With the Oct. 15 tax filing extension deadline now behind us and firms starting to plan for 2003, firms should take a serious look at the processes and policies that pertain to individual income tax return preparation.

In some firms, this is a significant portion of their revenues, while in others it is minor; therefore, one size does not fit all firms. Believe it or not, when it comes to tax return processing, individual offices have their own unique processes. In many cases, the processes remain from the years when technology was not as prevalent.

I refer to unique processes, not necessarily efficient processes. Now is the time to review those processes and to consider some revolutionary ideas, as well as proven technologies in order to increase efficiency and improve client service and profitability.

There are some do’s and don’t’s to be aware of when conducting such reviews and improving processes. Let’s start with the don’ts:

Don’t expect revolutionary changes and improvements if you put the same people in the room who have been managing the processes over the past 10 years (i.e. tax partner, office manager, and preparers). Include these people if you want, but expect greater improvements by including people from outside the existing process and new employees. Your first reaction is probably, "What do outsiders know about our tax processes?" The answer is that they don’t know about your processes and that is why they are a valuable resource. Hopefully, they are strong enough to ask the question, "Why?" There is an old saying that it is difficult to improve the system if you are part of the system. Start your review by having someone familiar with your processes develop a block diagram. Then spend time eliminating redundant steps and think strategically.

Don’t expect this to be a quick 15-minute meeting. It will probably be stressful, potentially involving internal firm politics, and may disclose the need for new skills, technology and training. The value of such a review is about the process of the review rather than the resulting document. Firms who have experienced the benefits will tell you that it is a continual process. While the resulting document will have value in training, the most value comes from the process itself.

Don’t hire first and then plan for next tax season. Chances are that you already have an adequate number of people. The question is whether you have the right people and processes. Revenue per full-time equivalent (total hours divided by 2,080) is rapidly becoming a common management statistic for staffing. Benchmark revenue per FTE for the past year and then project your requirements for the coming year.

And now for the do’s. As you plan for the coming busy season, consider the following trends, technology and best practices that leading firms have already tested and proven.

Electronic filing is now appropriate for the majority of returns. Don’t get caught in the old paradigm that it is only for returns with refunds. For the most part, the software vendors, the Internal Revenue Service and the states now have it working. Some firms are now charging additional fees for those clients who do not file electronically, rather than for those that do. Firms who are doing it, are expanding their electronic filings. Firms who haven’t done it yet are still skeptical.

Consider outsourcing returns to India. This is revolutionary, but the economics make sense. Tax returns are only the tip of the iceberg. Banks, call centers and medical records have allowed India to build the necessary outsourcing infrastructure. The price is right (averaging under $100 for federal and state returns) and the talent pool of chartered accountants is large. The leaders have developed workflow and tracking systems that are superior to most firms’ existing systems and it is a potential solution to your hiring and work compression issues. There will be tremendous expansion in outsourcing this coming year. Your partners and staff will be able to quickly identify all of the obstacles, but the bottom line is that it makes economic sense and will improve client services in most firms by reducing the turnaround time. Several practice leaders have already overcome the obstacles, so don’t let the obstacles stop you. We are in a global economy and must recognize opportunities.

Eliminate paper files. They are expensive to file, store and retrieve. Start with printing all tax returns to the Adobe PDF format. The primary software vendors all have this capabil-ity. It is as easy and simple as selecting a printer and pushing the Enter key. Document management is 20 percent technology and 80 percent cultural and process oriented. So, stop resisting and get on with it! You can drive significant costs out of your existing system, but it does require a cultural investment to get started. If you haven’t figured out how to capture, organize and store source data, such as tax organizers, forms, documents, etc., you should consider looking at what the Indian outsourcers are doing. They figured it out in less than a year! Their tracking systems are similar to Federal Express and UPS and their systems are all included in their pricing. The accounting profession has been slow to adopt document management and is currently behind most industries (specifically banking, law and insurance).

Set client appointments in advance and control your schedule. This requires planning time up front but results in major time savings during the busy season. The first year is the toughest, but with knowledge of your client base, you should be able to better control your schedule as well as improve workflow and scheduling.

Review your billing and collections policies. You set the rules and there is no better time than now to make appropriate changes. Consider requesting advance payment when accepting a new client and notification that you expect the balance upon delivery of the return. Don’t be bashful; the sooner you address fees and policies in the client relationship the better.

Private client sites (secure Internet sites) are now available from several vendors. The concept is new and it will require some educating and selling. Many of your clients will love (and pay for) an electronic safe deposit box where they can store and access important documents, such as tax returns, wills, trusts, insurance policies and other legal agreements.

Remember that value comes from leadership, relationships and creativity. Leadership provides direction, relationships provide confidence and creativity provides new capabilities. There is a significant difference between knowing what to do and doing it, though. The tendency of too many firms is to be satisfied with the status quo. Innovators want to improve client service and their firms.

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