For the sole practitioner or small CPA office, “the office of the future” will be paperless. The migration to a paperless office has been embraced by practices of all sizes. But, much like the initial transition to the in-house preparation of tax returns, many CPAs have avoided the process because they are apprehensive about potential problems and are so entrenched in their current mode of operation that they are hesitant to change.
Many questions come to mind when considering the transition. What is the best approach to evaluate alternatives? What exactly does “paperless” mean? Do all applications need to be converted at once, or should the conversion process be done in pieces? This article is intended to provide a road map for “paper-intensive” sole practitioners or small CPA offices on their journey toward a paperless office.
What Is “Paperless”?
Firms may claim that they have become paperless, but, on closer examination, it becomes clear that “paperless” is a relative term. The ultimate goal is that no paper documents are retained. Some paperless firms scan every document that comes into the office, use data storage programs to maintain virtual file rooms, electronically file all tax returns, and send their clients tax returns via PDF files rather than bound paper copies. Many firms use a hybrid of paperless and paper procedures and still consider themselves paperless. Most likely, compared with how those firms previously managed their information, they are using available technology to better advantage. The important thing to keep in mind is that any movement toward more efficiently managing the tax practice is a great improvement that will bear fruit over an extended period of time.
What About the Cost Benefit?
CPAs do a tremendous job of advising clients on how to cut costs and maximize existing resources using cost-benefit analysis. Likewise, the decision to go paperless should include a quantification of the potential advantages and disadvantages.
- A substantial reduction in necessary file space, allowing such space to be used for alternate needs.
- The ability to access data from remote locations.
- The ability to archive information more efficiently.
- Reduction in the amount of time spent searching for misfiled and misplaced client information.
- Eliminating certain manual tasks.
- Streamlining engagement workflow.
- Initial and ongoing costs to digitize paper documents, in both time and money.
- The difficulty of establishing an effective system and set of controls.
- If using a third-party vendor for the software tools and hardware, gaining assurance that the office will have control over the software source code and will have continued access should the vendor abandon the business.
- Security issues.
Where to Start?
The first step to going paperless is to obtain a clear understanding of how the firm operates currently. Are the partners and the staff comfortable with using computers? Are clients comfortable filing their tax returns electronically? Can the administrative staff embrace technology changes, such as scanning documents and posting them into a document management program? Once the flow of information is understood, it will be easier to see where technology improvements can be implemented.
How Much Should Be Converted at One Time?
One often-overlooked aspect of the conversion process is that it is human nature to be uncomfortable with change. This tendency is important to recognize because it can be intimidating for an experienced professional to have to completely change the way he or she has been handling information for many years. Therefore, the conversion process should be done in several stages, rather than all at once, for a smoother transition. For example, many firms start by converting one type of tax return (e.g., Form 1040) to paperless and then expand coverage to include all types of returns and correspondence over time.
Electronic filing is already required for a number of business taxpayers, so it would be prudent to gradually get clients used to the concept before it is mandated for more taxpayers. Electronic filing saves paper because a filing copy does not need to be processed, and it can save time for the client by avoiding a trip to the post office. It also eliminates some basic errors during the process of qualifying a return for electronic filing. Electronic filing is a positive step toward becoming paperless.
A document management program is simply an electronic file room. It is crucial for becoming paperless because it provides a framework for organizing and storing clients’ information. If an office is satisfied with its existing tax preparation software, meeting with that software’s representative can determine what the vendor offers in terms of document management programs that interface easily with the tax software. If a firm uses Microsoft Word and Excel extensively, it is important to ascertain that the document management program can easily post directly from those programs.
The beauty of a document management program is that if a client calls with a question, rather than having to search for that paper file and then call the client back, a practitioner can open the client’s computer file and view the client’s returns or any relevant documents. That client’s emails, taxing authority correspondence, engagement letters, and research and planning documentation can all be posted in the same file.
Practitioners will need to decide whether to use document management that is integrated with their accounting, tax preparation, and research software or to select a dedicated document management program. Fortunately, the quality of scanning systems has substantially improved in speed, accuracy, machine size, and functionality, and costs have declined. However, document management systems are only as good as the information posted in them, which is where good training comes into play. Whichever program a firm decides to use, training should be included in the application’s purchase price. It is critical that staff and partners understand how to post and retrieve items.
It is also important to realize that the scanning process takes additional time because documents must be scanned and then posted in the appropriate file. A dedicated administrative assistant may be required during tax season to free the staff’s time for preparing the tax returns.
If a firm is still using paper research products, it can begin by evaluating the many available internet-based products. Several advantages of internet research programs are that updates are automatically posted, and the hyperlinks within the program make it easy to toggle between Code, regulations, cases, and commentary and the firm’s word-processing software.
If a firm is pleased with its existing tax software, a good place to start would be to ask that software vendor to explain its tax research program. By using the same vendor for both tax software and tax research, links can be included in the tax software to take the preparer to the appropriate research section.
Bridging Client Data into Tax Preparation Programs
Many small business clients keep their own books using an accounting software program. Rather than print reports and then manually transfer the data into the tax preparation program, the firm should encourage these clients to transfer their data to an Excel format that can be uploaded into the firm’s tax preparation program. The client can then e-mail the Excel file, and no paper changes hands. If a significant percentage of clients use a particular accounting program, it may be worthwhile to purchase that software so a staff person can upload a copy of the client’s files into the office copy of the accounting program.
Time Entry, Billing, and Tracking Programs
In the office of the future, time entry should be done in computerized programs rather than on manual paper sheets. The advantage of entering time electronically is the ability to manipulate the data and run reports. The time-entry system should also interface with the billing program so a client’s work-in-process charges can be viewed and billed at any time. Many timekeeping systems now have linked applications available, which enable practitioners to keep their time records on a Blackberry, Treo, or other smartphone and to bridge the data to their timekeeping programs. Such programs permit more effective real-time timekeeping.
A tracking program is not as crucial for a small firm as for a larger firm, because only a handful of people may be working on returns. However, it can yield important information, such as the budget for a return, the actual time incurred, the engagement team involved with a return, and the length of time from the arrival of preparation information to the finished product. Some tax preparation programs have related programs for tracking a return’s progress through the firm, and some very good stand-alone products are available.
Networks and Printers
The internet is a crucial component of the office of the future. In order to have online research, electronic filing, and e-mail communication with clients, an office must have reliable internet access. A network is also necessary so that employees can share their files and so that any software updates can be done in one central location. A network backup program run nightly is also important for saving information in the event computers are stolen or damaged. The network should have built-in firewalls and protection devices to eliminate unauthorized access to data.
Wireless network connections to printers are valuable because they use centralized printers (rather than having each computer hooked up to a separate printer). Increased portability is another important aspect of the office of the future. A single machine can now contain a copier, a printer, a fax, and a scanner. For security reasons, controls should be set up to determine where in an office configuration certain confidential documents will be permitted to be printed.
Laptops, Dual Screens, and Docking Stations
Another key component of the office of the future is the laptop computer. Laptops allow professionals to work in the office, at the client’s office, or at home. Major vendors have recently announced new lines of ultraportables—extremely lightweight portables with full functionality. In the office, the laptop can be used as a single screen, or it can be used in a docking station with a second monitor. The docking station allows the use of a regular keyboard and a larger stationary monitor.
Dual screens contribute to the paperless environment because they allow a preparer to view a current year’s workpapers on one screen and prior years’ papers on another screen. As a firm moves toward onscreen reviewing, dual monitors are crucial. Reviewers can open the current year’s return on one screen and the related supporting documents on the other. The cost is insignificant compared with the software costs for the document management program and internet tax research.
If an office is currently paper intensive, up-front research into document management programs, online research programs, and hardware requirements will help with the move toward becoming paperless. By switching applications and computer hardware gradually, rather than all at once, the transition will be less stressful on everyone in the office. But clearly the issue for practitioners is an issue of “when,” not “if.”
Mr. Holub is a former chair of the AICPA Tax Division's Tax Practice Management Committee. Mr. Porter is the chair of the AICPA Tax Division’s Tax Practice Improvement Committee. For more information about this column, contact Mr. Valenti at email@example.com or Ms. Green at firstname.lastname@example.org.