Common Tax Department DIY Cost-Saving Plans and Consequences
Incorporating improvements in a tax process without the support of professional IT help can have an immediate benefit. However, there may be some drawbacks in the long run.
Inefficient and Error-Prone Processes: Microsoft Excel is the backbone of finance. Most tax departments’ automation projects are purely based on MS Excel. Because less than 5% of Excel features are utilized in a typical tax department, most solutions that are developed are inefficient and involve having dozens of links and design practices that can easily lead to unrealized miscalculations across multiple worksheets. As many studies have shown, over 80% of random selection of MS Excels in majority of finance departments have errors.
Compliance Risks: Tax laws and regulations are constantly changing. Attempting to keep up with these changes by tweaking an automated process calculations can lead to unintended process logic that may result in non-compliance and the risk of penalties or legal issues. Any change in an automated process must go through strict change management process which is a practice that is highly uncommon in most tax departments.
Data Security Concerns: Tax departments handle sensitive and confidential information. Ignoring professional technology services can expose this data to unintentional security breaches and identity theft. We have all heard of stories where sensitive data (Officers’ SSN) being shared with external partners as unencrypted email attachments. Or uploading company sensitive data to unauthorized public file sharing websites. Not having access to trained IT staff can result in unimaginable data security risks.
Missed Opportunities: Tax Technology professionals have the tools and the knowledge to easily interrogate millions of rows of financial data in order to correctly identify transactions that can impact taxable income. For example, having the capability to identify and reclass thousands of transactions from the “Other Expense” category to their appropriate tax account is a daunting challenge in most tax departments. Without Tax IT expertise, tax-saving and compliance opportunities may be overlooked.
Inefficient Resource Allocation: Tax department personnel usually spend a significant amount of time on manual and repetitive tasks. On the hand, Tax IT professional like Tax Technology Solutions could easily automate repetitive processes by creating repeatable solutions that will significantly reduce the time to perform daily tasks. Inefficient resource allocation can waste time and limit a tax department’s ability to focus on strategic tax planning.
Lack of Data Analytics: Professional tax technology services can provide tax departments with the tools and skills to analyze large volumes of financial data. This can be valuable for making informed business decisions and optimizing tax strategies.
Competitive Disadvantage: Companies that leverage tax technology and professional services like Tax Technology Solutions in their tax departments are often more competitive in their industries. Failing to do so can put a company at a disadvantage against competitors who are more technologically advanced.
Reputation Damage: Costly errors or compliance issues stemming from DIY processes can harm a company’s reputation. Negative publicity and customer trust issues can result from tax-related mishaps.
Increased Costs in the Long Run: While it may seem like a cost-saving measure to avoid professional tax technology services, the long-term costs of inefficiencies, compliance issues, and missed opportunities can outweigh any short-term savings.
Resource Drain: In the absence of professional tax technology services, tax departments may require more staff and resources to handle data transformation and reporting tasks. This can be a significant drain on the organization’s budget and human resources.
In summary, ignoring professional tax technology services can result in inefficiencies, compliance risks, data security concerns, missed opportunities, and competitive disadvantages. While there may be short-term cost savings in a tax department’s DIY approach, the long-term consequences can be substantial and negatively impact the organization’s financial health and reputation. It is often advisable to invest in professional and affordable tax technology services, like Tax Technology Solutions, to ensure compliance and efficiency in the tax process.