In the past few years the accounting profession has become inundated with opportunities and applications to go “paperless.” While much of this discussion has been promoted by document management vendors, the reality is that most firms are transitioning cautiously and those firms that have been the most successful have focused on improving processes to streamline workflow and improve customer service, rather than to strictly eliminate paper. In that light, we present today’s digital best practices that are being implemented within the production departments in firms and the digital evolution that is impacting our profession.

Contact Management
For most CPA firms, tax preparation and consulting is the primary service area and often accounts for the most revenue of any service line. Digital best practices begin as information is coming into the firm and first touched by personnel. Something as simple as missing a change of address can have a negative impact on not only where the organizer is sent, but also on billings and client correspondence if not properly handled. Many firms have set up electronic forms on their intranets which are routed to one person who makes changes in not only the tax program, but also the firm’s practice management and contact databases to maintain consistent input. Leading firms have found that they can eliminate the need to redundantly update their contact program (primarily Outlook) as today’s top practice management applications can be set up to transfer the data on schedule or synchronize it automatically, providing everyone access to contact information they can rely on. This is usually the first major step firms take towards effectively consolidating their databases.

Tax Workflow Tools
Due date and return tracking tools have always been a feature of the firm’s practice management program, but they have evolved to where firms are now successfully using them and a new breed of “tax workflow” tools has evolved. As clients deliver their tax materials, leading firms are recording this information in their due date programs and tracking progress by updating milestones for preparation, review, signing and extension, which provides real time status on every return. According to the Association for Accounting Administration’s (AAA) 2005 Paperless Survey, two thirds of firms were utilizing this feature this past busy season. More than 140 firms, with an average size of 64 members, participated in the survey in December 2004. The results of the complete survey can be downloaded from www.itpna.com.

In the past year, a number of tax workflow applications have taken this automation to the next level by either streamlining the keypunching process at the front end or allowing firms to more effectively monitor and update the status of every return that is in the firm pipeline. While many are using the enhanced features of the firm’s practice management and due date applications, some have pushed this automation to Internet-based application service providers where the production process can be monitored from any location.

Firms have become quite adept at keypunching and updating tax returns onscreen; more than 80 percent of firms in the AAA survey were doing so. This process became significantly more effective with the utilization of dual monitors, which is quickly becoming the minimum standard in CPA firms. According to the AAA survey, 52 percent of firms had standardized on dual monitors this past busy season. Preparers are finding that by having the current and prior year’s return available concurrently onscreen, as well as other critical applications such as depreciation, research and practice management, they are becoming more efficient, with some firms claiming a 20 percent increase in productivity.

Document Management
Digital best practices have also evolved on the production side of the return where most firms today find they can “print” standardized client and government copies of returns rather than using a copy machine. In addition, they are generating a digital version of their returns in PDF format so that they can be easily shared with clients, archived, and accessed for future reference. The AAA survey found that 76 percent of firms were already generating a PDF version of their returns.

The survey also found that 56 percent of firms were capturing client supporting documents in a PDF format, with most primarily scanning in these files at the completion of the tax return. This is usually where the discussion of document management applications comes in as the products range from simple electronic file cabinets to robust automated storage and retrieval systems. At the lower end are electronic file cabinets that require the preparer to determine the proper storage location of every document, whereas at the higher end, document management systems force the preparer to properly profile each document so they are almost impossible to file incorrectly. At the same time, the higher-level systems index every word within the document so that integrated search tools can be easily used by staff to locate any document.

Digital Audit
The advent of document container tools has revolutionized audit production in firms where these programs not only manage the trial balance and financial statements, but also the workpaper programs and permanent files. Best digital practices begin by integrating the workpaper programs electronically into the application by importing information whenever possible. The AAA survey found that almost 70 percent of responding firms were utilizing electronic source documents prepared by the client and 59 percent stored all their workpapers in these audit document containers (primarily CCH Engagement and CaseWare). These tools have revolutionized audit workflow similar to the tax workflow tools previously discussed in that every step of the process can now be managed and securely locked down as well as cleaned up at the completion of the project. According to the AAA survey, 64 percent were also linking these workpaper applications directly to the tax return for transferring the trial balance.

These tools have also entirely automated the production of the financial statements, and the edit features have become so robust that the final draft of the return can be generated from the working papers, rather than being re-keyed into a word processing document. In addition, these tools are also capable of generating a complete financial report in a PDF format, which much more effectively locks down the final document.

Transfers to Clients
In the area of client service, where firms do write-up and controllership services, firms are transitioning to applications that allow transactions to be posted in detail and that allow “drill down” capabilities to get to the source entries. Document management products that integrate with accounting products are beginning to be used by CPA firms so that scanned images of source documents can be attached to source entries creating a completely digital accounting system.

A difficulty that many firms have experienced with these types of clients is in the transfer of data files that are too large to be handled by the client’s e-mail systems. Firms are implementing client file transfer protocol sites known as client portals (such as CCH’s ExecuSite FileShare tool) that outsource the security and management to a provider that is properly equipped to do so. As more firms become concerned with the security ramifications of e-mailing attachments, they are finding that these portals are effective for providing secure client access to PDF versions of their tax returns or financial reports.

Firm Administration
Internal administration is often the most neglected area of the firm, but it can also benefit significantly from the digital evolution. While most firms today are doing daily billing and posting of time, today’s practice management application can also successfully manage human resource functions such as vacation and CPE tracking so that all entry and reporting are managed by the employee. In addition, expense management can be automated by having personnel enter all expenses directly into the practice management system and printing expense reports from the system. To minimize the number of expense checks that have to be written, many firms are also reimbursing their personnel along with regular payroll so that the amounts can be directly deposited, saving the employee a trip to the bank.

With daily timesheet entry and posting, firms are finding that they can effectively create an invoice with the completion of each project. The AAA survey found that 78 percent of firms were creating invoices onscreen within their practice management system. A number of firms have implemented procedures where they generate a PDF version of the invoice into their document management system and in some cases deliver these invoices via email rather than through physical means.

For internal reporting, 73 percent of the AAA-surveyed firms were using an intranet to store firm information, and more than half of these firms delivered internal management and financial reports in an electronic format. While the majority of these firms utilized Microsoft FrontPage for the maintenance of their intranet, firms are beginning to utilize Microsoft’s SharePoint Team servers for their more robust capabilities.

To successfully manage your firm’s digital evolution, the focus should be on improving processes throughout your firm that improve customer service and your personnel’s efficiency in doing so. In this manner, your firm will evolve to implement best practices that have been proven and you will naturally evolve towards a “less paper” environment.

About the author: Roman H. Kepczyk, CPA, CITP is president of InfoTech Partners North America Inc. (www.itpna.com), a consulting firm working exclusively with CPA firms on their internal technology utilization and their transition to a digital or “less paper” environment. He can be reached at (480) 706-1728 or at roman@itpna.com.

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

 

Roman H. Kepczyk, CPA, CITP is President of InfoTech Partners North America, Inc. which works exclusively with CPA firms to implement today’s best practices as they transition to a “less paper” or digital environment.