Securing Today's Digital Tax Data
By Roman H. Kepczyk, CPA, CITP  (February 28, 2005-Reprinted w/permission) 

The transition of tax practices to a completely digital environment is making firms more effective, but one of the side effects is the creation of significantly larger files.  This increase in file size impacts the firm’s data backup options and can have a negative impact if not planned for appropriately.  This article will discuss the benefits of digital files as well as methods by which firms can effectively secure their tax information. 

Simply stated, the cost to physically maintain, store, locate, access, and secure paper files is substantially more than that of using digital files and firms should make a concerted effort to store all files electronically.  All firms should today be generating a digital image of each completed return to a network directory such that any person (with proper authorization) can access the return onscreen and deliver it in whatever manner the recipient requests, whether it is in a hardcopy format (printed) or electronically delivered via email or digital fax.  Most firms today generate the accountant’s copy of the return to the PDF image as it contains all supporting information and diagnostic notes from the tax application, which can be helpful for future review.  Firms should also be storing all supporting documents utilized in the creation of the return including the tax lead sheets, organizers, W2s, brokerage statements and anything else the preparer relied on to create the return.  While many firms choose to have a tax return file and a supporting documents file, in some states a signed copy of the return must be on file.  This leads to those firms most often creating a complete scanned image at the end of the process, in which case they would only store one file. 

Today, PDF (Portable Document Format) is the most dominant image storage format and virtually all tax programs can create an image file by printing directly to this format.  Image files take up significantly more disk space than their counterparts that are stored directly within the actual tax application, so it is important that firms plan for this increase accordingly. Today, the PDF image is more reliable in representing what was sent to government entities than the electronic file in the tax application as changes in the tax program can cause this “native” file to generate different results at a later time.   Firms should also test the image size created by their tax application (or Adobe if they use this to generate the file) and verify that they have the additional gigabytes (thousands of megabytes) required to get them through the next year and still have adequate capacity for time and billing processing at year end.  In addition, firms must evaluate the resolution at which they scan client supporting documents.  Many systems will default to 600 dpi (dots per inch), which not only dramatically slows down the scanning speed, but geometrically increases the size of the file.   Today, it is recommended that most firms scan at a resolution of 200 or 300 dpi to minimize this overall file size. 

Another important consideration is to take into account the data backup system the firm utilizes.  One side-effect of the transition to a digital environment is that the much larger file sizes lead to much longer backup times, which can sometimes lead to the firm having to implement a new backup system.  For firms on the threshold of going to a second tape to make a complete backup, the first step is to clean up their existing files to see if enough space can be freed up to remain on a single tape.  Experience has shown that firms relying on multiple tapes for backups have more corruption and restoration issues than those that rely on a single tape for verifying and restoring files.  Another consideration is the time required by the system to make a complete backup.  Today’s flextime schedules lead to some individuals beginning earlier in the day, while others work late at night.  Tape backups that used to take six hours to complete making a backup can over time expand to taking nine or ten hours, which reduces production performance for those flextime users and the availability for IT personnel to do system maintenance during those additional hours.   

For firms where the current tape backup system is not adequate there are a number of options, depending on their existing solution.  Firms should evaluate the cost of purchasing a larger single tape system with expanded capacity to handle the entire tape backup.  Today’s tape drives have capacities exceeding 100Gb (200Gb compressed) on a single tape, that also backup data significantly faster than their predecessors.  Unfortunately, these larger drives can be extremely expensive and often match the cost of the server and are usually implemented with the transition to a new file server. When firms consider the downtime of even a few individuals in this scenario, it usually becomes very obvious that a better backup solution has a very quick ROI. 

The cost of a larger capacity system should be compared with the cost of buying a duplicate tape backup system that would allow the firm to “split” the backup between two machines.  This would in theory take half the time to complete the backup process when both tapes operated simultaneously.  Firms with extreme flextime requirements should consider this solution as it would allow backups to be done with a minimal impact on network downtime.  If the firm buys the same type of backup appliance and software, this solution also provides an additional level of redundancy in the event that either of the tape drive becomes inoperable.  In either scenario, it is critical that these tapes go offsite on a daily basis and that the firm maintains a permanent monthly archive in another separate location.  It is also imperative that the tapes be regularly tested, the backup logs reviewed, and an occasional file restored, such that multiple people within the firm are comfortable doing so. 

A third solution to be considered, particularly for firms that have a large volume of historical files is the offloading of this information to another data storage system.  Some firms have begun archiving their files over a set age (i.e. three years or older) to a network attached storage (NAS) device or to a web-based storage system.  NAS devices are similar to dedicated hard-drives.  As archived files rarely change, the firm would only have to run a backup on those drives when new files were added or changes made to existing files.  Firms can add additional drives or dedicated appliances as needed. 

Firms are also beginning to archive their older files to Internet-based storage, where a professional data center manages the infrastructure.  The cost of these web-based archival systems is coming down and can be less in some instances than the cost to the firm of creating a system to backup their own data.  The advantage to these web-based solutions is that they can be accessed from any workstation that has an Internet connection.  In addition, they tend to be professionally managed data centers that provide 7/24 access, much better security and a stronger business continuation plan than most firms could afford.  For all external backup solutions, the firm should also have a contingency backup of the information stored in a separate location, even if in another digital format such as a CD/DVD ROM or backup appliance as discussed above. 

The transition to a digital environment is having a positive impact on CPA firm tax practices by providing immediate access to files and creating more security for this data.  This positive impact will be realized if firms take proper precautions to protect their data with today’s backup solutions.

This article is reprinted with the publisher's permission from the Journal of Tax Practice Management, a journal published by CCH INCORPORATED. Copying or distribution without the publisher's permission is prohibited. To subscribe to the Journal of Tax Practice Management or other CCH Journals please call 800-449-8114 or visit www.tax.cchgroup.com.

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