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Accounting automation - one firm's experience.

Accounting Automation - One Firm's Experience

In an historic building in the fashionable part of Seattle, tasteful western-style art graces every surface. Exposed brick and wood, plants and well-placed lighting give a comfortable feel. It's an enclave of fast-rising innovators and professionals where entrepreneurs and presidents of closely-held corporations gather to wage battles of wits and will with the IRS.

This is Smith & Just, P.S., CPA firm. A successful seven-person firm, Smith & Just practices the art of accounting, specializing in tax-related areas. Every year, the firm helps more than 650 clients plan their business strategies, deal with accounting issues and minimize their taxes.

In an atmosphere of changing and complex tax laws, Smith & Just's task is not trivial. Says Chuck Just, one of the firm's partners, "The complexity of the tax laws has forced the profession into automation. The chances of making a clerical or mathematical error in preparing a complex tax return manually is close to 100%."

Previously, Smith & Just used a service bureau for its tax return preparation. But this route can be expensive. A return of above-average complexity can cost $300 or $400, with highly complex returns running even more. Reruns add more charges. Additional per-return costs come from staff time spent double-checking paperwork to prevent high rerun costs.

As everyone in the tax preparation business knows, clients often ask for help with their returns at the last minute. The three-day turnaround provided by service bureaus is not acceptable to clients who need eleventh-hour help. And reruns can add another day to the cycle. This takes all control over deadlines out of the hands of the tax professional.

These service bureau drawbacks led to Smith & Just's decision to automate. Automating a practice can make it run smoother and more profitably. Further, as tax laws and accounting standards increase in number and complexity, in-house automation of the tax preparation process is fast becoming a necessity.

Drawing Up Blueprints for


There are many ways to approach automation, not all of them equal in terms of cost, flexibility and functionality. Some professionals choose stand-alone PCs with separate software for tax prep, tax planning and client write-up. Some network their PCs; others choose multi-user microcomputers using Unix-bases operating systems. Less common today, some purchase expensive minicomputer-based systems. Because every office is different, each practice must weigh the advantages and disadvantages of each, looking at the resource use of both today and tomorrow.

When Smith & Just automated its practice, the partners asked such questions as:

* Will the system really improve productivity?

* Will the system keep up with advances in technology?

* Can the system keep up with the growth of our practice?

* Will we need to manually re-key or transfer the same information into different modules and applications?

* Can we meet all our practice's application needs with one software supplier?

* Can we automate little by little, as needed, or do we have to invest heavily all at once?

* Will it run on our existing hardware?

* Is the software accurate, easy-to-use, simple to install and cost-effective?

* Will the software provider be around in the future for support and yearly updates?

Smith & Just wanted individual software programs that addressed particular applications, such as individual and business tax prep applications, tax planning programs, fixed asset programs and client write-up programs. Stand-alone products such as these are often the most powerful.

Ideally, Smith & Just wanted to integrate different applications--have them share common data files--so, for example, a state return can automatically receive information from a federal return without any additional steps by the user. They also wanted to create fileable business tax returns using the client information stored in a client write-up program, as well as create planning forecasts. Transferability of data allows tax returns and other accounting paperwork to be created with little duplicated input.

When Smith & Just looked at automating the practice, it reviewed all services, including:

* Client accounting,

* Audit workpaper preparation,

* Fixed asset management and depreciation,

* Individual tax preparation,

* Electronic filing of federal tax returns, and

* General business accounting for small businesses.

Each of these is a separate element. Yet they knew it would be useful to connect and integrate them.

The benefits of integrating stand-alone products are many. For one, integration results in less data entry--a client's information can be entered one time for all worksheets, schedules and forms. Less data entry means lower labor costs and higher accuracy.

Automation Decision

Based on Hardware


Smith & Just's decision to automate was partially based on the need to upgrade the computer system. Instead of stand-alone PCs, the firm decided to allow each employee to access centralized files, printer resources and applications.

Smith & Just purchased a powerful personal computer (PC) that runs a version of the Unix operating system, then attached eight computer terminals. This fast PC has enough hard disk storage and random-access memory to supply computing power to all professionals at once. With the addition of a DOS shell, the firm can run off-the-shelf MS-DOS-based applications but also use the power of Unix for multiuser and multitasking applications.

Once the hardware decision had been made, this focused the options for software. Smith & Just talked to other accounting and tax firms and narrowed the field down to three market leaders, all of which were known to be accurate and to enhance productivity.

Today, Smith & Just runs DOS-based amortization and trial balance programs. Under the Unix operating system, the firm uses word processing, spreadsheet and database programs as well as client accounting, tax planning and tax preparation programs. The firm has found that the Unix-based platform provides flexibility, group access to files and easy administration. Everyone in the firm can use a single piece of software at the same time, and the terminals are interchangeable, which means all employees can access the system from any terminal. The system requires one of the CPA's to act as system administrator approximately five hours a week.

How the System Works

Here's how Smith & Just does a typical return with its automated system. First, an accountant fills in an input sheet, just as he or she would with a service bureau. That's where the similarity ends.

The input sheet goes to a data entry person and is entered into the computer. The data entry person prints a summary and an accountant's recap. At the same time, the system shows a diagnosis of potential errors. This output is given to the accountant for review and revision. Then the final return is printed by the accountant. The partners review it, make changes and send it to the client. The firm uses the input sheet method for two reasons: (1) it provides an audit trail, and (2) the accountants know exactly what went into the computer. However, the software they use is flexible enough to allow data to be entered directly into the computer during a client interview. This interactive method is gaining adherents as more firms realize productivity savings by avoiding the process of an additional person entering the data. The tax professional can look at and change the return himself before it is printed, offering flexibility and time savings.

Automation Benefits

Since implementation of the automation system in 1988, Smith & Just has seen a rapid payback for its investment. The firm formerly spent $30,000 to $40,000 a year on service bureau fees; today, it spends a fraction of that amount. The hardware system cost $30,000, and the tax software is $4,000 annually, which includes updates and changes for new tax laws. Even with the additional system administration costs, Smith & Just is now coming out ahead.

Said Just, "The savings have given us the option to increase our fees more slowly than we otherwise would have needed to."

Rapid payback and cost savings are not the only benefits the firm has reaped from its automation strategy. Increased flexibility over service bureaus is another. "We can do pro formas right on the screen, interactively," said Just. "And we can make any necessary changes to a return, based on errors or client input, so there are no penalties for reruns."

The system eases the yearly trials and tribulations of mastering new tax laws, because the software has a built-in knowledge of tax law. It also makes completing the notorious 8582/6251 forms nearly as simple as the 1040A. Smith & Just professionals also say that having all the client information in the computer gives them a head start on tax planning during the off-season.

Better client service is another automation benefit because there is no waiting for returns to get back from the service bureau. The firm can give more attention to those returns that really need it. Also, sensitive clients with confidential financial information can rest assured that the data never leaves their office.

When In-House

Automation Makes Sense

Smith & Just recommends moving to an in-house tax preparation system if the firm prepares at least 200 average returns a year. These firms may very well recoup their investment in the first year.

When choosing a software vendor, Smith & Just recommends careful research--changing from one software vendor to another is a costly and time-consuming task. The firm recommends finding a comprehensive, tested package from a company known for its responsiveness. Since there is no such thing as bug-free software, find a company that will resolve problems quickly. If possible, choose software that can be updated by telephone with a modem, which is the easiest way to receive new software.

The decision to automate is not an easy one. However, the benefits of automation--streamlined procedures and increased profit margins--may make the process well worth the effort.

Glenn R. Davis is director of marketing of Accountants Microsystems Inc. (AMI). AMI, headquartered in Bellevue, Washington, is a leading provider of accounting software for practicing accountants and their clients. The company, with 30,000 product installations, has specialized in in-house tax preparation software since 1981.
COPYRIGHT 1990 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Davis, Glenn R.
Publication:The National Public Accountant
Article Type:column
Date:May 1, 1990
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