How to increase leverage Paperless€¦ · Fundamentals of Paperless 6 Tax Workpapers How to increase leverage & profitability by improving reviewer efficiency in a paperless tax

Fundamentals of

Paperless Tax Workpapers6 How to increase leverage

& profitability by improving reviewer efficiency in a paperless tax workflow

Think back to your days as a tax preparer. What workpaper preparation standards did you

follow? Did you organize and index workpapers in a consistent manner? Did you use tickmarks

and calculator tapes to show the work performed? Did you cross-reference amounts to show

where they were coming from (or going to)? You likely did these things and more. Not because

it made preparation faster; because it made review faster. And reducing review time is the key

to maximizing leverage and profits. In the move to a paperless tax workflow, however, many

firms find their review time increasing. Instead of reviewing cross-

referenced and tickmarked workpapers in a well-organized binder,

they are searching through PDF and Excel files in a document

management system. These generic technologies don’t provide

preparers the tools they need to follow the workpaper preparation

standards that for decades formed the basis of a firm’s ability

to leverage its staff. This whitepaper will show how to restore

leverage and profitability by returning to these fundamentals

of workpaper preparation and review within a paperless tax

workflow.

Current Tax Document Automation solutions aim at reducing staff, or even administrative

time, by automating the organization and entry of standard source documents1 . While this

automation is important, and SurePrep achieves it the best2 , it does little to save reviewer

1 “Standard” source documents are documents that Tax Document Automation systems are

designed to read using Optical Character Recognition (OCR) and generally include W-2s, 1099s, 1098s,

K-1s and organizer pages.

2 SurePrep’s standard source document coverage is, by far, the most comprehensive in the

industry. In addition to reading virtually all relevant tax data from over 450 consolidated 1099s, only

SurePrep reads grantor letters (42), state K-1s (19), and organizer pages (other TDA systems only

bookmark organizer pages whereas SurePrep reads the information on them).

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How to Increase Leverage and Profitability by Improving Reviewer Efficiency in a

Paperless Tax Workflow

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time. And isn’t the primary purpose of the preparer to

save reviewer time? Isn’t extra time spent at the lowest

billing rate worth the time saved at the highest billing

rates? If a Tax Document Automation solution only

saves time at the preparer level, it will actually reduce

leverage. Requiring staff to prepare well documented

workpapers will reduce review time and increase

leverage. But staff can only do that if given the right

tools. The techniques discussed in this whitepaper will

help flatten your leverage pyramid by returning to the professional service fundamentals of

workpaper preparation that for decades created leverage by minimizing review time.

The Fundamentals:

In paper-based workflows, preparers saved reviewer time by:

1. Organizing all workpapers and source documents into a single binder, with a standardized

index, making it easier for reviewers to find information;

2. Using tickmarks, calculator tapes and other standard annotations enabling the reviewer

to understand what work was performed;

3. Cross-referencing all amounts flowing to the tax return ensuring reviewers could find the

source of any tax return amount quickly;

4. Signing off each workpaper so reviewers know who completed the work and when;

5. Managing all open items and review notes in a single location that references the related

workpapers enabling reviewers to quickly understand and reply to them; and

6. Preparing leadsheets or reconciliation workpapers, when needed, to help reviewers quickly

tie tax return amounts to source documents.

These fundamentals have largely been lost in the move to “paperless.” Over the last decade, the

generic technologies used by many firms to enable a paperless process have made following

the above standards difficult or impossible. For example, document management systems

that store PDF, Excel and Word files lack the functionality to separately organize, index and

track the individual client source documents and workpapers within each file (i.e., a document

management system is a file container, not a workpaper binder). PDF editors (for example,

Let us help you get here:

Highly procedural engagements, such as tax return preparation, enable flat pyramids. The flatter the pyramid, the greater the profits.


Adobe Acrobat) that annotate or tickmark client source documents do not provide similar

functionality for workpapers prepared in Excel or Word. Because preparers lack the tools

required to prepare workpapers using the fundamental techniques listed above, more time is

spent in review, often redoing work already done by the preparer. This reduces both leverage

and profitability. By using software tailor-made for the efficient preparation and review of

workpapers, firms can not only regain the leverage of their paper-based processes, but surpass

it.

Breaking It Down:

Fundamental #1 – Organizing workpapers using a standardized index

A fundamental element of well-organized workpapers

is a standardized workpaper index. If workpapers are

always indexed in a consistent manner, reviewers will

know where to find them. Tools such as document

management systems, however, make it difficult or

impossible to organize workpapers this way, because

they only allow organization at the file level and not at

the workpaper level.

For example, a PDF file of 50 pages and an Excel file

with 3 worksheets could be organized as 53 workpapers

in a paper binder.

In a document

management system these workpapers are displayed as

two files. In essence, the document management system

is a file container, not a workpaper binder, and lacks the

organizational flexibility of paper. This prevents preparers

from organizing workpapers in a way that minimizes

review time. The only way to gain the organizational

flexibility of paper in a document management system is

to separate the 50 page PDF file into 50 1-page PDF files

and the 3 worksheet Excel file into 3 1-worksheet Excel files.

Organizing Workpapers in a Binder – Separately indexing each source document and workpaper in a single binder enables reviewers to quickly find what they’re looking for.

Organizing Workpapers in a DMS – DMSs organize data at the file, not workpaper, level making it more difficult for reviewers to find what they’re looking for.


This process of splitting each PDF page and each Excel worksheet into separate files is so time

consuming that very few firms do it.

Solution #1

Using Optical Character Recognition (OCR), SPbinder automates source document organization

into a standardized workpaper index that follows the flow of a tax return and includes PDF,

Excel, Word, TIFF and Email files. But unlike document management systems, SPbinder provides

patented3 workpaper-level indexing enabling the 50 page PDF file and 3 worksheet Excel file

from our previous example to be organized as 53 separate workpapers rather than 2 files.

This enables reviewers to page through all 53 workpapers, in any order, regardless of file types,

without needing to open multiple files and locate pages and worksheets within them. If the

Excel file contains detail on several rental properties, as well as back-up for medical expenses

or office expenses, each worksheet in the Excel file can be indexed independently, in any

3 Document Element Indexing System, Patent No. 8775408

Solution 1 – Unlike DMSs, SPbinder enables PDF and Excel files to be organized at the workpaper level, not file level, enabling firms to regain the organizational flexibility of paper in a paperless environment.


order, among the 50 PDF pages. Gone is the need to create 50 1-page PDFs and 3 1-worksheet

Excel files in order to have a workpaper index within a DMS. Gone is the correspondingly

cumbersome and slow process of opening those 53 PDF and Excel files in order to complete

your review. And gone is the poor alternative of replacing a workpaper index with 2 files in a

document management system.

Fundamental #2 – Documenting work with standard

tickmarks and annotations

In paper-based workpapers, reviewers quickly

understood the work performed because preparers

documented it using tickmarks indicating amounts

were footed, cross-footed, summed, entered into the

tax return, etc. When numbers were added, they were

summarized with calculator tapes. In the paper world

it did not matter whether workpapers were created in

Excel, Word, TIFF, PDF or any other format, because once

printed they could be annotated with colored pencils.

But in the paperless world, preparers lack the digital equivalent of the colored pencil. They have

no tool to place tickmarks and annotations on any workpaper, regardless of file type. They may

have an Acrobat plug-in that facilitates tickmarks in PDFs, but those tickmarks are not available

for workpapers prepared in Excel, Word,

TIFF or Email. As a result, reviewers find

themselves reviewing workpapers that

are incompletely annotated making

it a challenge to understand the work

performed.

Solution #2

SPbinder provides a tickmark and

annotation toolbar that works across

all file types: PDF, TIFF, Excel, Word,

and Email. Included in the annotation

toolbar is a calculator that provides

Preparers need tickmark and annotation tools for ALL workpapers, regardless of file type –Adobe Acrobat annotations can’t be used on workpapers prepared in Excel, Word, TIFF, or Email.

Solution 2 – SPbinder provides a tickmark and annotation toolbar that works across all file types: PDF, TIFF, Excel, Word, and Email.


the ability to place calculator tapes on any workpaper. By providing preparers the ability to

document their work, these annotation tools save reviewers from needing to redo it.

Fundamental #3 – Cross-referencing

One of the most important workpaper preparation techniques is using cross-references to show

where numbers are coming from or going to. This enables reviewers to swiftly flip back and

forth through workpapers, following the trail of numbers between the tax return and source

documents. Think, for example, if you have an Excel-based K-1 reconciliation workpaper that

summarizes amounts from numerous K-1 source documents and shows how they flow to

the tax return. Traditionally a preparer would cross-reference amounts from the Excel-based

reconciliation workpaper to both the K-1 source documents and the return enabling the reviewer

to quickly trace tax return amounts to their related K-1 source document. In today’s paperless

world, however, this type of cross-referencing is not possible because document management

systems and Acrobat plug-ins do not provide the ability to cross-reference workpapers between

separate PDFs or different file types (for example, PDF and Excel). As a result, reviewers spend

more time tracing tax return amounts to source documents.

Solution #3

SPbinder enables

preparers to cross-

reference ANY two

workpapers regardless

of file type. For example,

a number from a page

in a PDF file can be

cross-referenced to a

number in a worksheet

of an Excel workbook.

By simply clicking

on a cross-reference,

reviewers can “drill

down” from one side of

a cross-reference to the

Solution 3 - SPbinder enables preparers to cross-reference ANY two workpapers regardless of file type. By simply clicking on a cross-reference, reviewers can “drill down” from one side of a cross-reference to the other even more quickly than with paper. No other tool makes this possible.


other even more quickly than with paper. No other tool makes this possible. This allows

reviewers to quickly understand where amounts are coming from or going to, increasing both

efficiency and leverage.

Fundamental #4 – Signing-off workpapers

In a paper-based process, sign-offs enable preparers

and reviewers to take ownership of their work and track

their preparation or review progress. Most document

management systems provide a sign-off function but

it can only be used to sign off at the file level, not the

workpaper level. If that file contains 50 pages, there is

no way for a preparer or reviewer to sign off on just one

of those pages. An Adobe Acrobat plugin might allow

for sign-offs at the workpaper level, but what if there is

more than one PDF file in the document management

system? In this

case reviewers must open each PDF file to view the

sign-offs. Furthermore, Acrobat plugins won’t work on

Excel, Word, TIFF and Email workpapers. In a document

management system, keeping track of what has been

reviewed and what has changed since the last review

is cumbersome, time consuming and, in some cases,

impossible.

Solution #4

SPbinder facilitates sign-offs at the workpaper level, not

just the file level. Each worksheet of an Excel workbook, and each page in a PDF, can be signed

off separately. Up to four levels of sign-offs can be tracked, including the user name and sign-off

date. Each level of sign-off has its own customizable color. The sign-off can be viewed above

the workpaper, on the thumbnail image of the page, and in the Review Tree. This allows you

to always see who has signed off the workpaper and when, regardless of how you are viewing

the document. Utilizing SPbinder’s unique Review Tree, a reviewer can easily see what they

have reviewed, what they have not, and what has changed since their last sign-off. This

In paper-based workpapers, sign-offs enable preparers and reviewers to take ownership of their work and track their progress.

In document management systems sign-offs can only be done at the file level, not the workpaper level.


revolutionary sign-off tracking system makes it a breeze to pick up a binder after several

months and know exactly where to begin your review. If you are interrupted during a review,

it is simple to pick up from where you left off. SPbinder all but eliminates time spent trying to

figure out what still needs to be reviewed.

Fundamental #5 – Managing open items and review notes

In paper-based workflows, open items and review notes

were generally tracked on pages affixed to the front of the

workpaper binder with each note being referenced to its

related workpaper(s). This allows preparers and reviewers

to find all notes in a single location and quickly flip to the

related workpaper.

Managing notes in this way is not possible when using a

document management system as the basis for a paperless

tax process. If notes are kept in a single place, such as a

Word file within the document management system, they

are not linked to their related workpaper(s). This requires

reviewers to expend time and effort opening and searching

through potentially several files to find the workpaper to which a note relates. Alternatively, if

notes are embedded in the workpapers themselves (for example, using comments in Acrobat

Solution 4 - SPbinder facilitates sign-offs at the workpaper level, not just the file level. Utilizing SPbinder’s unique Review Tree a reviewer can easily see what they have reviewed, what they have not, and what has changed since their last sign-off.

Managing open items and review notes in a DMS – Putting all notes in a single Word document enables centralized note management, but does not make finding the related workpaper easy.


or Excel), the reviewer has lost that central location where

they can go to get a high level overview of all open notes.

And worse yet, the reviewer must still spend considerable

effort going from file to file and page to page ensuring they

have found all open notes. In short, managing a paperless

process in this way does not enable notes to be both

managed centrally and linked to their related workpaper(s).

Solution #5

SPbinder provides a single place where preparers and

reviewers can find all open items and review notes. Notes

can be linked to individual workpapers and reviewers can

jump from the note to the related workpaper in one click.

SPbinder will automatically add missing items’ notes for

source documents received in the prior year but not yet in the current year. With a few mouse

clicks, those missing items can even be emailed to the client. The binder provides functionality

for responses, which can also be linked to workpapers, and the ability to clear or delete a

note. An audit trail is kept for who created the note, who responded to it, and who cleared it.

Solution 5 - SPbinder provides a single place where preparers and reviewers can find all open items and review notes. Notes can be linked to individual workpapers and reviewers can jump from the note to the related workpaper in one click.

Managing open items and review notes in each workpaper file – Putting notes in PDF or Excel files enables reviewers to quickly see the related workpaper, but provides no single location where all notes can be managed.


The audit trail includes the user name and a date / time stamp. SPbinder provides a control

mechanism so firms can decide which users can clear notes and which users can delete them.

So there is never the fear of a note disappearing before it is properly addressed. By providing a

central location for all notes and the ability to drill down to related workpapers with a single

click, SPbinder provides reviewers unparalleled efficiency in managing open items, missing

items, and review notes.

Fundamental #6 – Creating leadsheets/reconciliation workpapers

For more complicated returns, preparers have

traditionally created leadsheets or reconciliation

workpapers to help the reviewer tie tax return

amounts to the related source documents. Limitation

calculations and K-1 reconciliations are examples of

standard workpapers that enable an efficient top-down

review process. But preparing leadsheets takes time as

numbers must be entered into both the leadsheets and

the tax return. And as previously discussed, the ability

to cross-reference Excel-based leadsheets to a PDF file

is either extremely time consuming or impossible. As a

result, this type of cross referencing has largely been lost

in today’s paperless tax processes. But reviewers still

need the ability to efficiently tie out tax return amounts

to source documents, especially on complex tax returns.

So what if there was a way to automatically create

leadsheets without requiring amounts to be entered

into both leadsheet workpapers and the tax return?

Solution #6

SPbinder provides a leadsheet option where amounts entered into leadsheets export to the

tax software, eliminating double entry (and if the amount was picked up by OCR, then even

single entry is eliminated). Reviewers can drill down from the tax return line to the underlying

source document to quickly understand where the tax return numbers are coming from. If

there are specific leadsheets or reconciliation workpapers you want created aside from the

Managing open items and review notes in each workpaper file – Putting notes in PDF or Excel files enables reviewers to quickly see the related workpaper, but provides no single location where all notes can be managed.


ones SurePrep creates automatically, those can be put in the binder as well and easily cross-

referenced to their related workpapers, providing reviewers the ability to drill down from an

Excel workpaper to a PDF source document with a single click.

In conclusion:

Fundamental workpaper preparation techniques used for decades in paper-based workflows

to reduce review time and increase leverage cannot be adequately replicated with today’s

paperless solutions. As a result, many firms find that moving to a paperless tax workflow

actually results in reduced leverage. Standard organization and indexing of workpapers, meant

to make finding them easier, has been replaced by document management systems that act as

simple file containers, not workpaper binders. Tickmarks, calculator tapes, and other annotation

tools meant to provide reviewers a roadmap of the work performed have fallen by the wayside

because of the difficulties, if not impossibilities, of managing these tools across multiple files

and multiple file types such as PDF, Excel, TIFF, Word and Email. One of the most empowering

Solution 6 - SPbinder provides a leadsheet option where amounts entered into leadsheets export to the tax software, eliminating double entry (and if the amount was picked up by OCR, then even single entry is eliminated).


features of a paper binder was cross referencing, taking the guess work out of review. If a

reviewer needed to trace a number, they simply followed the cross-reference trail left by the

preparer. This functionality has been lost with the move to paperless.No tool enables a preparer

to cross-reference between different files or files types, except SurePrep’s SPbinder. Document

management systems only provide sign-off tracking at the file level, not at the workpaper level.

This means reviewers can’t pick up a workpaper binder and instantly see where they left off.

Missing items, open items, and review notes can no longer be easily managed. They are either

in a central location, unlinked to the related workpaper, or embedded in workpapers contained

in numerous files making it time consuming and frustrating to understand the big picture.

Lastly, reviewing the more complicated returns has become more time consuming because

leadsheets and reconciling workpapers are no longer the standard. The need to enter the same

number multiple times and the inability to cross-reference Excel-based workpapers to their

corresponding PDF support documents have resulted in preparers no longer creating them.

This makes reviewers redo work already done by the preparer in order to gain assurance that

numbers from the source documents were properly reported on the return.

SurePrep’s SPbinder provides a comprehensive solution to these issues by not only automating

preparer-level tasks such as standard document organization and entry, but by providing firms

the ability to return to workpaper fundamentals proven over decades to reduce review time and

increase leverage. And because SPbinder does this within a paperless tax workflow, it enables

firms to not only regain, but surpass the leverage of their previous paper-based processes.

SPbinder is included with all of SurePrep’s software and services. If you would like to learn more

please visit our website at https://corp.sureprep.com and schedule a one-on-one demonstration

or call us at (800) 805-8582 ext. 1.

https://corp.sureprep.com

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How to increase leverage Paperless€¦ · Fundamentals of Paperless 6 Tax Workpapers How to increase leverage & profitability by improving reviewer efficiency in a paperless tax