If a company faces no fines, litigation or adverse publicity, then it has a successful compliance system - identifying risks with noncompliance and notifying management in time to get involved. But with little visible value, compliance can appear less deserving of corporate resources than research and development.
According to a recent survey by CFO Research, “Managing Tax, Employment and Payroll Compliance in a Changing Environment,” meeting tax and payroll compliance requirements on a budget has grown to become a huge challenge for senior finance executives. “We have a significant risk of missing deadlines, overpaying, underpaying or overlooking errors due to fewer resources and poor IT infrastructure,” said the vice president of finance at a company in the pharmaceuticals field. He and 149 other U.S. finance executives with annual revenues of over $100 million responded to the survey saying sharing opinions on compliance efforts at a time when businesses are facing increasingly strict requirements.
In fact, 80 percent of respondents said that the task of monitoring tax, employment and payroll-related rule changes had become even more time-consuming as of late. According to the VP of finance at a manufacturing company, penalties for small mistakes are large these days. Similarly, the VP of finance at a pharmaceuticals company admitted that he frequently lives with the threat of an FDA shutdown due to poor documentation around FDA compliance. Surprisingly, this is not translating into higher budgets for compliance as just over half of respondents expect that their company’s budget for compliance activities will remain the same next year.
One survey respondent, the VP of finance at a healthcare firm, said that a compliance failure was difficult to fix because the short turnaround time to implement new tax changes was a problem — the window was far too short. Almost half of respondents agreed that over the past two years, their business has been under pressure to respond to regulatory changes within shorter time frames.
In addition, finance executives see the benefits of being more proactive. More than 40 percent of respondents agreed that their company would realize measurable benefits if it took a more proactive approach to compliance. While finance leaders see uncertainty almost anywhere they look they see the need to make an inventory of compliance requirements across all international operations so all requirements get visibility.
Overall, the survey shows that the problem is many finance execs have trouble figuring out where to start. Rather than making an attempt to maximize efficiency, management’s effort has been disjointed without any unifying platform or centralized system.
As one CFO summed it up: “Global tax compliance is spread across a very decentralized internal team and a multitude of outside vendors.”
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