A recent Thomson Reuters poll of 229 tax executives revealed that difficulty reconciling data and the volume of data being processed are top data management issues affecting tax compliance. From multiple charts of accounts to multiple accounting standards that need to be harmonized quickly, getting the right data for tax returns and the tax provision is a serious headache for most tax departments.
Often tax departments depend on IT, finance, and foreign controllers for the data necessary to do their job. The amount of time spent manually collecting, reconciling, scrubbing, and reformatting data is staggering. Many tax departments spend thousands of hours each year dealing with this by working longer hours, throwing more people at the problem, or paying a premium to outsource the work. Specific areas like state apportionment data collection and computation in the United States are so cumbersome that companies often use data that is 12-18 months old when computing their tax provision. The enactment of new tax legislation creates additional burdens at a time when most tax departments find it hard enough to keep up with the status quo.
According to a 2011 poll of more than 200 executives conducted by Deloitte Tax LLP, 21 percent said they spend 35-40 percent gathering and manipulating tax-relevant data, whereas 18 percent said they spend more than 40 percent of their time doing so.
What Makes Data Difficult to Manage?
By nature, global companies have complex structures, various operational and software systems, and multiple locations, which lead to information that is difficult to manage. Unless tax departments are willing (and able) to throw out existing systems and start fresh, they typically face many of the following challenges:
- Disparate systems and data sources
- Decentralized finance and tax departments
- Difficulty accessing or locating the most current data and documents
- Constantly changing tax laws
- Poorly documented standards and loosely controlled processes
- M&A activity
- Employee turnover
Ideally, companies would have one system for all their tax and finance needs so that their data are always current, available, and accessible. Regrettably, that is not the reality faced by most tax departments, which have a plethora of legacy financial applications and an over-dependence on Excel spreadsheets for mission critical tax functions. These factors create silos of data that are difficult to share and that require lots of re-work and reconciliation within the tax department.
Many tax professionals are simply prone to accepting this situation as an unavoidable part of their job. A growing number of progressive companies, however are navigating uncharted waters and achieving impressive results. By leveraging modern technology and proven best practices, these innovative tax departments are spending less time on compliance, filing their returns sooner, and speeding up their close cycle.
Data Management Best Practices: A Focus on Technology
To ensure success with with the dynamic tax compliance landscape, progressive global tax departments are implementing data management best practices consisting of data collection, data utilization, and data reporting, which are all rooted in technology. An example of how successful these best practices can be, one best-in-class company has shaved almost 50 percent off their total compliance hours and 90 percent off their data collection and manipulation hours.
1. Streamline Data Collection: Tax departments typically rely on finance or IT for data, but that data are rarely structured the way tax needs it. Often, information is stored in multiple general ledger systems, each with its own peculiarities, and it can be a significant undertaking to integrate everything into a standard format. This becomes even more complex when companies acquire other companies and merge information systems.
Of course, data does not just come from other systems. People play a big part as well. Companies today are following their customers around the world into rapidly developing economies. As they expand into new markets, they are adding tax obligations in new jurisdictions, and partnering with global accounting firms and other partners to meet those new compliance obligations. When it is time to collect data globally, companies need a centralized system to empower people around the world to complete their tax packages on time and accurately.
Tax departments that adopt technology data management solutions are fundamentally changing the way they spend most of their time, flipping the equation from 80 percent data collection and 20 percent review, to 80 percent review and 20 percent data collection. Tax departments with more time to review and analyze data add more value to their company than those that are mired in data collection and manipulation.
2. Touch Data Once; Utilize It Several Times: Tax departments want to touch data once and use it for many things. All of the trial balance data obtained from general ledger systems are redeployed for multiple uses, from putting together the provision and the return, to forecasting and planning.
When a tax department puts that data into spreadsheets for specific purposes, rather than a system, there is an inherently low probability that the data will be shareable in a format that is easily reusable for other purposes. This leads to costly manual effort and data duplication, while limiting the amount of on-demand data that other people in the organization can access at any point in time. Just as in the collection process, tax needs to be able to access data easily to prepare their returns and their provision.
Another challenge tax departments face when they do not have an automated, integrated technology solution is using old data because it is simply too costly or time consuming to refresh data for some purposes. By contrast, using tax automation software enables departments to get up-to-date information without having to reinvent the wheel each time.
3. Access Global Metrics Across All Tax Types: Tax departments must be able to unleash the data they have collected for reporting purposes regardless of how decentralized and dispersed they are. The top priority, of course, is staying in compliance with financial and tax reporting requirements in every jurisdiction. This can be time-consuming and ineffective when data is stored in silos across hundreds of spreadsheets.
Tax data are most valuable when they can be readily used to both stay in compliance, and influence strategic planning. Implementing technology can help companies achieve this benefit. Data management solutions can enable tax professionals to quickly and easily query data across all tax types and jurisdictions, giving them a truly global view of tax.
Best-in-class tax departments accomplish significant results by using data management solutions like standardized, database enabled workpapers and ERP system integration to automate the movement of data. These solutions provide them with easier administration, tighter controls, quicker validation and year-over-year data recall to reduce preparation time, while enabling the flow of data from the source to their tax functions. These progressive tax departments are prime examples of cutting edge efforts that free up thousands of lowvalue hours from their compliance process so they can focus on value- add work rather than number crunching and data manipulation.
With today’s sophisticated technology, tax departments no longer need to settle for cumbersome and time consuming data management processes. There are solutions readily available that reduce manual effort, streamline data collection, enforce consistent process, and make data readily available for all tax reporting and analysis needs. The technology is out there, but tax departments need to seek the solutions out so they can remove the data management barrier and maximize their return on investment.
Real Companies Achieving Real Results
Companies that focus on data management as a key part of their overall compliance process have achieved significant results such as:
- Up to a 50 percent reduction off total compliance time and 90 percent off the time spent on data collection and manipulation
- Automate 75 percent of book tax adjustments to save days of data manipulation during a tight 7-day close
- Accelerated filing of returns by as much as two months by standardizing workpapers and streamlining the data management process
- Recognition of the tax department by senior management for the team’s ability to increase control and reliability of their workpaper data resulting in reduced reconciliation time and increased auditor confidence
- 20 hours saved during the one week turnaround for quarterly provision calculations
- Reduction of the entire compliance process by almost 10,000 hours
Irish McIntyre is a Vice President, Product Management for Thomson Reuters ONESOURCE, where he leads a team of product managers responsible for the strategic direction of the Income Tax, Provision, Transfer Pricing, Workflow, and Planning solutions for the Corporate segment of Thomson Reuters Tax & Accounting. Before joining Thomson Reuters, he served as Director of Product Management at Liquid Engines. Mr. McIntyre has more than 20 years of leadership and software development experience across multiple industries and attended San Jose and San Francisco State University. He may be contacted at firstname.lastname@example.org.