The Cost of Adhoc In-House Compliance

VAT regulations in Europe are evolving at a head-spinning pace, forcing companies to quickly adapt their internal systems to comply with complex eLedger, eAccounting and eInvoicing mandates. Adhoc solutions – either forklift upgrades of existing ERPs and accounting systems, or modules bolted onto in-house solutions – may be a short-term fix, but could cost your company greatly in the long run.

Change is a constant when it comes to VAT regulations, and if your company is operating in multiple countries, then managing that change becomes exponentially more complex. In-house solutions for compliance require much more than a one-time implementation. Each slight change in regulation – in each country – requires technology updates, process changes, testing and regular maintenance.

Managing this in-house isn’t a single full-time job – it may require as many as 15 full-time employees.

When choosing an in-house solution, companies need to consider the hidden costs associated with VAT compliance, including:

• Change Management – Regulations change frequently – sometimes as often as several times per year in a single country. The list of costs associated with this constant change management is lengthy: software upgrades or new license requirements, project management and subject matter experts, regression testing on your ERP system, ABAP development, end-to-end testing of each component, and running systems in parallel during the transition.
• Annual Support – These costs include software/hardware maintenance, middleware for connecting systems, a local compliance server and its related maintenance, and a three-tier environment (internal support cross charges, data center fees and more).
• Annual Support Staff – You’ll either need to task your existing employees with more work, or hire additional staff, including those to monitor and support local server and middleware issues. You may also need local business users to support report transmissions to the government and correspondence with customers, as well as those who can fix and resolve data discrepancies and do reconciliations.
• Country-specific – These costs will vary by country, and can include customer-specific customisations, multi-country ERP customisations and integrations, archiving costs and other adaptations to meet each country’s unique specifications.

Failure to address everything required for compliance can increase costs in terms of audits, fines, penalties and even operational shutdowns, which can result in delayed shipments, impounded goods and returned orders.

Now, multiply all of these integration, support and change management costs by the total number of countries in which you operate, and it’s easy to see how the costs of compliance will continue to grow.

It’s definitely not a process that should be managed locally with no corporate oversight.