Declutter Your Tax Records with Document Management Systems

I'm not big on spring-cleaning — the thought usually fills me with a certain dread and a sudden impulse to take a stroll to the nearest pub — but I have to admit I was inspired by Chris McKittrick's enthusiastic post to this blog on Tuesday in which he waxed lyrical about the joys of spring and … records retention.

Yes, records retention. While you're unwinding and tidying up after the annual audit cycle, says Chris, you want to make sure you don't lose track of key documents that you might need down the line. “The road is littered with the cases of businesses that lacked good processes for managing the retention of their documents and electronic records, which ended up costing them in later lawsuits or other legal proceedings,” he writes.

Tax pros know that those words apply in double strength to their department, where a single misplaced document — an exemption certificate, for example — can result in penalties to the tune of tens of thousands of dollars. You would think that any proven technology that can increase the accessibility and availability of tax data would be a no-brainer investment. The fact is, though, that document management systems are still comparative rarities in the tax function.

Only 16 percent of respondents in our Business Finance 2009 Tax Survey said that their organization uses a document management system for tax work.

The technology has been around for decades, slowly but steadily gaining ground within finance and other corporate departments. Not everywhere, though, according to Scott Wrag, managing director with accounting firm CBIZ Tofias in Boston. As leader of the firm's tax services group, Wrag has seen the inside of many a corporate tax function. “Many companies, even in the age of technology, are still dependent on files and paper and boxes upon boxes, and they haven't adopted these systems in the tax area,” he reports. “Even at companies where I know a lot of the other documents — payables and receivables and so on — are all electronic, in the tax area you still have boxes of paper.”

That's a problem, because as any spring-cleaning enthusiast will tell you, one of the biggest costs of clutter is that you can't find the stuff you need because it's buried under mounds of stuff that you don't need. In companies where paper records are the rule, Wrag remembers times when “you would literally spend, crazy as it sounds, weeks looking for one piece of paper.”

And by the time you've found that one crucial document, chances are you've pulled apart a bunch of boxes or the contents of numerous file cabinets, which you've then had to put back together.

Document management software vendors have tried to move their products beyond the image of being not much more than an electronic filing system by bolting on workflow and compliance features. And it's not just paper sources these systems handle; they can absorb digital data and manage it just as easily as analog data. But it's the ability to ingest information from complex documents, index it, store it safely, and retrieve it easily that still forms the core value proposition.

Gregg Bieri is manager of new records business development with Océ Business Services, a document process management firm based in New York City. He offered me this example of how a content management tool might help a tax department respond to an audit request. “A company may file things in boxes in hard-copy form by date range. Well, the audit might be for January 1, 2004, to January 1, 2006. In your paper files, that might include all 50 states. But maybe you're only being audited for Arizona. With a content management system, you can put in that date range and add the term Arizona, and it would pull up only that content. So it lessens the cost associated with having to comply with audits, and it also speeds up the audit process because only the information that's required is brought to the attention of the auditors.”

There are other important benefits that these software packages can provide beyond clutter-cutting, but those will have to wait until I post my next blog. Right now I'm off for a stroll and a bit of “spring-cleaning.” ###

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