The Australian arm of H&R Block claims that poorly performing software from the company MYOB cost the tax-consulting chain millions of dollars in fees in 2001-02, leading to a decline in revenue and earnings. In July, H&R Block dumped the MYOB software and moved to another tax consulting package from Elite Practice Solutions. MYOB will not comment on H&R Block's problems.

FRANK BRASS: 'It just didn't work' Image: Eamon Gallagher

H&R Block, a tax consulting conglomerate with more than 10,000 offices in the United States, Britain, Canada and Australia, reported an increase of 11.3% in revenue, to $US3.3 billion, and a 55% increase in earnings, to $US434.4 million, for the 12 months to April 30 this year. The revenue of its Australian company - which has more than 300 company-owned offices and a further 60 franchised shopfronts in regional areas - reported revenue of $47 million, down 1.3%, and earnings of $5.1 million, down 16.1%.

H&R Block's regional director of New South Wales, Victoria and South Australia, Frank Brass, says troubles with the MYOB software emerged when MYOB upgraded the software to a new version in July 2001, right in H&R Block's busiest period. 'The MYOB software underwent a change from 16-bit to 32-bit (operating system platform) and it just didn't work when they pulled it together,' he says.

Unlike traditional accounting firms, H&R Block focuses almost exclusively on tax compliance work for individuals, staffing its offices with company-trained tax consultants, who work on a seasonal and shift basis. Most of its tax consultants are not accountants and are employed mainly from July to October, four months that produce 80% of the company's annual revenue.

During the height of the 2000-01 tax season, H&R Block offices employed 935 consultants, working mainly on individual pay-as-you-go tax returns but increasingly also on small business tax compliance, including GST-related lodgement such as business activity statements; small business work now accounts for 15% of H&R Block's Australian turnover. The company expects to lodge about 500,000 tax returns this year, giving it about 6% of the estimated 8.5 million returns that will be lodged in Australia.

According to Brass, the timing for upgrading H&R Block to the new version of MYOB software could not have been worse for the company. He says: 'We put the new version of MYOB in the first week of July and the slowness of the system and some functions not working at all caused the usual 45-minute consulting session to take as much as two hours.'

H&R Block decided to swap the MYOB software for the package from Elite Practice Solutions in mid-July. Brass says: 'We had to retrain all our staff to use the new Elite software on the weekend prior to the third week of July. The third and fourth weeks of July are the busiest periods of the season and we lost those weeks completely.

'Our staff members complete tax returns with clients on the spot, and interaction with the computer is crucial to this process. Lack of familiarity with the new software caused the usual 45-minute consulting sessions to blow out to 75 minutes. The resulting drop in productivity was between 20% and 30% for the whole season. This was responsible for a big part of our revenue drop for the year because over 300 offices, nationally, missed the chance to service a number of clients,' he says. 'However, if we had stayed with MYOB our (financial) results would have been even worse than they were.'

Brass says H&R Block considered taking legal action against MYOB because of the financial losses it suffered last year but decided against it.

'We thought about taking legal action but part of the issue is that H&R Block is different to other practices,' he says.

'The MYOB program worked but was very slow. Some back-office applications peculiar to H&R Block weren't in the new version of the software or didn't work correctly.'

A spokeswoman from MYOB says the company is not in a position to comment on H&R Block's performance. 'Obviously, our software impacts a company's performance behind the scenes but it doesn't affect how many customers come through the door. Last year there were some issues with our software but we've made great inroads this year,' she says.

Brass describes the poor results for 2001-02 as a one-off event caused by the software fiasco and an aberration in H&R Block's overall growth curve in Australia. He says the company has projected 6% growth in revenue, to $49.9 million, for 2002-03. 'We're going for pretty solid growth this year after last year's hiccup. In 2000-01, we had more than 10% growth and we've opened 12 new offices in preparation for this season.'