Using interactive tax software in return preparation.

Many firms have successfully adopted professional based, formsless, interactive software for individual tax returns, allowing professionals to work directly with taxpayer data at their terminals.

By understanding how interactive software changes traditional Form 1040 return preparation work flow, an office can adapt its procedures to best take advantage of new technology within its unique operating environment.

Staffing

Experienced preparers are best suited to use interactive software; they already understand the flow of information in individual tax returns.

Inexperienced preparers, however, may have difficulty using forms-less software. Prior year input sheets no longer provide a navigation guide to current year preparation. Firms that depend on using audit staff or interns for tax preparation may need to continue using input sheets, even if the preparers do their own data entry from them. This results in a hybrid system that allows reviewers and experienced preparers to use the software interactively while inexperienced preparers use input sheets.

Training

For permanent staff, interactive software can be part of the office's compliance training process. By giving preparers responsibility for checking computed returns and clearing diagnostic comments, their understanding of tax compliance quickly increases. Initially, this is less efficient than using an experienced person to do all checking and review; however, this investment soon pays off in reduced review time. The alternative is a heavier investment in preseason compliance training.

Reducing work in process

Since a return can be prepared or reviewed in one sitting, there is no forced delay between data entry and checking a computed return. Productivity can be greatly improved, but only when the office adopts policies and procedures that emphasize work continuity.

* Minimize the amount of work in process at any one time. Set targets for delivering returns to the client within, e.g., a week of beginning preparation. Track and investigate variances. * Check for missing data before preparation begins. In addition to cutting preparation time, review time should decrease if the interviewer (or reviewer) is already familiar with the taxpayer's return.

Maintaining a data trail

Traditional review procedures for individual returns rely on using input sheets as a trail between the client's source data and the computed return. With forms-less software, new quality control procedures or tools are needed. Without assistance, reviewers may feel compelled to overreview, to attain the same comfort level they had when reviewing input sheets. However, good data trails can be established by emphasizing an orderly tax documentation file. Two approaches are:

1. A standardized summary or "lead sheet" of source data that is later reconciled to the computed return by adding depreciation and other computer-generated items. If the source data ties to the summary and the reconciling items are accurate, the trail is complete. The summary is most effective when arranged by Form 1040 line item order (e.g., wages, interest, etc.). 2. Add tax file workpaper references to a copy of a computed return. The reviewer can verify the trail to source documents, add notes and changes in color, and keep it in the tax file as documentation of reviewing the return.

Sole practitioners, when cross-checking their own work, can also use these steps to reconcile the computed return to source data.

Using reports generated by tax software

In some cases tax software developers produce reports to assist reviewers, including the following.

* Workpapers that tie computed returns to source data. * Lists of overrides used by preparers (e.g., depreciation). * List of data changes made since the previous processing of the return. * Analysis of computer-generated limitations and other items, e.g., suspended losses.

Practitioners should investigate what is available and, if useful, incorporate them into their office procedures and preseason orientation programs.

Review procedures

Some firms insist that returns be reviewed "on-screen" before a copy is printed. Generally, this is not efficient; navigating from screen to screen through the software can be extremely time-consuming. Also, the information on an individual return requires that many source numbers must be traced to several output areas of the return.

For most reviewers the initial tracing of tax source data to/from the computed return is best accomplished with a printed copy of the return.

On-screen review is effective to recheck selected areas of a return after making changes to input data. Major reconciling numbers can also be spot-checked and diagnostics reviewed.

Data security

Before using in-house tax software, many firms relied on their software vendor's mainframe computer to save backup copies of their clients' data. Now the firms must take full responsibility for this data. Costs of recovering lost data can be calculated by estimating lost professional time necessary to reconstruct all compliance tax work for a day, a week or an entire year.

Although procedural details for maintaining data security are beyond the scope of this article, tax department management needs to understand this critical requirement to invest in appropriate hardware, software and staff training.

Most data files losses are avoidable, including those lost through human error, inadequate backups and power surges to unprotected equipment. Sabotage, theft and natural disasters are also threats that can be minimized. Many of these situations can be prevented or controlled by performing an internal disaster avoidance audit to identify areas of risk. Some leading questions for tax department management to ask are:

* Is an automatic tape backup system used nightly during tax season? (Manual systems may be abandoned when the work load gets heavy.) * Are tapes stored in a fireproof vault? (Many disasters striking a computer's hard drive would also damage tapes stored nearby.) * Are weekly or monthly tapes saved long-term, off premises and in the possession of a partner/owner of the firm? (Some horror situations, like a computer virus or disgruntled key employee, could damage data for several weeks or months before detection.) * Has backed up data been successfully reloaded after a simulated disaster drill? (Identify incompatibilities or procedural problems before the data is needed.)

Overall, the cheapest insurance against data loss is proper backup hardware and software used by a well-trained person who understands that major data losses could be disastrous to the firm.

Confidentiality

One advantage of using a local area network (LAN) in a tax practice is the ease of sharing data among tax staff. This access to data can also cause confidentiality problems.

* LAN security: Without careful attention to security rights (assigned by the network administrator) and to passwords for sensitive client files, anyone with access to a terminal in an office may view, alter or copy any client's tax information. * Remote access: One of the favored technological advancements used by professionals in CPA firms is the ability to dial into the office's network from outside the office, whether from home, a client's office or a telephone booth. Generally, this access is controlled by passwords. Unfortunately, passwords may not be kept private. Without tight control, these passwords may not be changed when an employee leaves the firm or no longer needs access. * Discarded paper: A productivity advantage of the new software is the ability to quickly print working copies of a return. Superseded copies, along with unused organizers and pro forma containing confidential information, often are disposed of in the regular office trash. Consider confidential disposal of this paper.

Minimizing fatigue

Tax professionals using interactive tax software may now spend many hours per week working at a microcomputer terminal, especially during the busy season. The extended hours plus stress can cause discomfort or even chronic disability unless the workstation environment is properly designed for microcomputer use.

* Ergonomic furnishings: Generally, a microcomputer should not be placed on an accountant's desk because the desk top is too high for the keyboard and too low for the monitor. The keyboard should be lower than the desk top to keep the user's wrists in a more natural position. A keyboard "drawer" can sometimes replace the lap drawer in the desk. The monitor should be situated so that the accountant can view it without tipping his head forward or back.

The typical accountant's chair encourages slouching, which can, over time, cause lower back injuries. A posture chair with lower back support is best, but special cushions for lower back support can be purchased that will improve working posture. * Eye strain: A VGA monitor that does not flicker is easiest on the eyes.

A color VGA monitor is generally a good productivity investment because tax software programs use color to highlight input fields, error messages and other important information. As a result, professionals can work faster and more accurately. However, when choosing between a VGA monochrome or a CGA color monitor, choose VGA because its screen images are clearer.

Avoid using portable microcomputers in the office for extended periods unless a full-sized monitor can be attached. (A portable microcomputer with a built-in VGA screen helps reduce eye strain when it must be used outside the office.)

Eye strain is also caused by glare reflecting off the monitor's screen. Remedies include adjusting room lighting, moving the microcomputer or attaching an antiglare shade device to the monitor's screen.

Some individuals may need a separate set of eyeglasses when working at the terminal. Most prescriptions for eyeglasses focus on reading or driving distances, not on the distance from the individual's eyes to a monitor screen.

* Educate the staff: Since basic health issues are involved, it is important for the firm to actively encourage the staff to develop good microcomputer habits early.

Even when good furniture and equipment are provided by the firm, staff must choose to use good posture, take stretch breaks, and obtain proper eyeglasses, to avoid fatigue and/or long-term health problems that can be associated with extended use of the computer.

Summary

By anticipating the staffing, documentation, security and ergonomic ramifications of using interactive tax software, firm management can avoid many of the problems experienced by early users. These firms can minimize conversion costs and accelerate productivity gains.