February 2003

Document Management and Corporate Governance: What to Do When the Pressure Is On

By John Stelmach

When integrated with accounting systems, document management offers many benefits, including reduced risk of error and lowered related costs, improved information sharing, and, most importantly, electronic audit trails.

According to business analyst IDC, U.S. companies spend up to $35 billion a year filing, organizing, and searching for paper records. For example, it is not unusual for a corporate accounting process (even an efficient one) to go through at least 30 stages, from originating a document to its filing and retrieval. This can add up to millions of expense sheets, invoices, tax forms, and miscellaneous support materials, and it is difficult to ensure that every single piece of paper makes it to the audit trail.

Document management systems reduce paper consumption by receiving original documents electronically. For instance, an incoming fax can be “printed” directly to a digital file, eliminating the need to create a paper document in the first place. Existing paper records are scanned and converted to electronic formats early in their life cycle.

Once captured in the system, an electronic document file can be linked to a specific accounting transaction, allowing it to follow the transaction from start to finish. When documents are in an electronic format, users can add annotations and highlight sections that need attention. This proves extremely helpful for auditing purposes, as reasons for approvals or rejections can be noted on the document itself or an attached note. A user with appropriate viewing privileges can then access a more detailed set of information about the transaction.

Accounting firms are legally obliged to retain files for varying lengths of time. According to the IRS, however, original books and records may legally be destroyed as long as the files are reproduced in an electronic storage system, as outlined in Revenue Procedure 97-22.

Encryption is used to control viewing privileges and allow different levels of authorization and access. For example, different parts of a tax file can be locked so that only pre-authorized individuals can see the entire document or make changes. In addition, electronic copies can be made and used for version control or stored off-site.

Case Study

Williams, Pitts, & Beard, PLLC, a CPA firm based in Hernando, Miss., recently invested in a document management solution that allowed the company to move more than 7 million paper documents into both LAN and web-based environments, and electronically manage more than 98% of previously paper files. In 2000, the firm’s 15 tax consultants each had 180 hours of overtime. With the system in place for 2001, the same 15 consultants each had only three hours of overtime, which at $50 an hour represented savings of $132,750.

John Stelmach is CFO and an executive vice president for the document management and imaging company Computhink (www.computhink.com).

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