A 2017 survey found that an overwhelming proportion of SMSF trustees have noted their discomfort with their personal financial records being processed and stored offshore.
According to the survey, 70 per cent of respondents were uncomfortable with their personal financial records being processed and stored offshore, while 93 per cent of respondents had a negative view of accountants and advisers sending work to offshore suppliers.
But speaking exclusively to SMSF Adviser, Novo Super SMSF specialist Paul May said offshoring will be even more problematic during the COVID-19 pandemic, especially for smaller firms.
“There are a lot of smaller practices that send work to larger administration firms who then send the work offshore,” Mr May said.
“It’s more likely they’re going to aggregator firms who through their scale have the ability to set up sites in different countries.”
He cited cases where client data could be compromised include:
- a dedicated secure site in one country that now has to move work to other ‘geographies’ as lockdown measures kick in from country to country
- large operational exposures to regions in the world where the majority of staff are being forced to work from home
- operations in jurisdictions that are now completely closed with many like institutions in the same region reporting their operations as offline
Mr May questioned whether supervisory arrangements that were previously based on a likely physical visit and subsequent sign off of a secure site could be maintained if work is moving both within and beyond offshore borders.
“Has full disclosure been provided to clients if circumstances have materially changed, for example, where work was done in one country is now done by another firm in another country?” he said.
“How can a level of comfort be gained in relation to data security given previously relied on statements have now likely changed?”
Potential ramifications for SAR lodgement
Mr May noted the impact of these changes on SMSF annual return (SAR) lodgement and whether there will be a number of COVID-19-related excuses being used this financial year to not lodge on time or to cover deeper issues that are emerging.
“With five weeks to lodgement and this being a relatively recent issue, the ATO should know exactly how the industry was positioned prior, and if a firm was not already pushing up to the ATO’s 85 per cent lodgement benchmark then it was likely not going to achieve 100% under normal conditions,” Mr May said.
As a result, Mr May predicts there will be a blanket deferral of SAR lodgement from the ATO coming out and that everything will be pushed back to the end of June.
Currently, a full deadline extension to 30 June only applies to tax agents adversely affected by COVID-19 and who apply to the ATO.
“That’s fine, but you can only defer so far before you start running into another financial year and the expectation is the next year’s work commences,” he said.
But the bigger issue, according to Mr May, is that the SMSF industry always seems to be reacting to events and situations that crop up instead of proactively getting on the front foot and making sure we are ahead of the workload, and that there’s proper planning in place instead of “leaving it to the death”.
“This unexpected event occurred in March with a lodgement day in May and now all of a sudden we need extensions,” he said.
“At what point is ten-and-a-half months after the end of the financial year not enough time to get the job done?
“At what point will the industry move to a proactive position and start preparing for unexpected events instead of relying on others to always provide the solution?”
POLL
Which country is your preference for offshoring SMSF works and why or why not?
1. India
2. Phillipines
3. Vietnam
3. Malaysia
5. Singapore
6. Hong Kong
7. Other (pls name them)
Other – Tasmania
yes Tasmania, Australia needs the work guys. come on!!
I didn’t know SMSF work was even performed in some of these places. It sure has been a silent shift. As the saying goes, you’ll remember the quality long after you’ve forgotten the price.
As in your SMSF work or ‘SMSF Works Pty Ltd’?
Looks like we got out blanket extension once again, now if we can just get the Vietnam office back online…
There were lots of automation talks in the SMSF world. If automation works then there is no need to do offshoring.
Don’t worry, there’s a solution to everything.
I’ll explain how to do this in a minute.
Management tells you.
Offshoring will allow repetitive tasks to be look after by Team B overseas and lets Team A (you) focus on more important tasks.
Very creative. It looks good on the charts, looks good on my LinkedIn profile, looks good on social media, looks good on resume and most importantly it looks good for my bonuses.
It works great. It must work elsewhere too. I will leave and implement the same at the next institution and repeat the bonuses.
Its not that hard – its just a data feed
If you can convince the clients to sign an authority. Or log in to their Westpac online banking to follow the simple instructions to provide authority. Or even convince them to spend 30 seconds learning how to download a CSV. 🙄
I think all firms that use outsourcing should have to declare that fact to the client. Most clients rely on the fact that the firm they are dealing with is in charge of their personal information at all times. They would be most disconcerted to realise that the business has sent the information overseas where they not only do not have direct control but are outside the protections of the Australian legal system.
Generally speaking engagement letters should disclose this, I thought, my EL has a comment we do not use any external outsource arrangements for ongoing taxation work either in Australia or overseas. I am sure many accountants don’t even have EL’s or don’t disclose it.
There is a paragraph in our engagement lettter that says we may use another Australian company that may outsource overseas. We are not allowed to point this out to clients, it’s up to them to read the EL before signing. Not that they do. When we started outsourcing, we did tell a few clients. They are the one’s that have said that they don’t want their work sent overseas.
Cost is the same as the overseas team are charged out at the same rate, so there is no saving to the clients, just to our profits.
sounds highly unethical , you must not meet the standards required by CAANZ
Why aren’t you allowed to point this out to the client? Has your boss said not too? If it is in there though the client should read it I guess.
So does the Accounting Professional & Ethical Standards Board Limited (APESB) – APES GN 30 Outsourced Services (APES GN 30) Guidance Note 3.9 advises that “Where a Member in Public Practice utilises Outsourced Services, the Member should disclose to the Client the geographical location of the Outsourced Service Provider and the nature and extent to which Outsourced Services are used in the delivery of the Professional Service to the Client.”
We all know we have to pander to the old, redneck, racist, bigoted and sexist SMSF trustees. They are the only ones with all the millions that pay our bills. The customer is always right!
The accounting industry operates on a batch basis. Off shore also operates batch. Technology and Data Automation is a better solution. Our software learns transactions and Automates the Audit simultaneously as documents are received by the system. Batch based servicing needs to be replaced by daily full service. the increased Automation leads to reduced time and this ensures that on-shore remains cost competitive to off-shore batch based processing.
The future of our industry and the direction that the regulator would like to see us navigate. Is toward daily reporting, audit and matching transaction. Our focus has been there for some years. Our price is the same, we are on shore and the service is superior and our staff are here and approachable. Off-shore can not supply a reporting and compliance service equal to Wrap. Daily on-shore can. i think the industry needs to change and be able to move away from labour arbitrage.
Another one of these ‘real time audit’ believers? It is impossible to audit daily or rely on data feeds, anyone can manipulate feeds and there is a heck of a lot more to an SMSF Audit than relying on data feeds and matching.
Interesting discussion. Seems like no one has mentioned that every one of the large SMSF Admin and SMSF Audit providers are either using offshore providers to process their funds or have set up their own overseas captives.
And most of them have lost control of their client base and lodgment program.
Dear Anonymous, How does your own charge compare?
if you want to know how to keep the costs down and retain control of the client (still offshore) please send me an email and check out the structure we use. They are effectively your staff logging onto your system in Au and under your control/authority. michael@teemcorp.com
Based on what I have heard from those who have outsourced the feedback has always been it ends up going back and forth, errors, rework, delays – they have said it will be quicker and cheaper to just do it themselves or marginal difference at best. A fee of say $990 flat if you do that yourself is $330 for an audit which leaves $660 to pay someone locally for 4 hours work which is all the average fund takes, it can be done locally and it can be done profitably. Half the time in the fund is not the doing but the packaging up, sign off, gathering info to begin with and this is not part of the $990 outsource fee generally speaking – with bank feeds and good systems of BGL and Class to me the outsource model makes little sense.
Absolutely agree, J.Toasten. I’ve never seen it as a choice between doing it cheaply or doing it locally. Instead of accepting a high number of processing hours per fund and trying to find the cheapest per hour labour costs, the challenge is to put systems and processes in place that allow your onshore staff to do the work quickly, accurately, and efficiently. In my experience, a small team of highly skilled local staff with good systems will be just as productive, and will generate a high quality result and allow you to provide excellent and timely customer service. We do all of our SMSF work onshore at a fixed fee that is generally comparable to firms that use offshoring.
You can go “cheap” or you can go “local”! Offshoring is UN-Australian. It is NOT just about the money, it is also about the Knowledge, the job opportunities, the availability and the future for our own Country. Look where our PPE position is as an example of where offshoring can put a Country.
Currently we need to be a little more parochial and pump as much money into our own economy we can. Wages are contracting, major accounting firms have already paved the way for this with 20% reductions. Costs will reduce. But it is not just about cost. We must look at the bigger picture before making these decisions, regardless of HOW professional these offshore operations are!
Here, here. It seems that the firms that have taken the ‘get rich quick’ offshoring path have forgotten that we owe a duty to future Accountants to preserve the profession as a viable career choice. Not to mention the duty to Australian businesses and investors to prevent trade secrets from being leaked to offshore competitors.
Exactly Ethical Accountant. If the graduates aren’t doing the basics, aren’t working on the clients files, how do they learn real life accounting skills and how do they talk to the clients about their work. They don’t know the specifics of what was done so have gloss over that part.
I find that there are errors, parts not done fully, to answer the overseas queries you have to look at the client file because half the time the answer is there. Outsourcing is a waste of time. And the time savings are not there for us to engage more with clients and provide other services. Other services for which we have no little or no training.
Automation makes the job easier. If half the transactions are coded and the other half just need a quick look at, why outsource.
I went to a CPA seminar a couple years back and a guy came and banged on about how great offshoring is – wonder if these risks to the business model were considered? Personally the ATO should ban sending work to foreign jurisdictions and help to keep jobs in Australia. The grads these days also struggle to get any grounding as the simpler work is not as common as it is all done by slave labor overseas.
J. Sartori – I have heard of an SMSF Specialist firm who has recently sent their work to an outsource operator and I believe not disclosed this to clients, at least not to all clients – would want to hope it is written in to their engagement letters! Not sure how it can stack up to be an SMSF Specialist and then send your work to an outsource mob but anyway, good luck to them. You have to wonder how profitable these outsource mobs are as a publicly available article refers to Squirrel Super as making massive losses and having large debts yet they are undercutting the market and driving prices down only to collapse? Where is the ATO on this as the situation with Squirrel seems to suggest they were in the can a large sum to the ATO among others but somehow deemed fit to operate? https://www.smsfadviser.com/news/17752-federal-court-rules-against-smsf-admin-firm-in-recent-dispute
The current health crisis has generated significant rhetoric about over-reliance on overseas providers and that Australia should be more self sufficient.
Perhaps those clients participating in this survey should have also been asked,[i] “would they be prepared to pay double their current SMSF admin fees if there is a guarantee of no outsourcing?”.[/i]
Its almost impossible for SMSF and accounting practices alike, to make a reasonable return with Australia’s exorbitant salaries, compulsory superannuation, payroll tax, paid leave for all sorts of reasons and ongoing HR costs and demands.
If those are the hallmarks of the Utopian society we want, then these parochial SMSF clients better get used to paying a lot more!
I have visited overseas SMSF & accounting operations in Asia. The security, IT, training qualifications and professionalism was of a standard that makes most Australian SMSF operations look like a bunch of amateurs.
Criticizing outsourcing because you are finding it hard to compete is a waste of time. Offer SMSF trustees a choice of fees, one with outsourcing and one without. See which one they choose!
Yet paid 1/10th of what minimum wage would be here in Australia? There was a nice article today on Singapore and how the virus spread has picked up due to foreign workers kept in overcrowded dorms with 12 people in one room – If Australians are happy to pay for slave labor camps run by foreign warlords that’s fine and hats off to those who exploit that while they can but there needs to be global attention to what is going on here, this is what caused the virus as the Chinese population is so impoverished they are eating bats.
A good point but it is only valid if the cost savings are passed onto the SMSF Trustee. The savings (if they exist at all) are pocketed by the accountant.
David, I was thinking same as lets say a planning/accounting firm has a book of work and it is average fee $2,750 for tax and audit and they figure they are spending $1,500 a job in total costs so they decide it is easier to send to an outsourcer for $990 and add in their handling time of $300 so would be marginally ahead, the client won’t see any of it and for that a local job is lost. and 90% of accountants still have no clue about super, no in house knowledge and are run like crap and in a downward spiral slipping further behind each tax cycle.
Thanks for the post Anon. The article certainly did not talk about cost or discourage competition. I believe the focus should always be on value, transparency and appropriate service for the fee charged.
I’d just worry about keeping creditors in line as the word on the street is spring time may catch a few out, the virus Works in mysterious ways.
I tend to concur with Mr. May. We looked at going down the offshore path however we made sure we spoke with all our clients and it was a resounding no when posed the question. We also found that the expenses involved – both monetary and time – were just not worth it all given the climate of the industry over the last 12 months or so.
I concur with J Sartori, Offshoring does not necessarily improve service levels nor does it save costs. There is an additional line of communication – Client – Accountant – Offshore – Accountant – Clients (instead of Client – Accountant – Client). There is additional reporting obligations by Tax Agents to clients (yes you do have to advise clients that their work is being processed offshore and/or outsourced). Imagine how complex this becomes when your offshore firm outsources its work to other firm in other geographies. Some offshore providers argue that data is secure – they quote all sorts of security measures – no electronic devices and biometrics but what good are these with lockouts and staff working from home. All of this adds risk to a business.
Offshore providers also argue that they save mundane processing, are efficient and provide scalability both up & down. Mundane processing can be avoided with the use of properly configured specialist software (BGL360, ClassSuper, SuperMate).
In relation to efficiency & scalability I counter with this – In Feb 2018 SuperConcepts acquired More Superannuation. It was reported in this publication that “[i]MORE Super has a sizable international presence, with about 100 of its staff operating on a transnational basis.”[/i] In the 2017 financial year, it administered and audited about 5,000 SMSFs. Today More Superannuation reports staff numbers of 200+ to audit and administer 7000+.
I remember the old days at Super Concepts (Blue logo / with a space), pre – data feeds; 100% paper, office overflowing blue folders where the target was a fund a day and it was achieved.
SMSFs are bigger and rules are more complex but technology should have had some impact. And to think the brains trust at SuperConcepts (green logo / no space) terminated experienced onshore staff to end up at 35 funds a year.
Super Concepts would appear another example of a price cutting loss making enterprise which has negatively impacted the SMSF Accounting space.
That would be be SuperConcepts (green logo/no space)
super concepts the firm that pays $ 150 for an audit by Deloitte and has the audit completed in the Philippines yet signed off in Australia . No one ever mentions Deloitte as a low cost supplier of audits . Deloitte also audits the parent company AMP
If you are going to post you should get the facts correct. Ernst & Young are the AMP Group auditors.
Good case study JS. Guess that’s the point here, you have included your clients in the decision-making process and considered their feedback.
Hard hitting but pretty much spot on – agree about the fact we are pretty deep in to the tax year too and seems to be a reason for a deferral every year. I am getting quite frustrated also mobs get extensions year in year out and the TPB seem to take no action? I’m also aware of a few accountants with an atrocious record who have been allowed to keep operating. There is minimal supervision of Tac Agents but SMSF Auditors are being hammered by the ATO and ASIC?
This comes back to moving to a prepared and proactive position. I agree audit is a vital part of the compliance value chain but it should not be carrying the full load or be the sole focus.