Process Improved, Profits Increased!

In our profession, there is also nothing like spring.  Tax season is over, the golf courses have reopened and everyone seems happier.  Believe it or not, it is also the time when progressive CPA firms start thinking about next tax season.  They examine what worked, what didn’t and what needs to be changed.  They also look for new technologies that can improve the productivity and profitability.

This year, firms will see new and improved solutions that focus on:

• Document Management
• Workflow
• Paperless Engagements
• Dual Monitors
• Security
• Anywhere Wireless
• Outsourcing
• Knowledge Management

As I have researched and implemented these solutions, I have come to realize that they all have one thing in common.  Their impact on a CPA firms can be dramatic.  This article will discuss how these technologies can improve business process, increase efficiency and increase firm profitability.

Individual Tax Returns

To understand the impact that technology can have on a CPA firm, let’s look at the process of preparing individual tax returns.  This illustration outlines the paper based process that I learned when first starting preparing tax returns.  Many of these procedures remain in place at CPA firms today.

• The cover letter and organizer are printed and mailed to the client.
• The CPA firm receives numerous paper documents and the tax organizer from the client.  
• The prior year tax return is pulled and the return is “checked in”.
• The source documents are often photocopied to create the CPA firm’s work papers.  The return is delivered to a preparer.
• The preparer enters the data and develops a list of missing information.
• The preparer reviews the list of missing information with the person responsible for the return.
• The client is called to obtain the missing information.
• The return, with its missing information list, is left on someone’s floor.
• Once the missing information is received, it is delivered to the preparer.
• The preparer completes the input process, prints the return and delivers it to the reviewer.
• The reviewer compares the printed return to the source documents.  A list of review points is prepared and the return is delivered back to the preparer.
• The preparer corrects the returns.  The return is printed and delivered to the reviewer.
• The reviewer looks at the corrected return.  Assuming the return is correct, it is delivered to the administrative department for processing.  
• The administrative person makes two copies of the return, prints the cover letter and delivers the return to the partner.
• The partner reviews the completed return and, if correct, signs it.
• The completed returns and original source documents are sent to the client.
• The work papers, reviewed copy of the tax return and prior year return are delivered to the administrative department for filing.

The Process Works, So What’s Wrong?

It is true that these procedures are effective and help CPAs complete accurate tax returns.  But we must also ask if they are efficient.  If you reduce them to a flowchart, it is very obvious that they are not.  Here are some examples of the problems with this process:

• Ask a CPA why they print and mail organizers and they will often tell you that they have always done it.  Does that make it necessary?  Is there a better way to handle organizers?
• Firms struggle with the management of in process tax returns.  Without a workflow system, it is also difficult to balance workload and keep track of the current status of all returns.  This problem is easy to recognize.  How often does your staff send e-mails asking if anyone knows who has “Joe Smith’s” return?
• How much money does your firm spend on paper?  It is not uncommon for firms to print a tax return several times during the preparation and review process.  Is it possible to build a paperless process?
• You may have noticed that I intentionally used the word “delivered” several times in the process narrative.  This word was used to represent the part of the process that I call “walking around” time.  It is easy to see if your firm has a “walking around” issue, simply look at the carpets.  It is amazing the amount of time (and money) that is spent moving returns around our offices.  There has to be a better way.

Technology & Process Change

Recently, we have seen new technologies that can be used to help improve the procedures within a CPA firm.  These new technologies focus on improving efficiency, reducing paper and improving communications.  Let’s look at how some CPA firms have used these new technologies to improve their procedures.  Again, let’s focus on the individual tax return process:

• It all starts with the organizers.  Firms have started to prepare organizers in electronic format and deliver them to the client using a portal.  Clients can use the firm’s web site to complete their organizers.  Imagine how much money your firm could save if you didn’t have to print, assemble and mail your client organizers.
• Document imaging technology can be used to scan your client’s source documents.  I would encourage you to consider scanning at the beginning process.  Your staff can electronically access and annotate these documents as they prepare and review returns.  Coupled with workflow software, this can substantially reduce the amount of “walking around” time in your office.
• Firms have overwhelming adopted dual monitors.  Having multiple monitors dramatically improve efficiency as it possible for a person to open source documents and tax software simultaneously.  Many firms are now implementing triple monitors to help further increase efficiency.
• Workflow software can be used to manage the firm.  Specifically, it can be used keep track of all your returns.  This software allows you to electronically route your tasks, enter open items lists, enter review points and balance your workload.  In addition, these solutions provide notifications when new task have been moved to your office.  The “Who has Joe’s return...” will be a thing of the past.
• Remote access technology and hosted applications can also increase firm efficiency.  They can be used to access client source documents and tax software from anywhere at any time.

Dramatic Change is Possible

What impact can new technologies have in your firm?  How much money can be saved by improving just this one process?

Our firms and processes will look different in the future.  I can visualize an individual tax process that looks very different that the one illustrated earlier in the article.  It might just look like this:

• The source documents arrives electronically
• Tasks are moved without any “walking around”
• The open items and review points are transmitted electronically
• You receive an e-mail notification when a tasks is assigned to you
• Every document is digital
• Every tax application is available from anywhere at any time
• All returns are filed electronically
• All client copies are delivered electronically using a secure portal
• Clients have self-service access to their returns
• All copies of returns are stored to a document management system
• Processing paper documents is a thing of the past

Changing Seasons

Let’s fast forward to late fall 2006.  The Red Sox have just won their second World Series title in three years.  Tax season is just around the corner.

What will your firm look like?  Will your internal processes look any different than those you used this past tax season?

Did your firm spend the summer months researching and implementing new technology?  Did you improve your processes?

Will your firm more efficient next year?

Will your firm more profitable next year?

Dramatic change is possible.  The coupling of new technology and improved procedures can result in a more profitable firm.

About the Author

Barry MacQuarrie, CPA is the Director of Technology for KAF Financial Group.  In addition, he is the CIO for an affiliated company, XCM Solutions.  He has extensive experience working with technologies used by CPA firms including paperless office solutions, workflow applications and document management software.

Barry is a member of the American Institute of Certified Public Accountants (AICPA) for whom he serves on the AICPA Information Technology Executive Committee.

He is an active volunteer for the Coaching for Leadership and Training Program at Babson College. Barry is a member of the Massachusetts Society of Certified Public Accountants (MSCPA), the Association for Accounting Administration and the Babson College Alumni Technology Council.

Barry is a member of John Henry International (JHI) for whom he serves as the co-chair of the JHI Information Technology Committee.

Barry has been a speaker on the topics of the Paperless Office, Disaster Recovery Planning and CPA Firm Technologies for the AICPA, the MSCPA, CCH Incorporated, JHI and various CPA associations. He has been published in the AICPA InfoTech Update, the MSCPA SumNews and the JHI Review.

Barry holds a Bachelor of Science degree from Babson College.

Barry can be reached at barry.macquarrie@kafgroup.com.