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Accounting

Tax Provisioning and Spreadsheet Risk


by John O’Rourke

Tax provisioning is a common bottleneck that can lengthen the accounting close cycle by several days.

©AndreyPopov/iStock/Getty Images Plus

Perhaps no tool is more central to the Office of Finance than the spreadsheet. For decades, CFOs and the finance team have relied on the trusty spreadsheet to organize data, present findings and even report results. It has become a comfortable, go-to application for many finance tasks.

Or is it actually a crutch? While spreadsheets are great for personal productivity, they were not designed to support critical corporate processes -- especially complex tasks such as tax provisioning. Consider the challenge for a global enterprise with multiple legal entities and ownership structures, requiring a separate multi-tab spreadsheet for each entity that must be consolidated. It’s really stretching the tool beyond its intent.

Yet ninety percent of midsize to large companies rely solely on or mainly use spreadsheets to manage tax provisioning, according to Ventana Research’s ‘2017 Finance Benchmark Study.’ The vast majority still cling to this manual process, which is laborious and time consuming. In fact, tax provisioning is a common bottleneck that can lengthen the accounting close cycle by several days.

Accuracy is another major concern. Managing numerous spreadsheets collected from each office and legal entity opens up the process to human error both in data input as well as for calculations. Version control issues further complicate this. In fact, 98 percent of financial reinstatements in 2016 were tax related, according to Tax Executive.

Lack of transparency is another challenge created by spreadsheets. Despite strict requirements from the Sarbanes-Oxley (SOX) act introduced back in 2002 and severe penalties faced by top management for non-compliance, many companies still struggle with internal controls and transparency. This can be attributed at least partially to spreadsheets, which lack a way to provide a complete and visible audit trail.

To illustrate, most companies have a number of transactional systems operating in multiple subsidiaries and locations that contain information needed to calculate the tax provision. Historically, tax teams have built manual, internal processes to capture the data, create workpapers, calculate the tax provision and manage reporting. That internal process is typically a combination of online and offline tools connected by a series of – you guessed it – spreadsheets. With little to no ability to provide an audit trail, this greatly hinders transparency and confidence in the result. 

This prolonged reliance on spreadsheets is holding many organizations back from adopting more efficient practices for tax provisioning. In fact, the task of collecting data from across multiple locations and systems, and the repetitive nature of the calculations make tax provisioning ideal for automation.

Purpose-built tax provisioning applications that automate tedious, time-consuming tasks can greatly shorten the close cycle, boost accuracy and provide the transparency companies need to meet compliance requirements. In short, purpose-built tax provisioning applications eliminate manual steps, mitigate risk and as an added bonus, can free up finance team members to focus on more strategic tasks, such as analysis and planning.

Guardian Industries Streamlines Tax Provisioning

The shift from spreadsheets to an automated tax provisioning solution has really paid off for Guardian Industries, a $4 billion diversified global manufacturing company with 75 offices across 25 countries. The company relied on 75 Excel-based tax packages to gather tax data from each location, each with 12 tabs for data collection, workpaper development, calculations, reporting and conciliation. The tax provisioning process was lengthy, and the finance team struggled at times to meet deadline for the quarter-end close, even with significant overtime.

Leveraging Guardian’s corporate performance management (CPM) software platform, the company deployed an application that streamlined tax provisioning through workflow and automation. This new system replaced the manual 75-spreadsheet method and has saved Guardian 5 hours’ time per office -- every month. As a result, Guardian now performs tax provisioning monthly, rather than quarterly.

“Our close process has significantly improved, and our reporting is more accurate for all locations. Users are excited about the automation and time savings from the Excel approach. They are spending more time reviewing and analyzing tax data before submission deadlines,” says Jessica McAlpine, Project Manager with Guardian.

Spreadsheets remain a trusted tool for finance executives and will continue to play a big role in the business. But they are not designed to support critical finance processes. Smart companies should consider new options that can automate tedious tasks, reduce close cycles and mitigate overall risk. Guardian sets a great example in how it moved from spreadsheets to an automated tax provisioning solution that has delivered great results.

 

John O’Rourke, VP of Product Marketing for OneStream Software.