Enterprise Resource Planning (ERP) driven business insight is critical for an effective finance operation, yet IT processes are not owned by finance, making it a necessity to align both functions. With important but very different specialized expertise between IT and finance, it can become a challenge to maintain common controls and provide accurate data to ensure compliance for tax collecting and reporting. The structures commonly in place can lack flexibility and ease of use when it comes to VAT processes, further increasing time pressure.
VAT Compliance Problems Arise Without Constant Collaboration
Incorrect configuration of VAT treatments, especially those affecting more complicated transactions, require constant collaboration between the departments to ensure that output data and key controls are eliminating risks. Rate and rule changes also need to be implemented throughout the process chain since they have wide implications on the overall organization, the business’s cash flow and these changes need to be well documented in case of audits.
Continuous improvement of communication between all parties is a critical factor to alignment between finance and IT departments as well as training to understand each other’s business aspects. This can greatly improve the overall VAT process. Nevertheless, a practical assessment of the process and strategy can help to review processes that require drastic improvements as well as identifying new key controls for overall compliance. It is critical that both finance and IT are involved in this process.
Automating Your VAT Calculations and Process is Critical for Business and Audit Exposure
Many companies struggle with audits of their VAT records, which can be a daunting and lengthy process that interrupts overall workflow. Despite thorough organization and planning, the traditional manual process does not lend itself to easy preparation for audits and the execution thereof. Depending how far the audit stretches back, there will likely be documentation in different filing systems, and varying archiving solutions and methods used over the years that will need to be gathered and reconciled to provide valid proof. When a manual archiving process is still the primary solution, this can prolong audit periods causing undue pressure to meet audit timelines and unnecessary losses in productivity.
Human errors from manual VAT processes are another significant risk for non-compliance. While normal errors such as forgetting to implement a rule change can be corrected and the necessary tax adjustments made the next month, other types of underlying issues, such as continuously failing to file properly or other substantial errors revealed during through an audit can result in widespread exposure including expensive lawsuits, drastic reputational damage and extremely costly penalties. To avoid this, companies need to create a framework that enables team members to follow the same process, regardless of personnel changes and restructuring.
In order for this to be effective, the established framework needs to implement modern systems and processes that are immune from data loss/corruption, single threaded knowledge, accidental or unauthorized data manipulation, security challenges or redundant systems dependent on manual up-keep. A close collaboration on these overall requirements between finance and IT is critical to make sure both teams meet their objectives of a scalable solution that creates the needed compliance improvement and operational efficiency.
A Proven Technology Solution that Creates Departmental Synergy and a Significant Audit Trail
Sovos Compliance offers VAT compliance technology and services to many Fortune 500 companies to help them bridge the finance and IT gap by providing the tools needed to meet the unique needs of both functions. Our workflow management tool enables you to own your archiving process and monthly compliance responsibilities.
The cloud-based auto back-up helps you organize monthly submissions and creates a lasting audit trail along with the possibility to upload various support documents such as invoices etc. to make the audit process more efficient. In case of audit, you can simply provide the established audit trail that you now all have in one place, making the process easier for both parties.
Customers that reported implementing this solution to authorities have seen a significant drop in audit requests by demonstrating a “best in class” documented process. Not only is the tool creating audit proof, but it also ensures that the department is no longer reliant on individual personnel that have created a certain archiving process and then moved or changed roles. The uniform framework also helps new team members understand the easy-to-use process and their responsibilities, while managers can assign tasks, oversee deadlines and discover areas for meaningful training.
If you have any questions on how VAT automation can help improve your current processes, please feel free to contact us.
