Lost in the cloud: what you need to know about changing IT systems

This article was current at the time of publication.

It took two years for Phil McCann FCPA to be convinced that the benefits of moving his IT system to the cloud outweighed the risks. For a long while, the idea was outside his comfort zone.

"It takes a leap of faith to go from being server-based, where everything is under your control and presumably safe from the outside world, to one where you can log in from any device anywhere in the world," he says.

Yet the prospect of no longer needing to run frequent software updates was appealing, as were the sums. Renewing the annual subscription with McCann Taxation Service's existing provider would cost $12,000, whereas the cloud-based taxation and accounting software suite with Xero was free. His firm simply needed to recommend Xero to a set number of clients to qualify for the deal.

In April 2019, the Melbourne firm finally made the switch to Xero, thus ending a 28-year relationship with its former software provider. Then came the shock.

Fine print costs

It never occurred to McCann that he would lose all proprietorship of the data previously stored on his firm's servers.

When the time came to inform "ABC" software provider he was switching to another company, he was told he would need to pay $4,500 to gain read-only access to the documents for a year. In his eyes, this was extortion.

"We were shown in an unceremonious and expensive way that all we owned was what we could copy or print off before the licence expired."

Software providers take different approaches to what proprietary data rights mean for their customers, which is why it pays to be across the fine print.

McCann isn't suggesting that ABC didn't include the condition in its contract, but he feels that greater attention should be drawn to a provision with such far-reaching consequences.

"They could have told us in bigger letters that we would lose access to even last year's data."

Panic sets in

With just four weeks left until the handover, McCann recruited several graduates to begin "feverishly PDFing" previous years' tax returns and saving them onto their server.

"It was a hit to our hip pocket, but we felt we had to do it for peace of mind. A client we haven't seen for five years could come back to us next year, and we'd need to be able to give them what they need."

As it sunk in just how massive the task was, McCann and his business partner realised they had no alternative but to pay what McCann refers to as "blood money".

"It was a horrible time," he says.

McCann Taxation Services has 1,500 clients, so it would take four full-time workers a total of three months to complete the copying. As it's so repetitive, McCann insisted they take a break from it every three days.

When it comes to cloud hosting, shop around

McCann points to the fact that the Australian Taxation Office (ATO) encourages businesses to shop around, and that CPA Australia encourages firms to go paperless.

"A lot of small firms might say, '[The income statements] are sitting on the software, so why bother printing it all off or saving a PDF?' That makes them sitting ducks for this kind of extortion."

McCann raised the issue with the ATO, but was told that it is a commercial matter between tax practitioners and software providers, and it is therefore not something the tax office will get involved in.

Nevertheless, McCann believes the issue deserves greater attention because there are potentially tens of thousands of micro-practices that could run into trouble.

"This is a sleeper issue that will hit the fan when more people start to change their IT systems. Right now, it's just a trickle of people experiencing it."

McCann says the situation would be particularly dire for smaller firms, as they are less likely to be forewarned and have fewer human resources to rectify the situation.

"I've got a business partner and 10 staff, but if I was a sole practitioner, I would have been crestfallen."

What he would most like to see is software providers end the practice of denying past clients access to their documents.

"I'm a free market man, but this is simply corporate greed."