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VDRs: Making Tax Season Less Stressful and Costly Part 1


Taxes are like going to the dentist: They take time, cost money and are both painful and necessary. Luckily, businesses can now turn to online storage solutions to save money and time on taxes and audit preparation. A must have for security conscious businesses, a virtual data room provides significant time and cost advantages over file cabinets and stacks of folders, as well as other online and electronic options.

Bridget Thornton, an experienced consulting CPA for multiple businesses, shared her secrets for using virtual data rooms to reduce the time, expense, and the general dread comes with tax preparation.

5 Problems Businesses Encounter During Tax Season

These problems cost time and money for businesses preparing for accountants and auditors:

#1 Difficulty Accessing Files- locating, finding, organizing, and then refiling files costs hours if not days for some businesses.

“I had a client that had to go through 20 boxes of documents looking for and organizing receipts, and other documents. If it’s missing, they have to recreate it. If you scan and digitize your tax docs and put them in a virtual data room with advanced search, you can eliminate all that time expense and cost,”  

#2 Duplicate Documentation- accounting and auditing teams email multiple finance members requesting the same documents for different use cases, leading to lots of emails, repetitive responses and mistakes, including responses not always going to the right people with the right file attachments.

“It’s not uncommon to have one person on an audit team request a document from the Controller who finally tracks it down with the CEO, and then sends the document back to the requester. Then two days later, a different person from the audit team asks for the same document from the CFO, who goes through the same process looking for the same document…”  

#3 Large Files are Often Too Big to Email-causing some companies to resort to sending thumb drives via FedEx.

"If I can get a client’s QuickBooks files I can manipulate their data directly into a tax system. It eliminates paper entry by them and digital entry by me, not to mention mistakes. Unfortunately, the files are too big to email, and email is not encrypted, so I either get a paper document, or I have to drive and pick up a USB from the client. Uploading the Quickbooks document to a virtual data room that I can download saves the client time and money.”  

#4 Protecting Employee Documents containing personal information such as social security numbers. This information shouldn’t be sent over email and ideally should not be downloaded onto desktops. Bridget recommends digitizing employee information and shredding paper copies.  

“Ideally, clients should, scan, pdf, and upload employee documents to their data room, and shred the paper copies.  Three issues with paper copies: You can’t use fast search if a file is misplaced, storage space, and you have to track when and how to dispose of employee information like Social Security numbers so all the files have been pulled and shredded.”

#5 Securing Sensitive Client Financial Information. CPAs are guided by their own professional ethics to use encrypted communication channels with clients. Regarding emailing QuickBooks files and other sensitive documents, Bridget says:

“Our code of ethics guidelines forbid encouraging our clients to send financial information over email un-encrypted.  Virtual data rooms with 2 factor authentication and encrypted documents, protect client data.”

The Solution: Virtual Data Rooms

With a virtual data room all the documents needed for due diligence are easily maintained and reused for taxes and or audit. The key is to maintain an up to date virtual data room at all times, including updated HR data, financial reports, and other information needed for due diligence and operational reporting during the year. Using a virtual data room to simplify accounting and tax reviews is not hard:

  1. Create a folder in your data room called “2014 Taxes,” “401K Audit,” or “Workers Comp Audit.”

  2. Get a required document checklist from the accountant or auditor.

  3. Copy, and paste the documents into your tax folder.

  4. Invite your accountant/auditor teams to your data room with access rights just to that folder.

  5. For 401K audits, you can provide “View Only No Download” access rights.

  6. Virtual data rooms come with encryption so CPAs and audit teams can maintain their obligation to protect client data.

It's clear that using a virtual data room solves many of the logistical problems associated with tax season, but there are also many business benefits that provide a clear return on investment. Read more about these benefits in part two of "Virtual Data Rooms: Making Tax Season Less Painful, Stressful, and Costly," when we hear from two controllers, Robin Narcisso and Jolene Griffith, who work for a growing tech company, Appfolio, on how using a virtual data room has helped their business.

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