Rate yourself in the paperless race: have you overcome your resistance to the new technology?

EXECUTIVE SUMMARY

* Surveys by the Association for Accounting Administrators show that CPA firms of all sizes are moving to convert their offices to paperless operations.

* A paperless office is made up of many different functions. Some require technology, such as hardware that scans paper documents and converts images to digital files; others require only a process change, such as asking clients to send their data as digital files rather than as paper documents.

* Only 38% of firms prepared invoices directly on the computer in 2003 rather than on paper, using typical billing sheets--even though it would be far simpler and faster. In 2005 the number rose to 46%.

* In a somewhat more technically advanced procedure, 72% used intranets to store firmwide information (such as personnel and procedure manuals) in 2005, up from 64% in 2003.

* On average, firms of 100+ CPAs rated not much better than smaller firms in 2003. But the 100+ group showed a significant gain two years later.

* The number of firms that stored audit workpapers in paperless software applications--a key sign of a paperless CPA office--showed a huge 103% growth last year over 2003.

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OK, you regularly scan your clients' tax returns and store them electronically You even use your computer to prepare invoices, which you e-marl to clients. So your office is paperless, right? Think again. Although you do deserve to be commended for overcoming the initial resistance to converting some of your office operations, don't get too satisfied. You still have a long way to go before you're ready to declare your office paperless and start chalking up significant operating savings.

A PAPERLESS GAIN

To assess how far you've advanced toward a paperless model, compare your office with CPA firms of similar size that responded to surveys conducted by the Association for Accounting Administrators (AAA) in 2003 and again last year (see the exhibit below and online at www.aicpa. org/pubs/jofa/may2006/zarowin.htm).

The AAA sent its initial survey to its 600 members, and of the 140 who responded, 51% said they had implemented at least some of the 21 paperless functions asked about in the survey When the AAA repeated the survey, it added four functions and the use rate rose to 67%--a 22% improvement. Lacking any other comprehensive measure of the rate of paperless growth, consider those figures an index of how CPAs are using less paper and more technology.

Applying some technology to a few office functions is hardly enough to justify calling your office paperless. A true paperless office has not only added new technology, it's redesigned many manual processes so the technology and the revised processes work together to speed and enhance office operations. Some functions require new hardware, such as a scanner to convert paper-document images to digital code; others require only a process change, such as asking clients to send their data as digital files rather than as documents.

Let's look at some of the processes the AAA included in the surveys. Firms that responded affirmatively to most of the queries can be considered nearly paperless. We'll begin with those functions that are the easiest to implement--requiring no technology, only changes in mind-set to take first steps into a paperless revolution.

STILL USE BILLING SHEETS

Firms were asked whether they prepared invoices directly on the computer rather than having someone in the firm prepare them on paper, using typical billing sheets. In the 2003 survey, only 38% used the computer--even though it would have been far simpler and faster that way. When the survey was repeated in 2005, use of the computer for billing rose to 46%--a 21% gain. But in last year's survey, only 27% said they then delivered those electronically prepared invoices to the client via email or digital fax. So instead of using a few mouse dicks, 73% actually addressed an envelope, inserted the invoice, stamped it and mailed it.

In another question that measured a mind-set shift rather than the use of new technology, only 35% in both surveys said they had instructed their staffs to use e-mail when requesting more information from clients (question 5).

An area where a nontechnology process declined (by 6%) is the standardization of names of network files and directories (question 19). Without such standardization, locating files on a network can become not only a time-wasting nuisance, but a serious problem.

When queried about a somewhat more technically advanced procedure--whether CPAs used their intranet to store firmwide information (such as personnel and procedures manuals), providing easy access to the information (question 11)--the yes responses increased 13%, to 72% from 64%.

Although most, if not all, tax software programs contain built-in capacities to save tax returns in a universal and easily accessible digital (Adobe) format (question 2), only 43% said they saved it that way in the 2003 survey; two years later, however, that number jumped to 74%.

The greatest surprise was that the very large firms (100+ CPAs) were not much more paperless than their smaller peers in 2003: 56% on average for the big firms vs. 51% for all firms. But the 100+ group showed a significant gain two years later, when that group's average jumped to 82%, while the overall average crept up only to 62%.

If there's one indicator of mind-set shift toward the paperless office, it's the use of notebook computers. The more accessible a computer is, the more likely CPAs are to use it instead of paper--to take notes, to add an appointment to a calendar or to dash off a memo to a colleague or a client via a wireless connection. Although the 2003 survey showed only 25% of firms used notebook computers (question 18), two years later the figure soared to 89%--a statistic that bodes well for the growth of the paperless office.

STORE AUDIT WORKPAPERS

Moving on to advanced technical processes, the 2003 survey found only 29% of respondents said they stored audit workpapers in paperless software applications (question 8)--such as CCH Audit, CSI Audit or CaseWare. Two years later that figure doubled, to 59%. But even more significant was where the growth in software use occurred: In 2003, offices with just one or two CPAs did not use such software, but two years later 33% reported they did.

Not all areas showed growth. When asked whether they maintained their contact and prospect lists in groupware applications (question 16), 75% answered affirmatively; two years later that average dropped to 72%. However, 67% said they used groupware to maintain their firm's calendar in addition to contacts and prospects (question 17), compared with 87% just two years later--a 30% increase.

On balance, it's clear the trend toward paperless is gaining momentum--although sometimes in fits and starts. While it's hard to quantify how much money a paperless makeover saves a CPA firm, it's obvious that accountants perceive large improvements and that is their underlying rationale for adopting paperless processes.

Stanley Zarowin, a former JofA senior editor, is now a contributing editor to the magazine. His e-mail address is [e-mail].

PERCENT WHO RESPONDED "YES," "MOSTLY" OR "SOMETIMES"

                                  2003 Survey   2005 Survey   % change

 1 Use on-screen review for tax       54            80          +48%
   preparation.
 2 Store a copy of clients' tax       43            74          +72%
   returns in digital (.pdf)
   format.
 3 Electronically update              68            63           -7%
   due-date status of tax
   returns in a real-time
   format.
 4 Scan client-supplied               19            54         +184%
   supporting tax information
   for storage.
 5 Instruct staff to use e-mail       35            35            0%
   when asking clients for
   additional information.
 6 Import clients' trial              62            83          +34%
   balances electronically.
 7 Ask clients to provide their
   documents in an electronic         45            63          +40%
   format.
 8 Store audit workpapers in          29            59         +103%
   paperless applications (CCH
   Audit, CSI Audit, CaseWare).
 9 Use electronic links to            67            73           +9%
   produce financial statements
   rather than re-keying.
10 Link audit application to          57            63          +11%
   tax application to transfer
   information.
11 Use intranet to store              64            72          +13%
   firmwide information
   personnel (manual and
   procedures).
12 Deliver financial and              34            52          +53%
   management reports
   electronically (via e-mail
   or intranet).
13 Have a procedure for               65            91          +40%
   destroying all confidential
   documents and outdated
   electronic files.
14 Transmit internal reports to       58            74          +28%
   owners and managers
   electronically (e-mail or
   the firm's network).
15 Prepare most invoices by           38            46          +21%
   computer instead of using
   billing sheets.
16 Maintain contact and               75            72           -4%
   prospect lists in groupware
   applications.
17 Staffers maintain calendar         67            87          +30%
   and contacts on the firm's
   groupware system.
18 Partners and managers use          25            89         +256%
   notebook computers.
19 Standardize names of network       86            81           -6%
   files and directories for
   easy access.
20 Can receive faxes via e-mail       23            34          +48%
   and saved digitally to the
   network.

Average                               51            67          +22%