Constrained Resources:
Optimizing Tax Talent in Challenging Times
Corporate tax departments have long recognized that their most valuable resources are their highly skilled and knowledgeable tax professionals. That’s especially true today, as these professionals struggle to keep up with a complex and evolving maze of tax regulations, accounting policies, and business practices. In this brave new world, tax organizations are faced with unrelenting pressures and ever-increasing demands to deliver information that is timely, accurate, globally visible, rapidly accessible, and, always, absolutely mission critical.
Current economic conditions make matters more difficult still for tax departments, since they must meet these high standards within an environment of constrained resources. The global economic slowdown has led to tightened budgets at many companies, which can limit their ability to hire more staffers or find tax talent with the best training and experience. Even those businesses with adequate financial resources confront the significant shortage of skilled and experienced accounting professionals in the marketplace, making it hard to recruit and retain the best people.
It’s quite a challenging situation, especially since financial and labor market constraints are unlikely to be resolved anytime soon. For those companies that seek to build and maintain world-class tax operations, the solution must come from a complementary strategy: relying on state-of-the-art technology to optimize the performance and productivity of the corporation’s tax talent.
For a revealing snapshot of the current landscape, consider one recent study by Financial Executives International (FEI), which found this past March that 41 percent of surveyed chief financial officers believed that the U.S. was in a recession. Another 32 percent felt that the U.S. was likely to enter a recession within the following six months.
When asked by FEI about their company’s potential responses to the downturn, nearly half of the CFOs surveyed pointed to hiring as an area for possible cutbacks. Another 24 percent of respondents cited layoffs as a likely approach to coping with economic woes. Such strategies make it virtually inevitable that tax departments, along with their colleagues throughout the corporate world, will be asked to fulfill their responsibilities with an eye to reducing headcount, whether through layoffs or attrition.
Budgetary constraints will likely increase the burden on tax teams as well. Companies might keep a tight lid on salaries or reduce benefits, or they might expect employees to work longer hours to compensate for smaller staffs. Given the supply-and-demand imbalance within the accounting profession, such practices are likely to make it harder to hire and retain the most desirable professionals.
Yet running a top-notch global tax operation isn’t as simple and straightforward as building a widget. Corporations might expose themselves to significant risks if they rely on understaffed, poorly trained, inexperienced, or inadequately equipped tax departments. The bottom line is clear: Despite their financial constraints, companies must find a way to avoid the risks of tax compliance failures, inadequate or inaccurate data, human error, and other serious problems. That’s where tax technology can deliver an invaluable advantage.
In a time of constrained resources, some companies might fear that tax technologies won’t generate sufficient return to justify the investment of money and time. Others might argue that even the best technology can never replace well-trained and experienced professionals in a tax operation—an argument that few tax experts would dispute.
But it’s precisely because of today’s limited talent pool and budgetary constraints that many leading corporations are turning to state-of-the-art tax technology. The need is pressing, given the regulatory climate and accounting trends. Meanwhile, research has begun to document the value of technology in optimizing performance, delivering cost-effective results, and supporting world-class tax operations.
Case in point: This past April, Financial Executives International released its annual Sarbanes-Oxley (SOX) compliance survey, which found that among 185 respondent companies, Section 404 compliance costs were lower during the most recent year (Year 4) of compliance than in each of the first three years. This drop in expenditure occurred despite the fact that the average hourly fees of auditors increased by 5 percent.
What accounted for the savings? Experience, alone, certainly deserves some credit. But the Sarbanes-Oxley Institute draws a clear connection to the increasing use of technology, which has enabled companies to consolidate their systems while incorporating key best practices. The Institute estimates that technology accounts for at least 20 percent to 30 percent, if not more, of the cost reductions that companies are achieving with SOX compliance.
The FEI survey provides a variety of insights about the benefits that tax technology can—and does—deliver. Companies that described themselves as possessing “centralized operations” (which generally equates to the adoption of up-to-date technologies) report average 2007 compliance costs of $1.3 million. Among respondent corporations with decentralized operations, compliance costs were a good 30 percent higher, at $1.9 million.
That’s quite a cost differential. But it’s clear that the best technologies save companies time and money for a variety of reasons, including the fact that regulations require every system to be documented and tested on a yearly basis. With a state-of-the-art, consolidated system, this process is more streamlined and efficient than with a decentralized operation that incorporates multiple systems.
For resource-strapped corporations, cutting-edge tax technologies offer an unbeatable combination. That’s because results delivered by tech-empowered tax departments tend to improve, even while related costs go down.
These better results take many forms. Data tends to be more timely, more accessible, and, with less opportunity for human error, more reliable as well. Centralized tax data also allows financial information to be more globally visible, an increasingly important goal for most corporations. Meanwhile, as tax professionals are freed from routine tasks, they can devote their skills to more valuable and rewarding activities. This benefit can even translate into a significant hiring and retention advantage, since such workplaces are appealing to top tax talent.
Again, research has already begun to measure these improved results. In FEI’s 2007 Sarbanes-Oxley survey, 50.3 percent of respondents stated that their reports were “more accurate” than they had been in the past—up from 46 percent of respondents who had made the same claim in 2006. An even larger group, 56 percent of companies surveyed, felt that their reports had become “more reliable,” up from the 2006 level of 48 percent.
Today’s constrained resources are likely to provide a leading incentive for companies to make the switch to tax technologies. And with optimized results such as these, companies that adopt tax technologies are not likely to look back.
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