Written By: <br /> Kelley Lear<br /> Managing Director <br /> Red Moon Solutions<br />
With Change Comes Uncertainty<br />With Enron, SOX, capital market crises, financial institutions collapsing, we are now in an era of increased regulatory controls, heightened transparency, tighter deadlines and shifting focus within tax departments.<br />Tax executives have three options when it comes to changes: ignore them, seek to fight or embrace them and plan for the future. Most tax executives will spend time fighting and ignoring before realizing that in order to survive they must embrace change. <br />Understanding the drivers of change may not be as interesting at this point as to what leading tax departments are planning to do about them. <br />The ones that will be successful will be those that plan and ACT.<br />
Climate of Corporate Tax: Coping with Change<br />In the past, many tax departments were focused on adding value to their companies. <br /> Lack of focus on operational issues is the beginning of the story:<br />For some, this culminated in tax planning that was much too aggressive. For many it meant that their energy was focused on managing cash taxes and earnings rather than operations.<br />
Climate of Corporate Tax: Coping with Change<br />While many companies chose to invest in financial systems, the needs of the tax function within these companies were often overlooked. Tax departments were either never brought to the table, or they were brought in after the fact, leaving significant deficiencies in data access and quality. <br />Investments in tax technology were limited and a web of complex Excel spreadsheets were almost always the exclusive tools for tax work including provisions.<br />Regardless, making life easier for tax and the concept of internal controls did not seem to apply to a tax department.<br />
Climate of Corporate Tax: Coping with Change<br />Due to a constantly changing environment, many tax functions are struggling to meet all of the demands imposed on their departments, with challenges including: <br />• Primary focus on tax accounting rather than tax planning<br />• Resource shortages – especially tax accounting expertise<br />• Increased manual reconciliation and data manipulation in Excel.<br />• High overtime/low morale<br />• Poor internal controls<br />• Delayed closing processes and tighter turnarounds<br />• Less collaboration between tax and other business units<br />• Poor data quality and access<br />• Outdated technology<br />• Inefficient processes<br />
Climate of Corporate Tax: Coping with Change<br />Embracing change: <br />Where one sees challenges, some proactive tax executives see opportunities. <br />Many executives are taking advantage of today’s environment to push for a widened and strategic view of the actions needed to truly fix the source of their problems: People, Processes and Technology.<br />
Take a look at your people…<br />Utilize Available Resources:<br /><ul><li> Bring staff to the table when business, operational and IT decisions are being made.
Reward! Allow your team to take on special projects that will further enhance the tax department: automating your audit process, storing all communications and documents related to that process electronically.</li></li></ul><li>Take a look at your process…<br />Managing Changes: <br /><ul><li> Look at tax and finance workflow.The interaction between the two is the key to optimizing your process.
Work on one piece of your process at a time—keeping it manageable.
Process map. Make recommendations for changes and use</li></ul> technology to embed the new process, controlling it.<br /><ul><li> Ensure your team takes ownership of your new process. Every staff member should know who is responsible for each tax process, as well as the resulting deliverables.</li></li></ul><li>Take a look at your technology…<br />Technology Explosion<br />While tax executives love their spreadsheets (and will always need them), they cannot hope to meet the increasing demand for functionality, as well as reliability and controls. Any number of solutions have come a long way:<br /><ul><li>Provision and Compliance Software (Domestic and International)
Business Intelligence (BI) and Business </li></ul> Performance Management (BPM)<br />
Where people, process and technology meet<br />Embracing change: Accuracy and Efficiencies<br />Many leading companies reached the conclusion<br />that their biggest obstacles to achieving operational<br />improvements are data quality and access issues. <br />Tax sensitization of the data and reconciling—due to myriad post-closing top-side journal entries—will make the calmest <br />of tax professionals want to pull out their hair. <br />What should you do, as a tax professional?<br />
Where people, process and technology meet<br />Implementing Change<br /><ul><li>In many companies, as much as 80% of the book or tax differences can be automated, eliminating the need for additional spreadsheets to be created and/or maintained.
In addition to improving accuracy, tax systems can be configured so that this same information will flow directly from the tax provision technology to tax compliance technology applications, resulting in greatly increased efficiencies.</li></li></ul><li>Where people, process and technology meet<br />Start at the Source.<br /><ul><li>Look at the configuration of enterprise resource planning (ERP) and consolidation software:
Chart of accounts (tax sensitizing) and accounting practices associated with booking to those accounts.
Level of detail being tracked (consider feeder systems/subsystems and consolidation tools).
Legal entity mapping instead of just financial and management entities.
Remember: the data necessary to drive tax calculations can be extracted directly from financial systems to tax accounting technology without any manual intervention.</li></li></ul><li>Diagram of a Tax Technology Platform – Tax Reference Library No 44<br />
Targeted automation. Learn and Repeat.<br />Select an area within tax to automate even further. For example: audit process automation can drastically improve your audit experience: <br /><ul><li>Choose a measurable area that’s causing you pain and isn’t too big to automate!
Utilize a tax document repository with workflow
Utilize Security and Access Logs for SOX Compliance</li></li></ul><li>Software as a Service Portal Solutions can now grow with you…<br />Use Solutions to Your Advantage<br /><ul><li>Utilize features and functionality in a slow, methodical way. Trying to do too much at once is overwhelming for any tax department.
Plan realistic implementations to utilize the fully features of these solutions:
Transparency of progress on tasks and capacity of tax department
Use personalization and customization to give your team what they want in a solution.</li></li></ul><li>Software as a Service Portal Solutions can now grow with you…<br />Use Solutions to Your Advantage<br /><ul><li>Tax Calendar for tracking filing, payments and extension deadlines & milestones
Gaining Control<br />Getting What You Want<br />Portals can help you access your data and gain control over source data, document versions and approval processes. <br /><ul><li> Implement “Best practice” checklists for monthly, quarterly and annual processes.
Ensure compliance and control with audit trails.</li></li></ul><li>Climate of Corporate Tax: Coping with Change<br />Embracing change:<br />Forward-thinking senior tax executives can address their challenges head-on by taking a very close look at every aspect of their tax departments: People, Processes and Technology.<br />By embracing these challenges, senior tax executives can become the champions of positive change and avoid becoming the victims of disaster.<br />
Summary<br />Tax management in companies today is ever more exciting and full of opportunity:<br /> Streamlined Processes<br /> New SaaS Technology (Cloud Computing)<br /> Tighter and more transparent controls<br /> Access to more data at the detail you need it <br /> Greater communication<br /> Happy employees<br />
Start Improving Today!<br />Start using the new face of tax management to your advantage—learn how Red Moon Solutions can improve your processes today! <br />
References<br />The following publications were used as references:<br />Tax Management in Companies, Tax Reference Library No 44, December 2008, PriceWaterhouseCoopers<br />Tax operational strategy and execution - can tax departments keep pace? – Deloitte, 2009<br />Image Credits: Martina Rathgens, AndyRob, alancleaver_2000, Dan Zen, PixelAddict<br />