Outsourced Accounting

Traditional Outsourcing Arrangements

In a traditional, functional outsourcing arrangement, an outsourcing supplier provides very specific functions that fit within an overall scheme of intricate business processes.

For instance, many organizations outsource their Payroll Processing functions. They enter into an arrangement with a Payroll Service Provider to process payroll checks, make required tax payments and deposits, and prepare and file required payroll tax forms.

What is Outsourcing?

Business Process Outsourcing (BPO)

In BPO, the supplier not only takes on the responsibility to take over the function or business process, but it also reengineers the way it is done. That will include either putting in new technology to accomplish the process, or applying the existing technology in a new way to improve the process.

A BPO solution typically combines computer infrastructure, and software, IT management services, functional operations people/labor, defined process workflows, best-practice service disciplines and related infrastructure on a contractual outsourced basis.

What is Business Process Outsourcing?

Virtually any “non-core” process or responsibility◦Facility Management◦Food Service◦Legal◦Human Resources◦Security◦Information Technology◦Payroll◦ERP & Accounting

What Can Be Outsourced?

BPO MarketFinance and accounting alone was $31 Billion in 1999 and will grow to $77 Billion in 2005.

Total IT BPO market was $184 Billion in 2003, and will grow to $256 Billion by 2008.

Gartner Group Dataquest 2005.

Recent Survey of 500 Executives 80% said BPO’s importance is growing. 93% said there is a strong correlation between BPO and

shareholder value.

Conclusions: In the near future, ½ of typical executive’s budget will be

outsourced. Outsourcing is one of the most important trends in our

time Organizational success will depend on management’s

ability to leverage outsourcing relationships effectively

BPO Market

Desire to gain process improvement Focus on core operations Reduced costs Single point of accountability Improved business agility Improved quality – latest technology;

expertise Shortage of labor

◦ Companies face challenge of hiring and retaining qualified staff.◦ Virtually all internal accounting personnel are considered “cost centers.” In contract, BPO vendors

back-office support staff are revenue-generating employees.

The BPO Value Proposition

Competitive and financial pressures are forcing organizations to narrowly define their strategic core competencies;

Outsourcing can be an effective way to gain competitive advantage, lower costs and increase efficiency;

Outsourcing can be a cost-effective way to take advantage of new ideas, new solutions and best-in-class processes and technology;

Outsourcing to firms regarded as experts in the field can help organizations gain needed credibility with external parties;

Limited availability of qualified labor.

Why Outsource?

Not a new concept Improvements in technology (i.e. ASP model

and internet) have made model less expensive Technology advances have facilitated the

outsourcing of certain business processes, however it remains the processes themselves that are most important

Technology outsourcing is more prevalent and accepted in our economy

Why BPO is catching on

The continuing technology evolution is a key driver of the BPO Model

Use of technology not new in outsourcing arrangements – service bureaus, ADP

Along came the Internet Broadband connectivity ASP Model Web-based apps BSP Model

The Role of Technology

Customer Site◦BPO provider and software reside onsite at

customer’s location

Centralized◦Customer may have some remote access to

software

BPO Models

HB&P’s BPO model recognizes that each client’s needs are unique.

Extensive needs assessment process Solutions are not “system-specific” Designed to meet specific needs of our clients Work with client’s existing accounting staff, or

become its virtual accounting department

Flexible Client-Specific Solutions

Think of HB&P as the Accounting Department Down the Hall

Management retains overall responsibility for accuracy and integrity of financial records.

HB&P assumes the role of Management’s Accounting Department, working under Management’s direction.

HB&P can implement its virtual accounting system at a fraction of the cost of the client purchasing its own system◦ State of the art technology◦ Anytime/Anywhere access to information

How it Works

A Typical HB&P Arrangement Cash Disbursements Cycle:

◦Management approves and codes vendor invoices for payment

◦HB&P enters properly-approved invoices into accounting system

◦Data entry is reviewed for accuracy◦Reports are generated providing Management with

relevant cash flow information◦Checks are prepared for Management review and

signature

How it Works

A Typical HB&P Arrangement Cash Disbursements Cycle (Continued):

◦Vendor files are maintained for ease of research◦Vendor database is maintained to ensure accuracy of

vendor transaction and payment history◦Accounts Payable sub-ledgers are reconciled to

General Ledger to ensure accuracy of financial reporting

◦Bank accounts are reconciled and agreed to relevant General Ledger account balances

How it Works

A Typical HB&P Arrangement Cash Receipts Cycle:

◦Management prepares and approves customer invoices based on established billing procedures

◦HB&P enters properly-approved invoices into accounting system This can be “after-the-fact” entry of client-prepare invoices, or invoices can be physically generated by HB&P

◦Data entry is reviewed for accuracy◦Reports are generated providing Management with

relevant cash flow information◦Customer checks are received and coded by

Management

How it Works

A Typical HB&P Arrangement Cash Receipts Cycle (Continued):

◦ Deposits are made by the client and relevant information is provided to HB&P for entry in Accounting System

◦ Customer files are maintained for ease of research◦ Customer database is maintained to ensure accuracy of

vendor transaction and payment history◦ Accounts Receivable sub-ledgers are reconciled to General

Ledger to ensure accuracy of financial reporting◦ Bank accounts are reconciled and agreed to relevant

General Ledger account balances

How it Works

A Typical HB&P Arrangement Financial Reporting Cycle:

◦ Management retains responsibility for accuracy and completeness of financial statements

◦ HB&P prepares monthly financial statements that are reconciled to appropriate source documents and well-supported by meaningful workpapers

◦ Other management and financial reports are designed to meet specific needs of client management

◦ Financial and management reports can be printed, emailed, viewed online, etc...

◦ HB&P meets with client management to present financials and help interpret results

◦ Client feedback is incorporated into financial reports to ensure that reporting meets the ever-changing needs of the client.

How it Works

What’s in it for you? A team of accounting and financial experts working

on your behalf to provide best-in-class accounting and business processes

Ability to implement state-of-the-art Microsoft Great Plains eEnterprise software at a fraction of the cost of purchase

Anytime/Anywhere access to meaningful decision-driving information

Latest technology, continually updated and improved

Benefits of a HB&P Solution

What’s in it for you? Higher level of internal control Efficient coordination with year-end audit and tax

firms Overall cost savings vs. traditional accounting

department models You and your team can focus on your organization’s

core functions

Benefits of a HB&P Solution

Audit Partner, Halt, Buzas & Powell, Ltd.

March 16, 2005

Presented by W. Andrew Powell