They may not compete for the same clients, but whatever their size, Ottawa's accounting firms are fighting tooth and nail for one hot commodity - staff.

That was the

For local firms in the mid-tier, family friendly workplace key to staffing woes

They may not compete for the same clients, but whatever their size, Ottawa's accounting firms are fighting tooth and nail for one hot commodity - staff.

That was the common theme from three of the region's locally owned and operated accounting firms, who spoke with the OBJ last week to share their thoughts on their profession, its challenges and where they fit in as mid-tier players.

From Welch & amp; Co. we spoke with managing partner Micheal Burch. Welch, which will soon celebrate its 90th anniversary, ranks as the largest locally owned and operated accounting firm in Ottawa with more than 120 staff serving clients in eastern Ontario and western Quebec. As is common for accounting firms in the mid-tier, its primary focus is small- to mid-sized owner-managed businesses, but it is also trying to grow its public sector practice.

Ginsberg Gluzman Fage and Levitz celebrated its 60th anniversary last summer. From its humble beginnings as Capital Audits, with revenues in its first year of operation of $1,600, it has grown to more than 100 staff. We spoke with Gerald Levitz, who joined the firm as partner in 1977.

Lastly, Douglas McLarty, who co-founded McLarty & amp; Co. in 1981, gives his perspective as a smaller full-service firm (sans bankruptcies) of around 25 staff. For him, it's all about serving as a trusted advisor for owner-managed businesses.

OBJ: As a locally owned and operated firm, how do you fit in among the larger national firms? What are your competitive advantages/disadvantages?

BURCH: We have a large concentration (of clients) in the owner-managed businesses and I think the nationals don't have as big a concentration there. They're more into the national scene and the listed companies, that sort of stuff. Because of that I guess our competitive advantage is that we work in this space all the time. It's our specialty. As a result of that. we've got deep, deep experience in both the accounting and tax issues facing these guys on a day-to-day basis.

One of our disadvantages is that we'll look into a small or medium-sized business that's got this goal of one day going public. It's not as often as it used to be for sure. And they'll often hear that, "No, no. You've got to be with a national (accounting firm) for once you go public and when you do prospectuses and all the rest." I think we're at a bit of a disadvantage there. We might lose some guys who might otherwise be well served by us... we don't deal with public entities. We decided specifically not to go with public entities because that attracts it own set of rules and regulations. But certainly, in the first four or five years when (clients are) building their business we would be ideal for that.

LEVITZ: Do we compete? Yes. The issue with being in the middle as a large firm is that the firms larger than us are interested in our larger clients, and the firms smaller than us are interested in our smaller clients. So we need to be competitive at both ends of the spectrum. Our advantage when dealing with the larger or national firms is really based on perception of two things: continuity as a trusted advisor and price ... The national firms are less able to offer the kind of continuity we can offer for the length of time we serve a client.

With respect to cost, once again, some of this is in the eye of the beholder, but just by nature of the fact that the larger firms are in fact larger, tend to be located in more expensive office space, tend to have larger overheads, all of which are positive I'm sure for their environment, but are things that are not in our costs and therefore, our average costs are normally lower.

Disadvantages? When people are looking to advance their careers, particularly earlier in their careers, a larger entity has larger opportunity than a smaller entity. That's axiomatic. On the other hand, the size of the files that large firms deal with give us an advantage a bit too. Young people want quick responsibility and variety. One of the aspects of working with a national firm, their accounts tend to be larger. Some of them tend to be out of town. Young people can spend half a year dealing with one file. Which in the end isn't as stimulating as they would like it be, although an excellent learning experience. The other disadvantage in theory, which we combat in a different way, is the ability to offer services nationally. We belong to an accounting association. We have 13 firms in our Canadian roster, and we can compete across the country and worldwide.

McLARTY: Our firm really doesn't compete with the national firms and we don't offer any services to public companies. So we consider ourselves a mid-tier firm and we do focus on ... when we say successful owner-managers, obviously these companies can be quite substantial in size. But the difference is really that they're usually family owned. When you think of a car dealer it's a family involvement. There's usually multi-generations, they're usually profitable. They have succession issues, they always have lots of tax stuff on the go. But the role we tend to play and I like playing ... is that we're more trusted advisors and we're more involved with our clients.

On the disadvantage side, I can't think of any other than we're not doing some of the interesting work that you would do at a national firm, international work and travelling, that sort of stuff.

OBJ: How would you characterize your profession? Can it be considered a growth industry with the pendulum swing that has occurred towards greater corporate governance and fiscal accountability?

LEVITZ: I think we're a huge growth industry ... for a whole number of reasons. It's very interesting as a result of the publicized scandals, two effects of that that's easy to mention. One is the demand for higher governance and more rules and regulations to be enforced. Secondly, it has made the profession somewhat more sexy to young people ... it's part of a profile of our profession that simply didn't exist before to the length and breadth that these (scandals) brought it forth. In fact, statistically, enrolment in business schools started to climb after the Enron-type world was revealed to us.

Any regulation that requires either more disclosure, more sophisticated audit techniques, is going to require more accountants. In fact, I would say to anybody today, if you're a young person wondering what career you might consider, than accounting should be in your top three.

McLARTY: The pendulum is swinging. There is no question it has swung all the way to one side and that's created a tremendous amount of demand for services in the accounting industry. In that regard I think you have to say it is a growth industry. There is a tremendous opportunity and demand for young people coming into the profession right now. I think it does offer an interesting environment for people to get skills as an accountant. You may become a CA, but you can work as a CFO or sit on boards of directors. I think one in three CAs right now sits on a board of directors. Another interesting statistic is that one in five are entrepreneurs. So the skillset that you learn as an accountant, you may not end up in public accounting but it's a transferable set of skills that you can use in many environments.

OBJ: What challenges is the industry facing? We already mentioned manpower. What are some of the other challenges?

BURCH: Manpower is huge as a result of all this new demand for accountants. I don't think the universities are spitting them out as quickly as they used to, which puts us at a bit of a disadvantage. We've partnered up with the University of Ottawa recently with the Telfer School of Management. We're teaching some courses over there and we've made some donations. We're trying to get closer to that school and forge a stronger relationship so that we can get in front of the students and let them know that we're here and that if they're interested in our kind of business, we would be a great fit for them.

Another challenge for us all is technology, the use of technology in our practices and the security of that technology ... We've got everyone out in the field with their laptops that have a lot of very sensitive data on them. It's imperative that we be frontline there in protecting that data and protecting the stuff in our offices as well.

LEVITZ: I think the manpower scenario is an interesting one ... the issue is that when you bring people in to begin their accounting career, you are now faced with two or three years of serious training and guidance ... one of our guidelines for new people is, in the first year we lose money, in the second year we break even and in the third year we make money. When you get to that third year, if you go to the marketplace and try to find an accountant with three years experience and up, that is a very difficult field to obtain staff. So qualified senior people are very hard to acquire. Intake (of junior people) is less of a challenge if you're committed to the training that is required ... you're going to have to train the people that you want.

McLARTY: Manpower is a tough one. I think we're experiencing it at all levels. In our mid-tier and in our organization, we work very hard to be family friendly. We're trying to ensure our staff is working a minimal amount of overtime. We have Fridays off in the summer, and that sort of thing to compete with the larger firms. They can attract people with very good salaries. It's harder for me to attract them with a salary, so I do the family-friendly thing.

There are other issues that are a challenge right now. One in particular is liability reform. This is the issue of the auditor being sued for failures that occur. What we have in Ontario right now is a system called joint and several liability. What happens is that a party can be found responsible for the entire loss even though their role may have been somewhat limited. The audit firms have good insurance and the people with deep pockets are often the ones that get litigated against. So what we've been proposing in Ontario and asking the government to move towards is proportionate liability, where the auditor would still be responsible for their share of the damages, but they would no longer be facing the burden of paying out and covering damages caused by others. That system is in place in most of the United States and in Europe.

(The current system) is a real competitive disadvantage for us because, what it means to me in the mid-tier is that my insurance costs are going up and that's a cost that has to be passed on to my client base. In addition to that, we won't provide audit services to anybody that we feel have some inherent risks associated with them. So it limits the access to audit reports for some companies.

OBJ: Do you feel that these challenges affect you any differently than they do smaller independent firms or larger national ones?

BURCH: Well, I think the nationals move through people a bit quicker than we do, so they've probably got a bigger challenge in making sure they keep filling the funnel with new students. We don't have quite the turnover rates that they have. So in that regard I don't think we're affected as much as they are. But in terms of security of data ... that stuff's critical (for everyone).

LEVITZ: I think the main difference in the national firm is, all the rules and regulations are public company-oriented almost totally. Firms our size across the country would do five per cent of the public company work and the national firms do 95 per cent. So their requirement for additional staff in the new regulatory world is way past ours and they're feeling that effect. They're importing staff from all over North America when they have large assignments. That kind of work isn't really attractive to young people trying to advance their careers, either. This is a very dry, professional challenge that only appeals to a small group of people in the accounting world. So I think they are struggling with that as well.

OBJ: What regulatory changes or trends do you see for the future that will impact the accounting industry, both positive and negative?

LEVITZ: As is standard in human practice, when there is an ill discovered, there is an overreaction in providing the cure. There is no question that the degree of regulation that has occurred by virtue of the problems in our profession, and in the accounting world as a whole, have been an overreaction, where in fact the cost of compliance may very well have been greater than any fraud that could have occurred. I state that as a negative historically that will smooth itself out. That's something that will happen. The degree of regulation will be less onerous, more reasonable and potentially more effective than the immediate amount of regulation that was recommended ... it's a pendulum effect.

The other challenge for the future, there is and will continue to be a very high degree of specialization.

McLARTY: You've probably heard this discussion about moving to a single securities regulator. Our profession is very much in favour of that. It's critically important for Canadian companies to compete in the capital markets effectively. I am sure you've heard of companies that don't bother to list on the TSE or elsewhere in Canada because the environment is too cumbersome and there're too many securities regulators that you have to talk to and that sort of thing.

So our profession is generally in favour of a single securities regulator. But as a result of that, we need to address the standards right across the country, and the standards in our profession are ... Ontario and Quebec where you have most of the capital transactions, have relatively high standards, and some of the other provinces really don't have any.