The Elephant in the Room: Human Errors and Tax Notices

Humans make mistakes – it’s a fact. And it’s also the one thing that all tax preparers have in common. Transposition errors, excluding important numbers, forgetting to check a box, or duplicating an entry – all of these mistakes are prevalent in the industry and very difficult to eradicate. 

Nobody likes to talk about this “elephant in the room,” but it’s staring at you over there in the corner, and no one seems to know how to get rid of it. Making mistakes happens and you have a reasonable excuse (or maybe ten). You’re sleep-deprived, staring at a screen for 14 hours a day, on your 8th coffee, in your 2nd hour of overtime and it’s…only…Wednesday! In these conditions, the likelihood of human error peaks – as does the propensity for tax notices. 

The leading cause of accounting mistakes.

Just as the tax season finds itself in our rearview mirror, we start feeling human again.  But just as we think we’ve put the season behind us, we are abruptly halted by…tax notices! When tax notices are the results of human error in the firm, these mistakes are never cheap. Unbillable time is spent fixing mistakes, fees are written off, reduced, or refunded. Reimbursements are given for penalties, interest, and sometimes even the tax burden, or the worst case happens- a client leaves.  Unfortunately, tax notices have been a problem for decades. According to this article posted by accountingweb.com, human errors are the top corporate tax and accounting mistakes and in 2013, these errors cost US businesses almost $7 billion!

Does automating the input fix the issue? 

Technology in the tax industry has come a long way in the last decade. In fact, as tax returns have become more commoditized, there’s been a growing desire to automate the preparation of the tax return. Scanning and optical character recognition technology has improved dramatically and has become a reliable way to shave precious time off the front end of tax preparation for some of the data input. But, there’s still a problem. Automating the input still creates a bottleneck at the reviewer level. It’s our responsibility to check, double-check, and triple-check that the data in the return is input correctly and that the return is accurate. Period. 

What are we still missing?

Even with OCR technology and artificial intelligence, we still have a responsibility of validating the input. So once all of the tax notices are dealt with and we’ve had time to assess the collective cost of these internal mistakes, we (again) ask ourselves “how can we avoid these same mistakes next tax season?” The fact is that no amount of streamlining, staff training, caffeine, or machine learning is ever going to guarantee that 100% of the data that goes into all of your client tax returns is correct. Which brings us back to the only possible answer – we have to review the input and if you want something done right, you gotta do it yourself, right? Sounds like a lot of work. Frankly, I’d rather spend more Saturdays mornings home with my family and more evenings tucking my kids in bed than seeing that as extra time to personally review every tax return! 

Bingo!

Not only do we have to eliminate the risk of human error, but we also need to find a way to radically reduce our review time per return. Why? Well for starters, our clients deserve that from us and quite frankly, our families deserve to see us! Our clients can do their tax return themselves if they choose to- and more of them are than ever before. We have to ask ourselves: “If we’re not going to provide them better quality and value than they can get elsewhere, then why should they use us?” 

For my firm, TaxExact was the answer.  It single-handedly got my average review down to just 15 minutes without compromising our quality, and it’s what we attribute to our perfect record of zero tax notices for internal errors. I developed this tool for internal use back in 2014, but I will finally be able to share it with CPAs like you in Spring of 2020!

At the end of the day, ask yourself…

When are you going to start fighting for the clients by finding a way to eliminate human error? And, more importantly, when are you going to realize that there’s a way to reduce your review time (without losing quality) so that you can spend more time with your family during your busiest time of year?

To your success,

Pat Roberts