Essay/Term paper: Computers and finance

Essay, term paper, research paper:  Technology

Computers have made financial bookkeeping much easier, and people no longer have to spend hours tracking investments or pay someone else to do their taxes. Moreover, the advancement in technology has allowed governments to cut back on the number of big companies and employees hired to process tax returns, resulting in the saving of millions of dollars. Although these advancements are extraordinary, they are not without their shortcomings. The IRS has had increased trouble in tracking fraudulent tax returns, and has had to revamp its detection system.
The most surprising part of Microsoft's current purchase of Intuit, the maker of the Quicken line of personal finance software was not the $1.5 billion price, which was fifty percent over the market value (Schlender 14). It was not even the fact that Bill Gates, America's richest entrepreneur, is in a position to become America's richest banker (14). The most surprising thing was that it did not happen earlier (14). For years Gates has had a dream of putting "electronic commerce at the core of personal computing," and now he finally has the software to accompany that dream (14). His idea includes a "Wallet PC" that can be carried around with people at all times (14). Microsoft believes that it can provide what executive VP Mike Maples refers to as a "whole new value chain" that will allow customers to interact by modem with banks, insurance companies, pension funds, etc. (14). Quicken is already being used by six million people to pay bills, manage credit, write checks, and handle taxes (14). For those of you scoring at home, it has 5.2 million more users than Microsoft's Money software (14). That is a prime reason that Gates basically wanted to give up the product and donate it to his competitor Novell (14).
Programs such as Quicken are excellent for keeping track of what is spent at home, but can be a big hassle for keeping track of the money spent on business trips (Baig 20). One way to solve the problem would be to carry a notebook computer with Quicken on it, but as Edward Baig states "It's just not practical to boot up a laptop each time I step out of a taxi" (20). Intuit has released Pocket Quicken, a "Quicken Lite" for those who carry around digital assistants to help alleviate that problem (20). Pocket Quicken is built into the new Hewlett-Packard 200LX palmtop, the Tandy/Casio Zoomer PDA's, and the AST Gridpad 2390, but is not sold as a separate product just yet (20). Eventually this will also be available on the Motorola Envoy (20). Pocket Quicken allows users to categorically follow expenditures such as food, gas, and rent by creating checking, credit card, and cash accounts (20). Pocket Quicken lets travelers sequester what is spent into areas such as trip, client, project, or class (20). People can share data with regular Quicken with the HP 200LX's $119 optional cable and software package, or with the $30 addition to the Zoomer (20). However, Pocket Quicken does have its shortcomings because it does not allow for the set up of budgets or the following of investments (20). It also does not compute net worth or tax summaries, and does not have all the graphs with which Quicken comes equipped (20). If Pocket Quicken is not of interest, another option would be to record expenditures at the end of each day (20). Yet, another possibility would be QuickXpense for Windows from Portable Software (20). This program allows users to work with the exact expense form they would like to use because many of the forms from large corporations have been previously loaded into the program (20). Another of its qualities is that if a specific company's form was not included, they will put it on a disk for customers if they send blank copy of the form to Portable Software (20). All entries are entered the same as Quicken, but this program will also figure mileage cost for driving, convert foreign currency, and catalog each type of expense included on hotel bills (20). QuickXpense will also let the user know when it is time to file an expense report (20).
Computer and technology outsource companies typically handle the dirty work behind tax collecting; however, with the recent advances in technology, the state of New York was able to hire a financial group to handle the responsibility (Halper 63). The New York State Department of Taxation gave Fleet Financial Group a $197 million contract to handle computerized tax collections and refunds for the next ten years (63). This contract does not totally ignore the traditional outsourcing company because Computer Science Corp. (CSC) of El Segundo California is responsible for developing the software (63). Arthur Gross, deputy commissioner for revenue and management, said that because the process involved "so many banking procedures it simply made more sense to hire a bank" (63). The inefficiencies of the current system would not have been done away with if a traditional technology company had been hired (63). The state will receive more than ten million personal income tax returns accompanied by two million checks (63). Those checks are sent to one of nearly forty banks that will deposit the checks, capture data, and then return that information to the state (63). Gross questioned that since the bank will end up with much of the information then "Why shouldn't they get it directly instead of it banging around all over the place?" (63). Experts have given New York credit for a fresh idea, but say that it is too early to know if a bank can handle all the challenges presented by the technology (63). This contract will cut the cost of processing by an estimated $80 million during the next ten years (63). Gross is impressed with the new technology, but added that "the focal point was not necessarily the technology" (63). Fleet Financial will carry out the same tasks for the state that banks already do for their customers (63). Because of this, the bank is able to do a better and more efficient job than the state ever could (63). In fact, the new imaging and scanning equipment will allow Fleet Financial to do the job forty percent faster (63). CSC will play a large part in the process of cutting cost because the department will still depend on its IBM and Unisys Corp. mainframes (63). The new equipment for improving the process comes from the new imaging and scanning technology being installed by CSC and Fleet Financial (63). The first item installed will be the AT&T Global Information Solutions 7780 scanning system (63). This will be used to read the data from the 2.3 million different coupons sent by self-employers, who are required to file their estimated earnings, and all checks that might accompany them (63). New York state law states that residents of New York City or Yonkers must use special filing procedures, so the bank will check addresses to be sure that the filer claimed residence in the proper place (63). Currently the state must check ten million forms manually to sort out approximately two million false forms (63). The cost-savings will allow the state to redistribute about 300 employees to jobs that create revenue -- i.e., disproving taxpayer complaints of inaccuracies -- from their processing jobs (63). The new technology will allow the state to cut back from 1400 tax season workers to about 300 (63).
According to the IRS filing taxes from home with the use of a PC and modem may be possible within five years (Kantra 47). The IRS also expects to process roughly eighty million electronic tax returns (47). In 1993, almost ten percent of everyone that filed individually used some form of electronic or computerized filing system (47). Approximately twelve million people filed with a professional tax preparer for refunds or some kind of third party that uses personal tax preparation software -- a process that must have a verification form (47). Furthermore, 1040PC forms, printouts from tax software packages, were sent by another 4.8 million people (47). The most widely used software packages are Chipsofts TurboTax and Meca Software's TaxCut; however, it is now possible to obtain a competitors package for the cost of shipping (47). Several of these programs can pull data in automatically from other programs like Quicken (47).
With the invention of electronic filing, more fraudulent attempts have been made to cheat the IRS. The U.S. General Accounting Office (GAO) noted a major increase in the amount of fraud attempts in the IRS' electronic filing program by saying that "The growth of [fraudulent] returns is very high, but it is unclear how much of the growth is due to an increase in fraudulent activity rather than improvement in fraud detection" said GAO special assistant James F. Hinchman (Anthes 28). The worse part of everything is the uncertainty about the number of false returns that go undetected (28). An experimental system was instituted in 1990 without having certain "edit-and-validation" rules (28). An illustration of this would be that taxpayers names and Social Security numbers on the returns were not checked with the internal IRS records (28). When that omission was corrected, 200,000 returns were rejected; however, Hincman says the system is still in need of "stronger validity checks" (28). Aggressive plans have been taken by the IRS in order to automate fraud detection (28). They have, with the help of computer scientists at Los Alamos National Laboratory, developed artificial intelligence techniques to notice suspicious returns (28). A new "electronic fraud detection system" will be implemented next year (28). A system that will allow for greater taxpayer and tax-return data on-line (28). Finally, more documents will be compared with each other for the purpose of making it easier to find more fraud attempts before the IRS makes refunds (28).
The world of computers is always expanding, and computers are a part of almost everything that people do. This is evidenced by the way in which companies such as Microsoft have expanded into the world of finance. Computer programs like Quicken have made financial bookkeeping much easier because of its great versatility, and new computer technology has allowed the state of New York to hire a bank to work the state tax system. Furthermore, the invention of electronic tax filing has allowed people to file more quickly and get returns more quickly, but it has also caused an increase in tax fraud. This has forced the IRS to go look at and totally redesign its process of detecting fraud. All this is evidence that the world is becoming more computer oriented.


Works Cited

Anthes, Gary H. "IRS Cracks Down On Fraud." Computerworld 25 July 1994: 28.
Baig, Edward C. "Here's Balm For The T&E Blues." Business Week 12 Sept.: 20.
Halper, Mark. "New York State Picks Bank For Tax System Revamp." Computerworld 7 March: 63.
Kantra, Suzanne. "The Tax Byte." Popular Science March 1994: 47.
Schlender, Brent. "Bill Gates Makes Like J.P. Morgan." Fortune 14 Nov. 1994: 14-15.