A paperless success story: a firm's use of IT to organize the office led to a digital makeover and new business.

EXECUTIVE SUMMARY

* DURING THE 1997 TAX SEASON, Atlanta firm Habif, Arogeti & Wynne LLP (HA&W) suffered so many technical problems that afterward about one-third of its professionals left. The firm decided to revamp its tax function and better manage its resources by developing a technology plan. The initiative led to a paperless office and information technology consulting engagements.

* REPLACING 10 SERVERS AND 75 WORKSTATIONS that autumn at a cost of about $250,000 was the beginning of a five-year period of investment in paperless document-management capabilities.

* THE FIRM SET UP A COMMITTEE to champion technology projects to generate firmwide efficiency. Its mission was to reduce manual and repetitive tasks, file retrieval time, trips between the office and work sites, wasted office space and to offer better client service.

* HA&W ANALYZED WHO GENERATED and handled work documents, identified best practices for how long to retain records and when and how to back up files. It identified model documents to use as templates and imposed uniform file-search protocols.

* THE FIRM RESEARCHED THE ELECTRONIC recordkeeping requirements and professional standards of the IRS, other federal agencies and state and local governments before it made technology choices and commissioned proprietary software. "Profiling" warehoused documents for e-storage and retrieval required the informed judgment of managers and partners.

* HA&W MOVIED QUICKLY AND PERFORMED 100% paperless audits in 1998 and achieved a 100% paperless tax season in 1999. Management is relentless about training, which is the key to a successful transition to a paperless office.

In the late '90s, Atlanta's Habif, Arogeti & Wynne LLP (HA&W) wasn't aiming for an information technology (IT) sea change when it moved to upgrade electronic tools to tighten its operations. Few CPA practices considered a digital-only workplace realistic, and the 25 partners of the 50-year-old, 168-employee firm were no exception. HA&W partner and executive committee member Dan Simms, CPA, says the "paperless" approach the firm took wasn't about flexing technology muscle but meant simply to improve traditional accounting, audit, tax and consulting services to clients in real estate, construction, retail, health care and manufacturing. This article describes how HA&W embraced IT to organize common CPA office procedures and in doing so virtually eliminated office paper (and gained a new revenue stream). For more about other, smaller firms' use of scanning technology, see "Paperless to a Degree," page 62.

THE LOW POINT

Tax season 1997 was the absolute pits, Simms says. As many firms did, HA&W prepared tax returns electronically, and that year its servers either crashed two to three times a day or had to be brought down so technology staff could rebuild corrupt files. Chronic inefficiencies were rife, and locating job data wasted time because the firm didn't have a uniform system for naming or storing files, says CPA Leslie Lowthers, auditor, who oversees HA&W's IT training.

At the end of the '97 tax season, about one-third of the firm's professionals left, more than double normal yearly CPA firm attrition. "They had been putting in 70- and 80- hour workweeks, including lots of Saturdays and Sundays," Simms says. A concurrent management problem was the cost of storing paper: Off-site file storage was more than $40,000 a year, and file cabinets claimed 15% to 18% of office floor space. HA&W decided it was time to revamp its tax function and better manage its resources. To stop wasting both talent and money, the partners agreed on a multipart goal: to develop a technology equipment plan to improve efficiency, both short term and for five years ahead, and an IT budget. Going paperless wasn't even on the horizon.

WHEN THE GOING GETS TOUGH

The firm hired CPA technology consultant L. Gary Boomer to advise it on a plan to fix its tax function. He was there only a few days, but his input had an impact, Simms says. Boomer was able to convince the partners they needed to spend liberally to obtain significant operational change, a bite-the-bullet approach that would have been hard for them to get to on their own. They acted: Over Labor Day weekend 1997, the firm replaced 10 servers and 75 workstations at a cost of about $250,000, Simms says.

Boomer had suggested HA&W look into replacing its audit and tax software, too, but the firm chose not to rock that boat and stuck with familiar vendors: CaseWare International's CaseWare for audits and CCH's ProSystem fx Tax (see "Paperless Resources," page 67). HA&W had no separate document-management software, but the firm vetoed a program de signed for larger businesses (it was too expensive), and off-the-shelf document-management software "couldn't handle our volume," Lowthers says. In Fact, the firm's audit and tax software had paper less capabilities its staff did not then know how to use.

... THE TOUGH GET GOING

A firm's leaders don't have to turn themselves into tech gurus to handle an IT overhaul, Lowthers says, but they do have to gel excited--and entrust someone qualified to do it. With the major hardware purchase in place, in early 1998 Simms suggested the firm set up a technology committee to handle other IT improvement projects such as figuring out how to gel more from the resources they had--and how to turn HA&W into a paperless business. The group's mission was to create firmwide efficiency and persuade partners to view being electronically based as an asset. "About 75% of the impediments to change involve office culture, policies, procedures and training," Simms says.

HA&W's partners agreed the committee's decisions would be binding as long as it stayed within budget, and they gave it the green light. The group has evolved from handling technology-only issues to touching every process in the office. At her firm, Lowthers says, "if you want a say ha how things are done, get on the committee" (See "FAQs on How the Technology Committee Works," at right.)

Internally, the committee planned to make better use of IT to reduce

* Manual and repetitive tasks (such as creating audit binders of updating tick marks each time someone modified a workpaper, for example).

* Time professionals spent waiting for file retrieval.

* Time administrative staff spent searching for files in filing cabinets, in storage rooms, on other peoples' desks or in off-site storage boxes.

* Trips between the office and work sites.

* Office space requirements.

Externally, the firm planned to offer better client service through

* Streamlined work flow.

* Customizable templates for frequently used documents such as client letters.

* More consistent work product.

* Simultaneous access to workpapers by multiple users.

* Enhanced collaboration among staff members, both onsite and flora nonoffice locations.

* Easier tracking of time and billing.

* Development of new products, services and Features.

MANAGEMENT BEST PRACTICES

The technology committee's mandate to improve workflow efficiency (that is, process reegineering) required it to address related software, hardware and training needs. The firm began with

Process engineering. The technology committee talked to professionals and staff to obtain answers to simple but important document-management questions such as "Who generates what paper? How much? How and where is it stored? For how long?" It also

* Identified best practices to use to develop standards for how long to retain records and when and how to back up files. The firm researched government and professional standards, client expectations and technology-industry standards and chose systems suitable to its practice.

* Picked model documents to use as templates.

* Imposed uniform rules for naming and categorizing files.

* Developed standard practices for work flow and stream lined them as much as possible.

* Kept abreast of software developments (work processes change, for example, when programs gain new data-sharing capabilities).

Policy considerations, A firm making management decisions for a changeover such as HA&W's has to--as it did--meet professional guidelines to avoid potential lapses that may have legal consequences. A firm must

* Know the electronic recordkeeping requirements and professional standards of the IRS, other federal agencies and state and local governments.

* Determine whether to store client-supplied data. (Some firms scan client documents into electronic format, incurring scanning costs but discarding paper. Other firms keep physical records as backup, incurring storage costs. Storing signed original legal documents is always appropriate.)

* Organize the changeover and identify a time frame for reaching the goal. This could be a fast, complete switch during the lull between tax seasons or a longer process. HA&W committed resources to move quickly, and it performed 100% paperless audits by the end of 1998 and achieved a 100% paperless tax season in 1999. Some firms take seven years and simply let paper files age out of their offices.

* Decide how to "profile" paper documents (necessary for e-storage and efficient retrieval) from jobs that predate the switch. Simms says managers and partners have the best judgment for making authoritative profiles, but their time is a big cost factor. Profiling mechanisms are embedded in some software. A Microsoft Word user can click File, then Properties, to get to a field where he or she can assign key-word search terms for future retrieval. Once that's done, a search by manager, category or key word(s) will locate the file.

Shopping for software and hardware. New software has to be compatible with existing programs, and the firm advises taking great care to avoid hardware and software products likely to be orphaned or discontinued. Select software from reputable providers and push vendors on their future plans for particular equipment before buying.

To shop for scanners, HA&W compared cost vs. speed trade-offs of different types and the cost of training staff to use the equipment. It chose high-speed production scanners for the office, portable "field scanners" that staffers take out of the office on audits and laptops. To ensure image integrity, the firm uses Adobe Acrobat portable document format (PDF) to store documents so later users can't alter them, and it converted each client's final return to a read only form of data storage.

One vendor discontinued HA&W's favorite scanners, causing the firm to scramble to choose and adapt to new equipment. Check vendors' financial health by talking to people at trade shows and reading the trade press, which might offer early hints that a product of a vendor is sinking.

Getting users on board. Consultants recommend choosing change champions from staff and making them visible role models, which HA&W did with its technology committee. The firm also had to

* Train existing and incoming staff and then--as systems developed and software gamed new features--train some more. Management must be relentless about training, says Simms. It is the key to a successful transition to a paperless office. At HA&W each staff CPA has an annual budget of $6,000 to spend on technical training he or she chooses.

* Consider human factors such as fear of change. The firm's previous IT staff had been let go after the poor '97 tax season, which minimized employee balking. Furthermore, the firm urged professionals and partners reluctant to work in a paperless environment to leave. For those who hung in, a significant incentive for coping with change was an expected increase in profits, distributed to staff through the firm's profit-sharing plan. Another reward was the opportunity to gain cutting-edge skills.

* Keep users current. Simms says a big part of employee performance evaluations now includes a yearly technology, skills review. If skill gaps surface, the firm gives training tune-ups. Professionals and administrative staff alike are tested tot competency in

* How well they use the software that applies to their jobs.

* Overall usage of HA&W software in the office and in the field.

* Whether they follow internal policies and procedures such as firm rules for backing up data.

* Talk to clients about the advantages of the firm's new capabilities, such as the use of extranets for data transfer--and give clients training and support as needed. (Note: An intranet is a Web site accessible to linked users such as the HA&W staff. An authorized CPA in the field can log onto the firm's intranet to share data with other users, who may be off-site or at the main office. An extranet connects such intranets and can accommodate one or more firm-to-firm or firm-to-client connections. A client can log onto its own intranet and, via an extranet, retrieve data from the firm's intranet, for example.)

DISAPPEARING INK

Ultimately, the HA&W tech committee decreed there would be no "dead" files or off-site storage, Simms says. From a client-service standpoint, it didn't want to have some files as paper and some not, and the firm planned a move to another location so there would have been a cost to maintaining paper files. To simplify how it adhered to professional standard about retaining client documents, the firm decided to make all files completely electronic, including legacy documents. Between the '98 and '99 tax seasons, temps helped staff members and partners to scan 19 million documents, with one audit constituting one document. The scanning cost the firm about $200,000, but having electronic files now saves about $50,000 annually in off-site storage costs and an additional $150,000 a year in office space for file cabinets, Simms says.

The switch to a digital system was expensive, but the firm says it paid for itself. It takes fewer employee hours to perform an engagement, and because the work gets done faster, the process is more cost-effective. By moving from hourly billing toward value billing and fixed fees, HA&W increased engagement profit margins. Clients pay for service, not time. An audit that formerly took 100 hours and billed at $15,000 based on per-hour charges still costs the client $15,000 but now may take 70 hours to complete. Staff members save time they can apply to other jobs.

KNOWLEDGE IS POWER

HA&W's IT committee carefully considered government requirements and the level of client service it wanted to provide and integrated those standards into a technology, policy for the whole firm. To maximize ROI, the firm took a holistic approach to design new systems that address all aspects of the organization. "You don't get your true return on investment if you take existing policies and procedures and just overlay digital technology onto them," Simms says.

HA&W evaluates its software to avoid buying capability it already has in a program it owns. "A lot of products have great features nobody uses," Lowthers says, because software companies' trainers may teach as little as 20% of a program. The firm designated "power users" (a power-user team for a product includes both a staff IT person and CPA) who study the manuals to learn what a program really can do and to keep up with version changes. Power user "perks" are skills valued in the marketplace and visibility with firm management. HA&W's return on investment requirement for any software product it buys is six months (the product should pay for itself time saved within six months). Only its time and billing software had a longer payback period, Lowthers says.

Having rejected several available software suites as unsuitable, HA&W observed that a local real estate client's work-flow software had many desirable features. The firm engaged the client's developer to design program for HA&W that was Web-based, had search capabilities, set file retention periods, could accommodate discussion among several users, could catalog documents in an original format such as Excel and could scan client papers (for individual tax work).

The developer created HA&W's proprietary system, SIAN (Secure Information Available Now), which the firm markets to other CPA practices through its technology arm, HA&W Innovative Technologies. HA&W IT evaluates other firms' IT systems, and it has worked with firms as small as 10 persons and as large as 700.

HA&W has a secure SIAN-based Web site to which clients stream information for easy communication. It also designs and administers extranets and charges clients for their creation, space and maintenance. Clients can use the extranets to store large files and employee handbooks, policy-and-procedure manuals and financial statements. The system makes it easy for clients to e-mail important financial documents in PDF format to, say, a potential lender. Although the firm's development of an IT consulting niche is outside the scope of this article, it is one more way the firm is getting its investment back.

WAS IT WORTH IT?

HA&W says a paperless CPA workplace has many benefits. Files are never misplaced, so the time spent to find them is almost nil. Multiple users can access any file from anywhere; if a CPA is off-site and a question comes up, he or she can look at a document via an Internet connection (that is, an intranet-extranet hookup) and give the client an answer to the question right away. Practitioners can review documents online in real time, too. "We can issue reports even before accountants get back in from the field," Simms says.

Recruiting staff is easier, too. "People appreciate being offered education and training at a high level," Simms says. The firm is retaining its staff, and some professionals who left HA&W have come back because they no longer have to work grueling hours and can do their jobs remote locations.

DON'T JUNK ALL THE FILE CABINETS

"Paperless" firms still need a file cabinet or two for documents that are not good candidates for electronic storage. Those requiring signatures such as a firm's own office leases are prime examples; others include partnership agreements, employment and supplier contracts, blueprints and schematics.

Most business clients are happy to get "paperwork" via e-mail of extranet. "Clients love the capabilities we have now," Simms says. They "particularly like having private portals, where they can view information as it appears on the firm's servers." Individual clients are not as "on board" as business clients, however, Lowthers says. Some of them still don't have computers and need to get their tax returns as paper documents the usual way--by regular mail, overnight delivery service or messenger pickup. But the change process has been analogous to the electronic filing of tax returns, she says. Almost everybody accepts it when you say, "This is how the firm is doing this now."

For firms considering paperless capability, HA&W offers these tips:

* Take advantage of off-the-shelf software. There's a greater selection than there was in 1998, and it's cheaper than building software flora scratch.

* Learn from experienced practitioners. HA&W, for example, welcomes visitors. "If" they like what they see, we can help them," Simms says.

* Don't allow users, whether staff or clients, to opt out of system protocol.

* Know that prolonging a transition just prolongs the pain--get it over with.

* Maintain a balance of followers. Many staff members will want to be leaders in the belief it will help their careers; spread the perks and the responsibilities.

Simms foresees more technology changes at HA&W:

"Someday we won't produce hard-copy documents for clients at all," and they'll get work products via Internet e-mail or an extranet. In the future, embedded XBRL document tagging likely will enable CPAs to discern trends, such as industry-wide swings in profitability, without rekeying data. Despite this brave new electronic world, paper isn't quite obsolete, Simms says. Some HA&W CPAs still use lined notepads for client meetings. "It's quieter--and no one suspects you of checking your e-mail," says Lowthers.

The Firm-In a Nutshell

1999          2002

Head county         168           138
Average
CPS hours       2,550-2,600      2,200
Revenues           About        More than
                $14 million.   $20 million.

Source: Habif, Arogeti & Wynne LLP, Atlanta.

FAQs on How the Technology Committee Works

A firm needs a committed core group to steer the process of becoming digital. Here's how HA&W uses its team:

Who runs the committee? Dan Simms, CPA and partner from the firm's executive committee, lead it.

Who's on the committee? There are, informally, seats for representatives from each of the firm's groups, tax, audit, each of the firm's industry groups (such as real estate, retailing and small business), IT, the administrative staff and the firm's full-time trainer. Simms brings in another of a sector's members if, say, the person who represents audit starts traveling too much to attend meetings.

How does a staff member join the committee? Lead partner Simms appoints members and interviews volunteers. The committee welcomes members from all ranks in the firm. Young members have a fresh perspective; they are often the ones who point in original solutions, he says.

When and where does it meet? The group meets every Monday at 8:30 a.m. for an hour and a half at the office. People attend meetings or are replaced.

How big is it? There's no cap on the size of the committee, but it usually has seven to nine members.

Who decides what it deals with? The firm's executive committee manages the budget, and the technology committee, working with the manager of IT, creates short-term and long-term plans and monitors how the technology money is spent. It uses its budget (about 5% to 6% of the firm's cash collections) to optimize work processes such as procedures for reviewing tax returns, how to market extranets or how to cope when a vendor no longer sells a product the firm needs. The committee works with an agenda, but does not keep minutes. Anyone in the firm can place an item on the agenda and attend the meeting at which it comes up for discussion.

What kinds of homework do committee members have? They do research on legal issues, emerging government policies (for example, the IRS's positions on electronic filing of tax returns), new and improved products, document-retention periods and new technology. They also test products, attend technical conferences and read accounting technology journals.

Paperless to a Degree

Firms don't all have the same resources or needs. These two small practices offer examples of how to use digital technology at a lower level of investment.

Jerry Levey, CPA, CFE, CMA 1500 NW Bethany Blvd., Ste. 265 Beaverton, OR 97006 503-646-8225

Jerry Levey and daughter Melissa are the complete staff of a two-person CPA firm. The practice files clients' tax returns electronically and 90% of the time doesn't need to print a copy for the IRS or state. The firm decided to go "paperless" about a year ago, but it still prints a client copy of the tax return. Under the firm's old system, it printed two copies of a client's tax return: one for the client and one for its files.

The firm's method is this: It prepares the tax return and prints a copy for the client. It scans that copy into the firm's copier/scanner/printer to create an Adobe Acrobat PDF file. In the computer, the Leveys rename the file by client name and year and store it on the hard drive. They can locate files quickly by alphabetical search, which saves them time. Clients who need a copy of their return can get one as an attachment via e-mail. Their PDF file access lets them attach notes, delete blank pages or amend pages as needed.

For security in case something happens to the firm's documents or computers, the Leveys keep backup files in a cyberspace storage facility called Document Mall. Every few days they upload client files to this Internet facility.

At a cost of about $8,000 for computer programs, storage facility lees and a new copier/scanner/printer, the firm says going paperless was a substantial investment. The Leveys chose the SAVIN 2522 because it lets them scan directly to Document Mall (at the time, no other printers had that capability). The system is easy to use and has cut down on paperwork and time. For less money a firm won't get Internet file storage, and it will need to save files (which can become quite large) to its own network or a separate drive.

The system is easy to upgrade if the firm grows, the Leveys say. A bigger firm might want a faster copier/scanner/printer along with more storage and a more sophisticated file-search program. That could cost more than $20,000 installed. The most expensive component of a changeover is time, the Leveys say. They chose not to scan their legacy files, but firms that want to drastically reduce paper will have to. For about $200, depending on the quality of the scanner, a very small firm can use the Leveys' strategies to go paperless.

Robert E. Schroeder, CPA, PA One Florida Park Drive South Ste. 211 Palm Coast, FL 32137-3801 386-445-2400

Robert E. Schroeder is the managing stakeholder of a three-person firm consisting of one CPA, one professional (not certified) and a receptionist. Three years ago Schroeder noticed he was using more office space for storing files than for desks for people, so he decided to reduce paper. He purchased three PaperPort scanners at $200 each and instructed his staff in how to use them to scan files. The firm used a peer-to-peer Windows network with an Iomega Peerless 20 Gb backup for off-site storage. The file structure was by client and year. A file more than 30 pages long in one year was subdivided by subject matter.

After tax season 2000, the receptionist scanned old files, beginning with individual tax files. The firm reviewed the scanned files for image clarity and completeness and then destroyed paper documents. Since its inception, scanning has reduced the firm's space needs by one-third, cut copy costs and sped up client service. Schroeder no longer puts a client on hold while staff search for paper files. Files can be copied to laptops if the professionals need to take them out to a client office. If a client needs a copy of document, the firm emails it.

E-Efficiencies: Firms Could Benefit More

Although most firms have adopted certain efficiencies--for instance, 84% use standardized file names and directories on their networks; 72% maintain their contact/prospect list in electronic format; and 69% use their firm's intranet to store firmwide information such as human resources manuals--there's room for growth in some areas. For example,

* Only 44% store an in-house copy of client tax returns in a digital (PDF) format.

* Just 31% store all audit workpapers in paperless-audit software.

* A scant 29% deliver their own financial reports and management reports using the firm's e-mail or intranet.

Source; Survey of Association for Accounting Administration members by Info Tech Partners North America Inc. www.itpna.com/Vision/2003, 2003.

PRACTICAL TIPS TO REMEMBER

These steps help organize the process of improving work flow and developing document-management protocols for a successful paperless office.

* Analyze how your firm handles documents. Get answers to questions such as "Who generates what paper? How much? How and where is it stored? For how long?"

* Identify best practices for how long to retain records and when and how to back up files (check IRS, government and professional regulations as well as industry and tech Web sites).

* Identify model documents to use as templates.

* Impose uniform rules for naming and categorizing files.

* Develop standards for work flow and streamline them as much as possible.

* Avoid buying technology products likely to be orphaned or discontinued.

* Get users on board. Choose "paperless champions" and make them visible role models.

* Designate "power users" among staff to keep up with program version changes.

AICPA RESOURCES

* Go to www.aicpa.org and type electronic engagements and technology competencies into the search field for an extensive collection of AICPA articles and resources.

* Go to www.cpa2biz.com and type e-commerce assurance for best practices information. The site lists many articles and courses on doing business electronically and gives information about WebTrust and Systrust consulting services.

Suggested reading

See Dan Simm's new chapter, "Digital Environments," in the MAP Handbook and e-MAP 219.

* Management of an Accounting Practice Handbook, vols. 1, 2 and 3, AICPA. www.cpa2biz.com.

* e-MAP: Management of an Accounting Practice Handbook, AICPA. www.cpa2biz. com.

Paperless Resources

Adobe Systems Inc. San Jose, California 408-536-6000 www.adobe.com

Adobe Acrobat Reader is free, but firms must purchase Adobe software to put documents into PDF format. Products include Acrobat 6.0 Professional, for control over document exchange and output, and Acrobat Capture 3.0, for converting large volumes of legacy paper documents into searchable PDF archives.

Note: At press time, this information was available on Adobe's Web site but was not confirmed by a company representative.

CaseWare International Inc. Berkeley, California [e-mail] 800-267-1317 www.caseware.com

CaseWare Working Papers provides real-time updates, annotation capability, task management and version control at document, cell and account levels. Users can plan, perform and review engagements on-screen, without paper. CaseWare Connector integrates with Word and Excel, allows annotation and has drill-down capability to supporting documents. CaseWare Time is a real-time, multiuser system for budget, time, expense, billing and client contact management. CaseWare Financials eliminates secretarial tasks and improves accuracy and compliance. CaseWare Review streamlines work flow by providing

* A snapshot of the engagement status at any point in time.

* Step-by-step guidance for staff to complete a file.

* One-click links to authoritative literature.

* Easy navigation to financial statements, work programs, lead sheets and workpapers.

* Engagement planning tools, a work program generator and automated analytical review procedures.

Commerce Clearing House Inc. Riverwoods, Illinois 800-PFX-9998 www.cch.com

ProSystem fx Office is for tax compliance, tax planning, office management, paperless engagement, accounting and auditing, and Web site design and management. One component is ProSystem fx Engagement. An integrated electronic workpaper and trial balance system, it's designed for both audit and tax engagements. It also is fully compatible with Microsoft's Word and Excel.

Practitioners Publishing Company Inc.

Fort Worth, Texas 800-323-8724 www.ppcnet.com

Engagement Manager (CDROM) manages spreadsheets, word processing, GoSystem Audit documents, scanned tax returns and client correspondence and has built-in integration with PPC's eWorkpapers and Interactive Disclosure Library. Its Guide to Paperless Engagements (via print, CD or Internet) addresses the benefits, costs and implementation.

CPA Computer Report

Madison, Wisconsin 800-260-1120 www.cpacomputerreport.com

Accountant's Guide to Going Paperless: Conserving Office Space, Buying New Communications Devices and Telecommuting, 2202-3 ed., by Franklynn Peterson and Judi K-Turkel. The Web site has a sample chapter.

SARAH E. PHELAN, JD, is a New York-based attorney and writer. Ms. Phelan was formerly a senior manager with Deloitte & Touche and a technical manager in personal financial planning at the AICPA. Her e-mail address is [e-mail].