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How to Improve Tax Data Management (Part II)

In my previous post, I described how some leading tax departments are addressing tax data management and achieving their improvement objectives. In this post, I want to share suggestions for how to build a good business case for changes in tax, in a way that strengthens your position internally during budget negotiations and externally for on-time and scope delivery of value from vendors.

I'm going to use a “factors analogy” and focus on the upstream processes around data to illustrate the concepts. However, the approach can be deployed in any area, compliance, provision, etc. First, it pays to be prepared. That means holding informed discussions with peers in upper management, especially those in information technology (IT) and finance, about why you need budget to streamline and automate the tax data management lifecycle. The most effective way to hold these discussions is by entering into them with a solid business case in hand, one that speaks to their concerns and uses their language. Here are four ways to do so:

First, measure. Rather than focusing on typical tax processes (provision, compliance, planning, and audit management), segment and measure the key shared processes around data collection, validation, storage/retrieval, and preparation/downstream use of data -- the raw material of tax. This activity-based focus on shared processes will provide the common ground needed between IT, finance, and tax and demonstrate how the benefits accrue to all downstream processes. There’s work in developing baseline measurements and associated cost information for each data management process, but you can't improve what you can't measure. A quick Google search on "activity based costing example" will give you the basic concepts including YouTube videos on this well accepted approach that has been used successfully in the finance industry for years. Here we just apply it to tax activities.

Second, take an inventory of your raw materials. Start with a detailed inventory of data sources, uses, frequency and (pre)processing activities, including time spent on collection, bridging and mapping and a full analysis of key spreadsheets used to support the process. Consider tax, finance and IT resources/processes to get a full impact. This alone can be highly informative as you uncover those little data silos or process gems that will keep you up at night. Remember, ignorance is not bliss when it come to tax and audit exposure!

Third, list the impact. List all of the data flow paths occurring – including those responsible for processing the data, the raw materials into finished goods. Describe the impact in terms of time (requesting, collecting, bridging, mapping, etc.), by counting the steps and time typically required. Identify any compensating controls or double/triple checking occurring due to lack of trust.

Fourth, add it up. With the above information in place, it's a fairly simple exercise to apply standard costing approaches to this information and quantify the cost of common data management processes, which we remind readers are typically around 45 percent of the overall time of tax, not to mention impact on other departments. Data usually needs to be transformed and loaded into a provision or compliance system, which also takes time, so include this final step in your analysis as well.

Your business case stands a much greater chance of getting funded when you’re armed with objective, factual, numbers-based information about costs. You also have the facts to engage with consulting or software vendors around benefits changes could bring. If you do choose to change, don't be afraid to hold your chosen vendors' feet to the fire and insist that benefits are actually and measurably received before they are fully compensated. This implies after change measurement and aligns their interests with yours, much more than a traditional billable hours or software license approach.

Internally, when other executives see hard numbers related to costs in a format they understand, they can better understand the extent of your department’s business challenges and the need for investment in efficiency drivers. More qualitative benefits also can be included in the business case and may be substantial of course; but my point in this post is to reinforce an approach that works anywhere as it relates to costs and inefficiencies that tend to be unambiguous during budget negotiations.

In my next post I will get into how to add qualitative factors, as well as risk measures to your business case.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.


About this Contributor

David Deputy Headshot
David Deputy
Director, Strategic Development & Emerging Markets

David Deputy is Director of Strategic Development and Emerging Markets at Vertex. He manages the development of enterprise data management solutions including the Vertex Tax Performance Engine. David brings over 20 years' experience in ERP solutions, tax analytics, and business intelligence software solutions. Prior to Vertex, David was Senior Product Manager at Liquid Engines focusing on international tax planning solutions, and Lead Product Manager at Oracle for their financial consolidation solution. His background also includes work in OLAP software at Oracle and in corporate finance at Dun & Bradstreet and in bank regulation at the Federal Home Loan Bank. David holds an MBA from Cornell and a Finance degree from the University of Florida.

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