Academic journal article Journal of Accountancy

Advise Businesses on External IT Resources: Help Clients and Employers Find the Best IT Vendors - When Needed

Academic journal article Journal of Accountancy

Advise Businesses on External IT Resources: Help Clients and Employers Find the Best IT Vendors - When Needed

Article excerpt

Companies can't compete effectively if their information technology (IT) systems don't have the power or flexibility to perform essential business functions. But many organizations find it difficult to set up or maintain the IT resources necessary to do these jobs in-house. This article will show CPAs how to help their clients or employers find the most effective and economical way to obtain the network administration, computerized billing, payroll, customer service, human resources or other electronic logistical services they need to support mission-critical business processes. (For brevity's sake, the article will use the term client in contexts applicable to both clients and employers.)

The first and most important decision a company must make is whether to outsource one or more of its technology-dependent functions. To help make that decision, the CPA should become familiar with the most common reasons companies consider farming out IT functions (see "Deciding Whether to Seek Outside IT Help," page 56). If a client chooses to outsource, the CPA can help evaluate vendors, work with legal counsel to document service terms in a clear and accurate contract and provide tools for measuring vendor performance once a written agreement takes effect. If going outside for IT help doesn't appear to make economic or business sense for the company, the CPA instead can provide a reasoned analysis showing the advantages of improving in-house systems.

IMPORTANT BECOMES URGENT

Many factors influence companies to outsource IT, but few are as pressing as the financial reporting requirements of the Sarbanes-Oxley Act of 2002. Compliance with these provisions requires computing resources that a growing number of company executives feel are best obtained from vendors with superior systems and skilled personnel.

Some managers worry that the risks of outsourcing IT functions may be too high--approaching financial and organizational catastrophe. It's not uncommon, for example, for organizations to incur fees higher than originally estimated or for vendors suddenly to be unable to deliver services for protracted periods, putting their client companies at great competitive disadvantage. According to Yigal Rechtman, CPA/CITP, partner at Person & Co: LLP, a five-person New York City firm, "Many vendors focus on the IT functions they can provide and ignore others that are equally important to their customers. That's why it's important for clients to have business continuation strategies that reduce their exposure to the risk of vendor service delivery problems."

The following shows how a CPA who understands both business and technology risks can lead a client through each aspect of the outsourcing decision process.

IS IT NECESSARY?

When internal systems fail to perform as required, company management may consider outsourcing a way to acquire what seems unobtainable in house. For example, a manufacturer that needs its local area network to be nearly always available instead may have to contend with recurrent periods of downtime that confound the help desk, interrupt customer transactions and decrease revenue.

In such cases a skilled CPA can use cost-benefit analysis to help management decide whether and how the organization can solve its IT problems by making internal improvements such as buying new equipment, hiring more staff and paying for systems training. If the cost of rehabilitating in-house systems appears to be prohibitive, the CPA can assist the organization in issuing a request for proposal (RFP) to provide the required IT support and evaluate vendors' responses to it. The Financial Services Roundtable, a banking industry trade group, provides a helpful guide to RFP preparation in its BITS Framework for managing IT-service-provider technology risk (see "Other Resources," page 62).

The CPA can use the RFP to help his or her client better communicate its service expectations and needs to vendors. …

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