Ethical Implications of Outsourcing Shawn Schneider University of Phoenix Michael Osby MGT216 May 18, 2009 Ethical Implications of Outsourcing For several years, many companies have turned to outsourcing income tax preparation and income tax return filing to companies in other countries to improve performance. The act of outsourcing a company’s tax preparation is reasonable if the company is confident with the servicing company which is contracted; by outsourcing one part of the business they can use resources in other areas (Mintz, 2004).
What happens when a tax preparation company outsources customer tax preparation and tax return filing to other countries? When an individual takes personal and financial information to a tax preparation company an expectation of confidentially is entrusted to the company. What implications may arise when a company does not disclose their true intentions? Statistics The estimated number of income tax returns prepared by an Accountant in India in 2002 is 25,000; the estimated number of American income tax returns prepared in India for 2004 was close to 100,000 and the numbers are expected to grow exponentially each year.
The companies which are outsourcing income tax returns allege they employ “either Chartered Accountants or Indian Chartered Accountant candidates trained in U. S. -based tax law and tax return preparation” (Brody, Miller, & Rolleri, 2004). The number of American income tax returns being processed by individuals in India could grow to be a much higher number than those prepared and filed in the U. S. Ethics of Companies When a company desires to outsource to another company whether within its nation or abroad they must be certain the company in which they will contract has the same ethical standards as their company.
When companies work together without similar ethical standards the consumer normally gets the brunt of consequences. The way to see what level of ethical standards another company has is in the wake of a crisis. When a crisis arises and individuals must react quickly to make resolution, the actions are normally not as thought as they would be in a normal situation. If the company reacts in an ethically correct manner the presumption is that they possess high ethical standards (Sivaswany, 2005). Benefits Lower costs are the reason U. S. -based companies turn to outsourcing beyond their own borders.
The cost of living and standard of living in India is less than in the U. S. which lowers the wage cost to the tax preparation and return preparation companies. The lower cost of the tax preparation and tax return means a lower cost to the consumer. To hire an American based CPA firm to do tax preparation and tax return is substantially higher than that of a company which outsources to India. When a company outsources to firms in India the prices are set; the individuals pay by the “number of source documents provided (Brody, Miller, & Rolleri, 2004).
Do the lower costs outweigh the possibility of lost confidentiality? Information Processes The process of sharing information between the outsourcing company and the India based Accounting Firm is that of electronic data transfer. One might question the confidentiality of this type of information transmittal. The claims of companies is that the security of the electronic transmittal over a secure internet connection is much more safe than the average CPA Firm an individual might take income taxes to for preparation and filing (Brody, Miller, & Rolleri, 2004).
Companies outsourcing to overseas companies means that the security of personal and financial information is in the hands of companies both inside and outside of the U. S. for security of the information. A breach in the security can be costly to tax preparation companies; consumers have an expectation of the companies they contract to keep their personal and financial information safe. When the security measures a company takes are not sufficient the ability of hackers stealing information is elevated (Brody, Miller, & Rolleri, 2004).
Disclosure of Information Liability Insurance companies urge tax preparation and tax return companies to incorporate “a disclosure of electronic communication devices into the tax engagement letter” (Brody, Miller, & Rolleri, 2004). In the letter the company discloses how the process is conducted; confidential personal and financial information is sent electronically over the internet or facsimile. Although vast measures are taken by the firm the possibility of the information being compromised is potential but minimized.
The company will normally state that once the information has been sent electronically they are no longer responsible for the safety of that information. Although many companies do have disclosure statements, many still do not and take the chance of being sued if an individual’s personal or financial information is intercepted by unknown persons. The amount of money a company could be ordered to pay to an individual for such a disaster could very well put them out of business.
The chance of being sued has had an impact on the number of companies who have incorporated a statement into their contracts which consumers should read before signing. Many times an individual goes to a company to use the service and does not read the information provided; although the company discloses all operating procedures within the contract they have written up the consumer may not read the contract before signing. When a crisis then arises with the consumer’s personal and financial information being compromised the assumption is that they have the right to sue regardless of if they read the contract before signing.
Most companies go through immense measures to ensure the safety of their customer’s information; no matter what the measures taken the possibility of compromise is always there (Brody, Miller, & Rolleri, 2004). Conclusion With the sheer number of companies and individuals using tax preparation and tax return filing services the need for outsourcing is at a premium. Companies which contract other companies to assist in the work load should disclose the information to the consumer and take immense measures to ensure the safety of the information in which they have been entrusted.
The livelihood of their business depends on consumers returning each year and referring others to the service. Safety of an individual’s personal and financial information is not the responsibility of the company alone; consumers should be better aware of the companies operating procedures. The ethical issues that a company can face in light of compromised information are serious but when a company has taken every measure and disclosed the policy they should not be held accountable. References
Brody, R, Miller, M, & Rolleri, M Outsourcing income tax returns to India: legal, ethical and professional issues. The CPA Journal, Retrieved May 15, 2009, from http://www. nysscpa. org/cpaj/2004/1204/p12. htm. Mintz, Steven (March 2004). The ethical dilemmas of outsourcing. The CPA journal, Retrieved May 14, 2009, from http://www. nysscpa. org/cpajournal/2004/304/perspectives/nv1. htm Sivaswany, Ranjini (August 18, 2005). Ethics of outsourcing. business/outsourcing, Retrieved May 14, 2009, from http://ezinearticles. com/? ethics-of-outsourcing&id=61293&opt=print