[IMGCAP(1)]Although many corporate tax and accounting departments are preparing for the March deadline, mistakes related to tax and accounting cost U.S. businesses billions each year.
In 2013, U.S. businesses accumulated nearly $7 billion in IRS civil penalties due to incorrectly reporting business income and employment values.
And for those who think that large corporations have the resources to get it right, the fact is that firms with revenues over $1 billion are more likely to struggle with talent, audits, and their tax and accounting system functionality. That’s from a study completed by Bloomberg BNA of 200 in-house tax and accounting professionals, with half representing firms with revenues above $1 billion. Mainly midmarket firms comprise the other half.
“We conducted the study to explore the top mistakes plaguing corporate tax and accounting departments today, and how those mistakes vary across company size and industries,” said Diane Tinney, senior product manager of Bloomberg BNA Software.
“Having worked at CPA firms and corporate tax departments, I think some of the current mistakes can be attributed to the recent poor economy,” she said.
“When the economy dived, I think there was a knee-jerk reaction to do more with less at CPA firms and at corporate tax departments,” she said. “Budgets were cut and tax departments were not high on the list from a budget money standpoint. The result was that people were working long days and late nights and weekends, and that caused people to be less engaged. Disengaged employees pay less attention to details of their work, and they care less about it, so they make more mistakes. As they become disengaged, they start to leave to find employment elsewhere, so there’s more turnover.”
Retiring Baby Boomers also contributed to a lack of expertise, Tinney observed. “With Baby Boomers retiring, the knowledgebase diminished. That leads to mistakes, in that folks don’t know who to go to in order to ask questions. The more experienced persons are not there.”
In addition, the study found:
- More than a quarter (27.5 percent) of professionals struggle with manual, incorrect tax data entry;
- Firms are much more likely to grapple with tax and accounting personnel hiring and retention problems than actual subject matter or rules;
- Firms in the manufacturing sector are most likely to contend with tax and accounting procedural errors, such as incorrect asset depreciation; and
- 18 percent of tax and accounting professionals report that employees have saved files with corporate financial or tax data to their potentially unsecured personal devices.
Even as firms seek to cut their effective tax rates through divisive procedures like inversions, improving existing tax and accounting practices promises a more sustainable vision, Tinney believes.
“One of the most widely cited problems has little to do with technology or the Tax Code at all, but instead involves human resources,” she said. “It’s easy for organizations to write off the occasionally erroneous spreadsheet cell or employee turnover as inevitable costs of doing business. But human capital plays an outsized role in a firm’s tax operations. Nearly a fifth of respondents indicated that their firm has experienced an inability to recruit or retain qualified tax personnel—which increases the likelihood of oversights and misjudgment.”
Business leadership, or the lack thereof, also contributes to tax and accounting departments’ weaknesses, according to Tinney.
The study found that organizational challenges often translate into concrete deficiencies, with 16 percent reporting that their firm has suffered unfavorable adjustments in audit, and 11 percent reporting that their firms have failed to take advantage of tax breaks due to the lack of available data.
“The majority of firms are not struggling so much with tax changing tax laws and regulations, but with human resource issues—how to keep and retain people, and to keep them engaged,” Tinney said. “The more engaged they are, the more accurate they will be. Sometimes the tax people are not involved in the selection and implementation of tax products. The less they are involved, the less likely they will be to use it properly, if at all.”
If firms solved their talent acquisition and retention challenges and encouraged more executive support for tax and accounting operations, they could find the human capital to make substantive changes, the study concluded.
“Addressing these common errors is an initiative that must begin at the top,” said Tinney. “Fostering executive awareness and support for tax and accounting operations is critical to ensuring that firms make financial decisions fully informed of the tax implications.”
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