Construction Costs

Won't Be Cheap

CPAs, especially those in public practice, must face the harsh reality that the bridge to success in the next millennium is not made of bricks and motor, but of silicon. Sooner or later, computer technology and the Internet will catch up with practitioners that have avoided facing it. Some have been able to make up for technology inexperience by working harder and employing more people. The current economic boom has concealed the fact that CPAs not utilizing technology have fallen behind, in terms of efficiency and the knowledge they would have gained about technology had they only been using it.

But e-commerce and the transfer of back office functions to the Internet will, through adoption by clients and successful businesses, come to dominate the CPA's world. Those that choose to stay behind may suffer the consequences of being irrelevant.

THE INTERNET INTO THE NEXT MILLENNIUM

By L. Gary Boomer

The bridge to success

Technology's impact on the CPA's workflow has, in many ways, been very personal. In the past, the user of the CPA's services very often did not know the extent to which technology was at work increasing efficiency for the CPA. Whether a display of financial information was initially developed on a seven-column pad or an electronic spreadsheet was not always discernable to the end user. And, whether a CPA kept her calendar or list of contacts in Outlook or in one of those fancy manual organizers was equally nonapparent. Nor has it been obvious exactly what role technology has played in the preparation of a tax return. Was the tax research done using the old-fashioned paper product or the online electronic version?

More noticeable is the extent of Internet use by CPAs. If the boss or a client communicates using e-mail, the CPA had better be able to respond by e-mail. But other than that, there are many CPAs that still think of Yahoo as a chocolate-flavored drink.

Of course, there are many CPAs that have taken full advantage of technology and the Internet, moving their firms and businesses into new areas of practice and management and significantly increasing productivity. Often it is one or two sparkplugs in a firm or an organization that transform the way things are done.

For the year 2000 and beyond, however, the successful CPA will no longer be able to bluff her way through a discussion on technology. Use of the Internet, the most important innovation since the telephone, cannot be avoided. Effective use will be made by those CPAs with a vision of what the profession can be and the creativity to deliver what the vision foretells.

I have provided a number of examples to help CPAs understand the potential of technology--there is no better time than now to act. Like an architect, I have tried to provide the blueprints, so that more people can envision the ultimate building.

The CPA in Public Practice

It is my belief that a major shift is about to occur in the way accounting firms offer services to their clients. My first example is of the client that calls and asks for a copy of a prior year's tax return or for an employer identification number. This happens quite frequently and can be somewhat of a nuisance. But to the client, it is an important issue, and the CPA is expected to respond to this simple request immediately. Traditionally, a clerical person retrieves the file, makes a copy, and mails it to the client. Though simple, this process is time consuming and generally not profitable. What would be the high-technology solution? To retrieve a copy in a digital format and e-mail it to the client? Not a bad idea. Many CPAs and CPA firms are in a position to do just that, presumably using some form of secure transmission because of the confidential and personal nature of tax return information.

But this solution can be taken a step further. Why not give the client a password and allow its staff access to copies of tax returns, id numbers, copies of payroll tax returns, and any other information the firm stores digitally? Done properly, it will virtually eliminate staff effort in responding to routine client inquiries for information in the firm's files while providing better service to the client. Information and access can be available 24 hours a day, seven days a week. The technology is available to accomplish this today; however, most firms are not organized correctly nor do they have the infrastructure in place to provide this access.

First, a firm must solve its own internal filing, storage, and retrieval problems. Many firms are finding they don't have the necessary policies and procedures in place to ensure that files are being stored uniformly. According to a recent study and projection, the average firm spends between $75­100 per client annually on filing, storing, and retrieving paper and digital documents. Furthermore, most firms are rapidly searching for solutions so that they can find the current version of a particular file. As the number of client files grows, a better indexing and retrieval system is a necessity.

My second example of a major shift involves tax return preparation. Today many firms mail clients a tax organizer with the prior year's information in late December or early January. I have another approach for the progressive firm that wants to distinguish itself: Why not send a letter or an e-mail to the client stating that its information and tax organizer are located at a certain, password-protected URL? After entering the secure side of the website, the client can review and edit its own information as well as enter new information for the current year. It is perfect for the client that appreciates cutting down on the clerical aspect of the CPA's role, while keeping the CPA in the loop for more valuable consultative services. As the client enters and organizes the information, it flows directly into the tax return, saving time and eliminating redundant data entry. The CPA now has more time to become involved in planning and developing strategies. In the words of AICPA Chair Robert K. Elliott, the CPA is moving up the value chain, leaving clerical services and routine questions in the client's hands.

The major tax vendors are talking about such changes or working on making them happen today. A handful of firms have already designed their own systems. While they are pioneers--in many cases still working to get the bugs out--they will be the first to market and will experience tremendous benefits from their creativity.

Some CPAs will respond by saying their clients don't fill out paper organizers, so why would they fill out the web-based organizer? Many will probably not. One size does not fit all. However, many clients will value this service today and even more will in the future. Offering clients the opportunity is important, and the perception that the CPA is at the leading edge of technology will be positive. The CPA that seeks ways to bring the client into the equation effectively will be noticed and rewarded.

CPAs in Industry, Government, and Education

Huge changes are also coming for CPAs in other segments of society. Bill presentation over the Internet may be the biggest development to appear in the next year or two. Businesses and other organizations will send and receive invoices over the Internet. While this is a step or two below the electronic data interchange that large enterprises have been using for years, the movement to small businesses, not-for-profits, and the like will be a major development. The savings on supplies, paper, and postage is not trivial. Customers will also be given access to their accounts to check on the status of payments and orders, to obtain current pricing information, and to place new orders. The Internet will allow transactions to take place electronically from beginning to end.

A recently released study by Deloitte & Touche, The New Economics of Transactions: Evolution of Unique E-Business Internet Market Spaces, sees a number of other trends and forces in commercial activity over the Internet. One of the trends is for greater use of Internet software-based agents to search the Internet for products, compare prices, and execute transactions. These agents can be likened to the crawlers of web-search software that are so important to the Internet. Their use will, of course, increase the competition for products.

Another trend, according to the study, will be the emergence of "digital cash" as a medium of exchange. The study goes on to predict that the difference between real cash and software-driven money will disappear. The survey also sees Internet service providers being replaced by commerce service providers, with vendors offering start-to-finish electronic services. What these trends and visions point to are back-office accounting functions that are fully integrated with companies' e-commerce sites.

Technology will also play an increasing role in the governmental sector, which has been increasing in size as the private sector downsized. It will allow citizens direct access to government information and their personal data, cutting bureaucratic red tape and making the delivery of government services more cost-effective. The gains that technology has allowed big business are very much transferable to the public sector.

Successful enterprises will have to devote significant resources to a technology strategy, and funds will have to be made available as the total cost of technology increases. Technology is currently the top expense behind labor and fringe benefits in the service industry. That is not going to change.

Many companies don't know what they spend on technology due to the fact that they employ "peanut butter" accounting--dollars spread so thinly that no one knows how much is being spent. Currently, entities charge technology to a multitude of locations such as fixed assets, supplies, and departmental expenditures. This makes it difficult to accurately gauge its true financial effects. Many CPAs perceive this as evidence that technology has no positive impact--just a pervasive cost. Nothing could be further from the truth. Firms and companies that are organized to accurately see the effect of an investment in technology can identify it as a growth area, and will generally outpace their competitors that ignore it.

In Position to Win

How can organizations position themselves to compete and take advantage of technology? First and foremost, they must cultivate the right attitude. Technology is a strategic asset and must be managed accordingly. Those who view technology as overhead will continue to be frustrated and never realize a significant return on their technology investment. This sounds too simple, but I see it every week working with firms and businesses.

The new millennium will bring exciting times. Entrepreneurs will flourish while bureaucracies fall. Success is a matter of choice. *Figure1.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.