September 27, 2022

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Looking abroad: As accounting firms struggle to find workers, more and more are expanding overseas

Bill Hagaman, CEO and managing partner at Withum, described visits to one of his accounting and advisory firm’s 150-employee branch offices, where there’s a palpably easy-to-sense work ethic for the same rational reasons as you’d find anywhere else: Namely, the potential for a better life for oneself and one’s family.

Bill Hagaman. (Withum)

But, it’s no quick trip down the New Jersey Turnpike for Hagaman to visit this particular office.

In fact, it’s an all-day flight that separates the firm’s Princeton headquarters and its new office in Bengaluru, India.

Withum is one of the many accounting firms that has wholly embraced an offshore labor force in the two-year span since the pandemic began. Facing a serious lack of available professionals close to home, smaller firms have followed the lead of Big Four competitors and their investments into creating a workforce in places such as India.

“India, the Philippines and other countries have very confident and skilled accounting professionals,” Hagaman said. “The Big Four has been doing it for decades, and can have as many as 50,000 people working in somewhere like India. And the buildup of that pool of trained professionals there over time has created opportunity for us today, too.”

Hagaman will be the first to admit it’s not a unique solution. All accounting firms above a certain size — confronted as they have been with a surge of client demand and, consequently, a lot of work to do during the pandemic — are either doing it, or are at least talking about doing it.

With a larger share of accounting firms tapping talent overseas, India-based offshore staffing firm Entigrity reports on its website that it has seen the amount of accounting firms with offshore workers rocket from about 6% before the pandemic to just over 40%.

“These countries have very confident and skilled accounting professionals … and I’ve found that the people there are phenomenal, and really no different from the people we hire in the U.S.,” Hagaman said. “These are very confident and skilled accounting professionals.”

Withum’s offshore team in India does mostly audit and tax work, as well as some back-office duties and even marketing. Where some additional help is needed during the accounting sector’s annual deadlines, the company has temporary workers who take up contracts in South Africa.

The arrangement is not challenge-free.

But Hagaman didn’t list language barriers as a complication of operating in one of the largest English-speaking labor bases in the world. Time zones, unsurprisingly, prove tricky — but, again, it’s not a barrier to entry for him.

The peril is the same one accounting firms face locally: There’s not enough talent to go around.

James Blake. (Mazars USA LLP)

James Blake, COO of Mazars USA LLP, another firm utilizing an offshore facility with its own dedicated workers, said the local tightness in the labor market is mirrored abroad.

“This labor supply issue — the ‘Great Resignation’ — is heightened everywhere, not in just one part of the world,” he said. “This is an issue across all geographies, all years of experience. It’s all across the board that we’re finding this struggle on the people side.”

The current inventory of accountants in the industry has become scarce due to the steady growth firms have been experiencing over the past two years. In a way, it’s hard for accounting firm leaders to complain. Growth has soared into the double-digits and hasn’t come down.

“But, the labor issue could very well restrict the capacity to grow if it doesn’t see a turn in the near term,” Blake said, adding that not having the right number of professionals to meet rises in demand could “make it so the potential for exponential growth is impacted or slowed.”

So, for now, firms are turning to offshore models to fill in where local talent equipped with the streamlining potential of automation technology isn’t proving sufficient to complete tasks.

Ted Carnevale. (Grassi & Co.)

Ted Carnevale, a partner and co-leader of the New Jersey market at Grassi & Co., said his firm hasn’t been persuaded that the offshore labor option fits with the advisory service angle his accounting firm has been leaning into.

“A lot depends on the type of work the firm primarily handles,” he said. “Our work is heavily advisory oriented, even if we certainly do traditional CPA firm, audit and tax, accounting services. But those are the areas that lend themselves more toward offshoring, whereas having a significant service capability in the advisory services area, that can’t be easily offshored.”

Regardless, Carnevale noted that firms around Grassi’s size — including some smaller, and definitely those larger — are starting to take that avenue more often.

“And, for them, what seems to work reasonably well is controlling that offshore office location themselves,” he said. “The other option for firms that don’t have the resources or management capabilities would be to plug into pre-existing firms there that offer offshore services. In some situations, that can work, too.”

In either case, he added, clients have to be apprised of the fact that an accounting firm is using an offshore labor process in the handling of their finances. And clients have to agree to it, Carnevale said.

Right now, generally speaking, Carnevale said he expects his clients wouldn’t be overly thrilled about it. He cited concerns about centering and securing important financial data outside domestic markets.

John Delalio. (Eisner Advisory Group)

John Delalio, managing director at Eisner Advisory Group LLC, said his firm has been building a team in India for a number of years. Its clients are accustomed to having the national firm utilize remote workers spread across the country already, so the use of offshore labor wasn’t a massive course-change.

“Additionally, we’ve set up our offshore workers so that we have ways of keeping data onshore and protected,” he said. “So, we’re very comfortable (using offshore workers). There are clients who ask us not to, and that’s something we can do — but that’s more of an exception.”

All firms are feeling the sting of trying to keep pace with new client opportunities with a shortened supply of local well-trained professional staff. Grassi is attempting to answer that by beefing up internship programs and trying to recruit young talent earlier in their college stay.

The problem is: All firms are.

And as Blake explained, those efforts — with students getting drawn into other careers or putting their studies on pause during the pandemic — are not always successful.

Toward the end of the calendar year, Mazars could usually count on having 85% of next fall’s fresh-out-of-college recruitment class all locked up. Today, it’s hovering at about 50%.

Ralph Thomas. (File photo)

“It’s no secret there’s a fierce competition for talent among firms and companies,” said Ralph Thomas, CEO and executive director of the New Jersey Society of CPAs. “The number of people sitting for the CPA exam … has dropped to its lowest level in 10 years.”

The head of the state’s accounting trade organization said there’s more fuel to add to the fire: About 70% of the higher-ups in the accounting workforce are eligible to retire. And, during the pandemic, increasingly, they’re choosing to do just that.

The organization is heading into 2022 with an eye to continuing its long-term plan to rebuild the sector’s talent pipeline, which includes dispersing accountants to the region’s high schools to hopefully inspire students to enter the industry in the coming years. Thomas also considers the push to bring more diverse individuals into the industry, especially its leadership positions, essential to replenishing its labor force over the next decade.

Nonetheless, the companies investing in a labor force abroad … they see what they’re doing as long-term, too.

“It’s definitely going to be a long-term trend; it’s just that, right now, the labor markets are still figuring out how to live with this new remote worker model,” Delalio said. “And it’s a global phenomenon. What’s happening in the United States is happening everywhere.”

Hagaman adds that what his firm is building in India is an accounting team no different than building out an office in the Garden State.

“They might have a different geography or culture,” he said, “but, at the end of the day, they’re the same hard workers with the same goals.”

Looking abroad: As accounting firms struggle to find workers, more and more are expanding overseas