Financial institutions are moving toward a centralized tax solution, but why? We have found five major drivers leading this change.
Core banking solutions aren’t in business to ensure your 1099 reporting is done accurately or completely, and they likely aren’t keeping up with expanding regulatory requirements, like direct state reporting, which could incur costly penalties if reported incorrectly. Because core banking solutions are slower to update and innovate their 1099 reporting modules, this can create unnecessary, time-consuming tasks to be completed outside the system, taking costly resources away from working on business-critical tasks.
In many organizations, different departments may perform the same processes, which can lead to disparities in efficiency and effectiveness. This becomes more challenging when turnover, layoffs or retirements occur, particularly for those with institutional knowledge of processes. In some areas, such as tax information reporting, this can lead to potential process gaps and errors that could have serious consequences.
To further complicate matters, there is often heavy reliance on IT resources to pull and transform data. As IT resources become scarcer and more prioritized for critical business projects, departments may find themselves struggling to access the necessary data to carry out their work effectively.
If an organization’s lines of business operate and process information independent of each other, customers receive multiple statements from the same financial institution, which can be frustrating. Multiple statements leave customers feeling confused when needing to reach out to the financial institutions with questions or concerns.
Customers are also negatively impacted when they have to wait for several days to receive corrections to their tax forms, either because of the time it takes for a physical form to travel through the mail system, or the time it takes to convert a corrected form into an electronic statement and upload it manually to the portal.
Expanding Compliance Risk
Regulatory requirements change constantly, sometimes up until the regulatory deadline. Ensuring all regulatory changes are properly and timely distributed to desperate 1099 reporting functions demands large amounts of time, energy and resources from already overworked compliance teams. However, the cost of not keeping up with regulatory changes can be steep, resulting in in audits and hefty financial penalties. Now more than ever, financial institutions face expanding tax information reporting responsibilities from state agencies. These and other increasing regulatory demands pose a larger risk for penalties as overextended in-house teams may be unable to meet the compliance regulations efficiently due to the speed and complexity of change.
Lack of security
The more systems a financial institution uses, the less consistency there is across the organization, leading to overlooked or mischaracterized security risks. Data privacy regulations like GDPR can make it difficult to monitor information across various systems, which in turn makes compliance more challenging.
Advantages of centralization
A centralized solution for tax information reporting pulls information from all lines of business, regions and functional departments, and creates a single source of truth for important tax data.
If you’re interested in centralizing your 1099 reporting process, reach out to our experts.