New Report: Leading Financial Institutions Weigh in on Tax Reporting Best Practices
Tax information reporting can be tricky for businesses. Many organizations do not have the internal resources to assign a devoted team to compliance efforts, as their HR and IT teams are often tied up in other affairs.
With this in mind, Sovos commissioned a survey to better understand how organizations are handling these challenges and opportunities in the struggle to remain compliant.
Here’s how it worked:
- Sovos surveyed 265 executives, analysts, directors, managers and supervisors, and consultants.
- Most of those surveyed represented firms in the insurance (57 percent), banking (27 percent), and financial services (12 percent) sectors.
- The survey totalled 39 questions and was divided into six separate sections: Demographics, tax information requirements, general process, compliance, penalties, and process involvement.
- Nearly 30 percent of respondents came from organizations of more than 10,000 employees. Roughly half of them had more than 2,500 workers.
How do these top financial institutions manage to fulfill their reporting requirements?
Here are some of the best practices respondents outlined in the survey:
- Streamline expertise: Organizations with teams made up of dedicated tax experts had more confidence in their compliance efforts. Those who relied on their accounting and accounts payable teams — which treat tax reporting as one of many responsibilities — were significantly less confident than their streamlined peers.
- Proactively manage processes year-round: Financial institutions with tax teams to focus on compliance year-round had more opportunities to discover and correct errors in advance of due dates, lowering their risks of noncompliance.
- Establish a dedicated technology platform: Firms with technology platforms designed for complex regulatory reporting were able to reduce the number of people — and departments — responsible for the reporting process. Those with no such platform were 58 percent more likely to use four to five departments in their compliance efforts.
What issues impacted financial institutions the most?
Some of the most critical challenges respondents were affected by are detailed below:
- Limited compliance experience: A majority — 65 percent — said they struggled to keep up with regulatory changes, while a further 17 percent lamented a lack of internal resources to maintain compliance.
- Reliance on multiple departments: Communicating between three or more departments — as 64 percent of respondents indicated was the case — to achieve a singular task can be complicated lead to a lack of clearly defined roles.
- Data and process: Respondents commonly indicated issues such as incorrect data, untimely extracts, complying with state reporting, withholding, and solicitations. The majority of respondents said their organization still used manual processes.
What factors prevent change?
The respondents indicated several common barriers to change:
- “Too much time and money invested in current process”: Many did not want to reallocate time and money to new processes.
- “We’ve always done it this way”: Sticking to legacy strategies may offer short-term financial relief, but can come back to hurt organizations in the long term.
- “Lack of dedicated budget”: Some respondents did not even have a budget to allocate to compliance at all.
- “Process improvements in other areas too important”: Financial institutions often have other needs to fill before they can address tax reporting.
What steps can I take to ensure my business takes compliance seriously?
Nearly half of senior-level respondents said they would continue to dedicate the same time and resources to compliance despite constant regulatory updates and changes. Here’s what compliance managers can advocate for more dedication from their organizations:
- Build awareness throughout organization: Uninformed leaders will not approve of necessary changes unless they fully understand the risks associated with noncompliance. Educate decision makers and offer careful implementation strategies.
- Create a center of excellence: Financial institutions often use centralized models for reporting that consolidate tax compliance functions into a single business unit. Scalable, end-to-end, easily adaptable systems can help organizations stay on top of reporting updates.
- Track process improvements: Firms that implement new reporting processes should track improvements to develop performance goals they can measure over time.
The tax reporting landscape is constantly evolving. Businesses need to be flexible and agile in managing their processes to achieve the best results.
For a more extensive look at the tax reporting issues that affect financial institutions, download the full industry survey today.