Transition To Digital Tax

From the Oct. 2006 Issue

Tax processing is the lifeblood service for many tax and accounting firms, and the profession has seen the significant impact that technology has had on productivity as firms evolved from manual procedures towards digital automation. The key to successful adoption of these technologies has been to get everyone in the firm to understand the next logical step and standardize it before moving on to the next step. These steps will be discussed in detail to ensure that your firm continues to evolve toward today’s optimum digital practices.

For firms that continue to keep physical copies of tax returns in their file room, the first step in the process is to develop confidence in digital files in order to stop storage of hardcopies. Keeping a hardcopy for the next seven years comes with a substantial storage cost as well as the cost of time spent physically locating and moving files. This first phase of the transition begins by generating a digital copy of the return at the same time that the final return is processed. Most of today’s tax programs can generate a *.PDF version of the return directly from the application. This can promote standardization of the final return as the program can be set to include or suppress pages within the return. The key to success in this step is to have a standardized directory structure and file-naming convention so that documents go to the right location with a name that can be easily identified. For those firms that are still keeping a physical tax file, it is suggested to do both through this extension season, with the intention of building confidence in the process in order to stop storing the paper copy of the file beginning with all returns the next busy season. Additional benefits of the digital *.PDF over the paper copy include the fact that they are backed up as part of the firm’s data backup system and that they can be accessed from a person’s workstation, rather than having to search the file room or other offices for the file. The entire network can be searched in minutes, compared with the difficulty in finding a misplaced physical file folder.

The next phase in the process is to capture the client’s supporting documents as part of the return. This can be done in two ways. For firms that make a copy of the entire return at the back end of the process (return and supporting documents), most copiers today have scanning capabilities. So instead of making a paper copy, these types of copiers create an image file that can be stored in the client directory with the standard name previously described. For those firms that generate the image file from the tax program, only the supporting documents would be scanned, and a second digital file would be placed in the directory with the tax return.

Many of today’s network attached duplicators (copier/scanner) require the individual to put in a code to deliver the image file to their e-mail or to store it into a firm-wide default directory. The individual must then go back to their workstation to open the file, rename it and place it in the appropriate directory. If there are problems with the image file, the preparer must repeat the scanning, viewing and naming process, which can be time consuming and expensive. To streamline this process, I recommend that firms centralize the scanning within the administrative department and utilize a dedicated scanning station with viewing capability so the scans can be more standardized and produced at a lower cost than having the preparer scan the documents. This scanning station would consist of a dedicated scanner and computer so the images could be verified immediately upon scanning.