielded questions about how Xpitax is serving its customers and protecting confidential client data, but also about our capacity. As our teams begin to increase capacity as the mandated shutdowns in India ease, those questions have only increased.
For any firm that is utilizing outsourcing right now, or considering implementing an outsourcing strategy to reduce compression during the extended season, I recommend asking your outsourcing partners about a few key items:
- What are their security plans? Whether working from home or in the office, your outsourcing partner must have a plan in place to protect confidential information. Do their employees sign a non-disclosure agreement? What about sign-in authentication? How secure is their environment, both remote and in-office?
- Do they hire employees or subcontractors? Many outsourcing firms have subcontractors on their payroll – it’s easier to flex capacity as needed. However, with employees, there is a greater sense of loyalty and a single set of priorities. This is one reason that Xpitax does not utilize subcontractors.
- How are their workers vetted? Every hire should have a background check done, with particular attention paid to financial red flags. Do employees/contractors sign a non-disclosure agreement, and if so, what are the terms?
- Will they act as your intermediary? Outsourcing should make life easier. Your outsourcing partner should be knowledgeable about foreign laws and customs and act as your intermediary. You should not need to worry about time zone issues or language barriers.
- What is their average turnaround time? Will your outsourcing partner meet your standards for turnaround time? For example, Xpitax maintains a 24-48 hour turnaround time unless it is a highly complex return.
- Where is the data housed? Data should remain in the US, with employees accessing the data centers as necessary to process the returns. For example, Xpitax maintains data centers near our corporate headquarters in the Boston area.
- What is their business continuity plan? There is a distinct possibility that as businesses reopen, even in a reduced capacity, a second wave will occur. If this happens and a shutdown mandated once again, how will your outsourcing partner maintain security and service their clients? Will they need to shut down operations?
Xpitax implemented business continuity plans in February and continued to follow best practices in a remote work environment. By leveraging technologies to support our distributed teams and workforces, we maintained operations throughout the shutdown. When the executive order to reopen was passed on May 11th, we began in our Chennai office, bringing back a limited number of staff in compliance with government guidelines.
As India continues to ease stay-at-home restrictions, firms will find that their outsourcing partners have additional capacity to support an outsourcing strategy. However, COVID-19 has brought with it continued uncertainty around timelines and treatment. Any firm that is considering resuming, increasing, or implementing an outsourcing strategy should do their due diligence. Ask your outsourcing partner how they will continue to support if and when stay-at-home legislation is implemented once again.
I encourage anyone with questions about how tax outsourcing services are adapting to the COVID-19 environment to reach out for more information.
Yes, this is an unusual time for all of us. But we are in this together; we will prevail, and together come out stronger than we went in.