4 Tips on How Companies Can Close the Tax Department’s Technology Gapby
Disruptive tax-maneuvering strategies, like inversions and international transfer pricing, are dominating the conversation around corporate tax decisions. However, these high-stake options are not the only effective way to lower your organization’s effective tax rate. Many companies miss out on fundamental tax-savings opportunities due to a lack of investment in a leading-edge or even a current tax technology platform.
Even though technology has grown to play a prominent role in today’s corporate tax world, there remains a disconnect between the tax department’s needs and the technology tools available to them. There are many causes for this gap, with the most blatant being the exclusion of tax leaders from the selection and implementation process of the enterprise resource planning (ERP) system. This exclusion from company-wide software initiatives not only prevents the tax department from sharing their insights, concerns, and compliance expertise, but it also reinforces dysfunctional processes and increases corporate risk.
Tax requires special consideration when evaluating technology options due to both the complexity of the tax regulations (and associated attributes) and the fact that the regulations change over time. Robust tax software that addresses the needs of the tax department can ultimately reduce compliance risks, increase productivity, and increase cohesion throughout the organization, which ultimately can increase profits and reduce risk.
Here are four things organizations should consider during their tax software implementation process.
1. Start with the tax professionals. All too often, the first dealings tax professionals have with a new software system is late in the rollout process. Even for applications that support the tax function, like general accounting systems, the tax department is usually not involved until the implementation phase, well after requirements have been established. Unfortunately, this removes the professionals who actually use these programs to perform their job functions from the design process. These users provide critical insight into the company’s tax system needs.
Involving the tax department early in the technology process prevents nasty surprises and ensures smoother, timelier deployment. Tax professionals should voice their needs and insights at the beginning of the project. By becoming key stakeholders during the planning phases, tax professionals can help avoid pushback with the IT department during the implementation.
Opening up the planning process will also allow tax employees to understand and prepare for the rollout, which ultimately helps reduce friction during and after deployment. However, due to the complexity and importance of tax and accounting software, firms should have more than just IT’s buy-in to the ERP platform project.
2. Put a stop to bad processes. Oftentimes, enterprise system implementation focuses solely on automating existing processes instead of whether those processes are indeed serving their intended purpose. This approach frequently results in ERP systems automating broken or dysfunctional processes, which only exacerbates existing problems. Instead, businesses should direct their attention to addressing the gap between the tax department and the technology it relies on. Tax professionals should carefully review their current processes for potential technology improvements before automating any existing processes.
It is also important to note that it’s significantly more difficult and costly to make changes to tax and accounting systems after they have been deployed. In order to ensure a strong, tax-sensitive system configuration, it’s essential to provide tax professionals with enough time to properly review the project prior to implementation. Proper review will ensure that the organization can identify critical system needs and shortcomings beforehand, as well as save the organization time and money.
3. Keep risk management in mind. Executives must also consider technology as not just a tool but as part of a broader risk management strategy. Each step of the system implementation process can pose significant risks if not handled properly. For example, a botched automated calculation or missing asset field can cause enormous damage to a firm’s bottom line and reputation if left unchecked.
The potential for such risks explains the popularity and value of managed solutions. These solutions are designed and updated to meet the latest regulatory demands and mitigate noncompliance and its associated penalties. Traditionally, in-house tax system maintenance is time-consuming and reliant on a small group of experts who understand the technology. However, managed tax platforms have the benefit of third-party maintenance and also allow for customized functionality that meets the needs of the internal tax department.
4. Make it a united effort. Technology gaps between your organization’s tax department and its software ultimately lower productivity, present compliance risks, and increase maintenance and deployment costs. Oftentimes, these issues occur because tax professionals were excluded from the process and not enough time was given for platform scope and feature planning.
To address these issues, organizations should take a view of software deployment as part of an ongoing risk management strategy that can eliminate costly mistakes. When organizations involve the tax department, they can implement software that increases productivity and reduces the chance for error. In the end, these efforts can be equally as beneficial but far less troublesome than pursuing disruptive tax maneuvers.
About the author:
Dean Sonderegger is the executive director of product management for the Software Segment of Bloomberg BNA. Bloomberg BNA is a wholly owned subsidiary of Bloomberg, a leading source of legal, regulatory, and business information for professionals. Dean has more than 20 years of experience in the development and delivery of tax and accounting software solutions, with a specific focus on large enterprise clients.