The trend of working with external providers for interim or ongoing services is catching on as higher education institutions shift business and operating models.
- While outsourcing is common in some areas of higher education institutions, expanded outsourced services can help insitutions meet their goals.
- Taking simple steps can increase the effectiveness of outsourcing engagements and lead to success.
In higher education institutions, now more than ever, change is constant. Prior to the COVID-19 pandemic, colleges and universities across the country and around the world were working to redesign their business models for greater sustainability. Common trends, particularly in small to mid-size colleges and universities, included:
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- Closures and mergers
- Navigating an increasingly virtual environment
- Retirement of key leaders with long tenure
- Initiatives to fix an often failing business model, including revenue enhancements and cost reductions
As COVID-19 accelerates the need to address these issues, many higher education institutions have started to adopt and implement the concept of outsourcing — whether in a transitional period or for ongoing services — in ways the industry hasn’t commonly employed up until now.
Common types of outsourcing
While the term “outsourcing” is not always used, many schools have been contracting out functions for decades. The most common examples are auxiliary operations within the institution, where it is more efficient and allows for higher quality to have an outside company run and manage a function. For example, institutions commonly outsource:
- The bookstore
- Food service
- Housing management
Additionally, during transitions, higher education institutions have often used “outsourced” or interim resources during transitions across many functions, but then typically rehired full-time staff to fill the roles post-transition.
Emerging types of outsourcing
In the past five years, we have seen a greater interest — particularly for smaller schools — to outsource ongoing administrative functions to external providers. This has been driven by the retirement of chief business officers or similar leaders, challenges recruiting and retaining staff, evolving technology, and sometimes shrinking organizations that no longer need full-time staff in each area. The following are examples of popular administrative areas that can be outsourced:
- Accounting: From accounts payable and fixed assets to month-end close processes, many small institutions find it more efficient to outsource core accounting functions to a group that can provide fractional accounting support at different levels and enhance internal controls.
- Financial reporting and planning: Many schools find themselves needing strategic financial leadership to report, analyze, and plan for their future, but they do not need or can’t afford full-time staff to do this work. Outsourcing this function to supplement the accounting team can be a good solution.
- Student financial aid: Finding qualified staff, particularly if the need is for less than full-time work, can be difficult. Schools may choose to outsource some or all of their financial aid processes. Services may include ISIR processing, awarding and packaging, COD processing, Title IV reconciliations, and NSLDS enrollment reporting.
- Bursar office: Bursar office functions such as student accounts receivable management, Title IV disbursements, student billing, and payment plans are tasks that may be outsourced to allow current institutional staff to focus more on customer service and on-campus needs.
- Tax and compliance: Filing the annual 990 or other tax forms is commonly outsourced. You can also outsource other tax and compliance-related needs, where the work is often cyclical and doesn’t easily justify a full-time staff, or there may be a tax and compliance role within the institution that needs outside support. There are many functions that may be good options for outsourcing to get the tax expertise needed, such as:
- Nexus analysis related to multistate payroll
- Sales tax and business registrations
- Assistance with nonresident alien withholding and reporting
- Unrelated business income tax assessments
- Review of employee versus independent contractor relationships
- Assessments of internal polices and controls related to tax compliance
- General tax consulting
- Payroll: In many other industries, outsourcing payroll became very commonplace over a decade ago, but most colleges and universities still process in-house. Particularly by leveraging technology platforms, payroll may no longer require full-time personnel and may be more economical to outsource.
- Human resources (HR): Particularly in smaller schools, where HR may have been one of many functions managed by a chief business officer, it can often be poorly resourced or managed by staff with little background. Because HR needs may not be year-round, outsourcing can be a flexible model for adding experienced resources.
Risks and success factors when outsourcing
Outsourcing is not perfect — and it is not a perfect fit for all colleges and universities. CLA has provided many outsourced services to higher education clients over the past decade, and we have learned what can make an outsourcing arrangement a success.
- Relationship leader: Have a designated individual at the institution who is the primary point person with the outsourced provider. Ask that your provider do the same.
- Recurring check-ins: Proactively schedule recurring times for the outsourced lead or team to meet with the internal lead or team. While simple, this is often the most helpful change we make in an outsourcing engagement that has gone askew.
- Transparent fee structure: Outsourcing can be expensive, and cost overruns are one risk that you do not have when you staff a function in-house. Providers often have a variety of fee structures and you should negotiate one that works best for both parties. Transparency of time spent, fees incurred, and fees expected is critical for monitoring and projecting overruns and making changes before the providers have incurred significant costs.
- Realistic expectations during transition: Transitioning to outsourcing, particularly if it is a new concept for your institution, can be tough. Work with your provider to develop a 6 to 12-month timeline for implementing changes. Realize there may be cleanup work that needs to occur before the team can start working on the new challenges of today.
How CLA can help
Interested in exploring outsourcing and how it might benefit your institution? Want to get a sense for how it could work and what it might cost? Contact us to learn more.