CPA firms around the country are examining ways to reduce the amount of paper used and filed in their various client service processes. The difference between success and frustration in these initiatives usually comes down to a complete and workable plan. Good plans involve achievable objectives and clear strategies. 

Before you embark on such a program, make sure your own strategy is in place. Here are some that have worked for other firms; maybe one of them is right for you.

Reduction of Existing File Space

Some firms approach the “less paper” challenge because they have, or soon will, run out of storage space for paper filing cabinets. In this situation, the immediate challenge is the conversion of paper to digital format and the indexing, storage and retrieval of the digital images. This will allow for the physical reduction of paper and will shape the objectives of the plan. 

We often refer to this kind of image file storage as “static” document management. In other words, these are final copies, which we do not want altered, and version control is not really an issue. 

The most common storage format – the industry standard – is the Portable Document File (PDF) originated by Adobe Systems Incorporated.

Firms embarking on this strategy need to plan for a mass scanning initiative, which may well involve reviewing and purging files before scanning to digital images. Scanner capacity and manpower to feed the scanner will be important variables, as well as indexing and filing software.

Since a large volume of paper is being converted to digital image format, network storage requirements will increase dramatically and rapidly. The network file structure selected for document storage is critical as well. If the firm has not already done so, this is an ideal time to implement “client-centric” filing so all documents, whatever the source, are filed by client and then by year, for ease of retrieval. 

Firms also should decide if the ability to do full text search on the content of scanned images is important. This decision will drive the selection of their document management software. 

Finally, decisions made about file structure, search and storage capacity will have an important bearing on other digital initiatives the firm may undertake later. Be sure not to paint yourself into a corner with inflexible selections in this first step.

“Less Paper” Tax Processing

Many firms find the Tax Department to be their first entry into digital document management. Since there are many entry points, this a convenient place to start. 

For example, most major tax preparation software products include the ability to print tax returns, schedules and even some workpapers directly to PDF format. The tax preparation process can continue as it has in the past, but the final step is “print to PDF” for digital file storage, as opposed to printing to paper for the file cabinet. 

In addition, the ability to file electronically with the IRS and state revenue agencies eliminates the need to print yet another paper copy. And, in cases where clients can be persuaded to use on-line or e-mailed electronic organizers, even more paper handling can be eliminated or reduced. 

Thus, the first step in reducing paper flow within your tax process is to use those tools already available.

The next big step forward is to reduce paper within the workflow of preparation and review. For example, when a client’s supporting documents (W2s, 1099s, etc.) are received, many firms copy these and use some form of binder or folder to organize them for the preparer’s reference. This folder is then passed to the reviewer, and finally to assembly before final disposition (filing or return to the client).

In the digital workflow, these documents are scanned instead. Preparers reference the tabbed and bookmarked PDF files as the return is prepared through their tax preparation software.

Firms who have adopted this process have often found it useful to place dual monitors, usually flat panel LCDs, on each preparer’s desk. This allows the CPA to have the tax program open on one monitor, while the supporting reference images are displayed on the second.

Upon completion, both the tax return and the supporting document file are routed to the reviewer who completes the review on-screen in a similar fashion.

A final step in this chain might be the electronic presentation of the final product to the client. E-mails with PDF attachments, or “Private Client” web sites represent alternatives to the printing and delivery of paper copies.

This “up front” imaging model postures the firm to take advantage of outsourced tax preparation. A variety of outsource vendors, both offshore and in the US, are available to take on workload to reduce the time and effort burden on the CPA firm. However, all of these require the transmission of supporting documents in digital format.

If the firm plans to take advantage of this low-cost alternative to seasonal hiring, adopting the kind of workflow described above allows all clients’ data to be processed in the same way, regardless of where the actual input of tax preparation occurs. This unified workflow can be a great source of time and cost savings, as opposed to running two different systems simultaneously.

Firms adopting this strategy will need to account for the same storage, index and retrieval issues described above, and also for the increased hardware costs if dual monitors are adopted.

“Less Paper” Auditing

A third entry point into more digital operations can be the audit department. This approach might be termed “dynamic” document management; it focuses on the ability to control workpapers on a library style check-in/check-out basis.

Software which controls this handling, consolidation and eventual synchronization and replication will usually maintain an audit trail of version control, allowing users to track who made what changes and when. This resolves the dilemma of which one of multiple versions of the same document is the most current and most complete.

At the moment, this product niche is dominated by three big software players: CaseWare, ProSytem fx (CCH) and Creative Solutions. Each of these vendors offers an audit program which incorporates trial balance, adjustment and reporting features for the core accounting required, but also provides dynamic document management for workpapers, incorporates audit program content and analytical review.

Using any of these products will significantly reduce the paper flow associated with both fieldwork and office work on audits and other attest work.

Upon completion of the audit or review, the now-final workpapers and financial statements can be printed to PDF (or similar) format for static filing as in the models described above.

In the near future, a broader adoption of Extensible Business Reporting Language (XBRL) will allow the transmission of financial statements to banks and other consumers of data without the need for paper copies as well.

Your Plan

So, what is your strategy for reducing paper handling within your firm? Will you start by reducing existing backlogs of paper files, by revamping your tax processing procedures, or by handling less paper in your audit process? Perhaps you’ll try some combination.

A typical combination approach might be to start in the tax department and reduce paper generated during tax season. This reduces the flow of newly generated paper into the file room. 

Then, as files are retired from active storage to offsite or basement long-term holding, they could be scanned and added to the digital image store. Over a period of several years (typically about three) this will attack the file room from both ends and eventually reduce its size dramatically.

The audit process could be addressed somewhere in between, so that over a planned span of time, both new input and existing storage will be shifted from paper to electronic storage.

Whatever your strategy, there is one caution: these projects are ultimately not about hardware and software. They are about policies, procedures, standards, training and their acceptance by your staff. Include as many people as necessary in the planning phase, both to identify potential obstacles and to build a sense of “buy-in” by your people. The most expensive hardware and software solutions will be wasted if people circumvent them or ignore them and continue to work in the same old ways. 

Clearly identify your procedures, document them, set them as standards and train people on what they need to know.

Then, perhaps most importantly, enforce those standards throughout the firm. No exceptions, especially partners. 

There is no right answer for how or in what order to address the issue of paper reduction. What counts is knowing what objectives you want to achieve, in what order you want to tackle them, and what you need for each step of your plan. 

Identifying and adopting a clear paperless strategy will greatly enhance your chances for success.

About the Author
Kenneth M. McCall, MBA, MCP, is a consultant at Boomer Consulting, Inc., an organization devoted to the application of computer technology and management consulting. He assists CPA firms in The Technology Leadership Process™ by working with firms of all sizes in strategic planning and budgeting for their technology needs and has worked extensively in the area of training management for CPA firms. 

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