Top 10 Things you May Not Know about Tax Exam Management…

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Oct 5, 2011 | 0 comments

I just had one of our loyal blog readers out there send me a screen shot from a recent webcast from the Deloitte Debriefs Tax Operations Series titled “Tax Data Management:  A Foundation of Sustainable Tax Compliance, Planning, and Examinations Support” (and yes, that is quite a mouth full).  This Intaxication blog reader has been undergoing significant audit activity at his company and wanted to look at our AuditRoom coming out of the Deloitte webinar.  The screen shot that he sent me from the meeting provided the results to one of the polling questions from the audience. It was as follows:

“What is your company’s primary tool for managing and tracking the dataflows during your tax audits?”

• Spreadsheets – 76.5%
• Microsoft®Office Access® or similar – 4.3.%
• Web-based software system – 8.8%
• Hardcopy lists – 10.3%

His premise was basically that there must be a better way…and that he is not alone in this assertion.

I watched the webcast archive, and got to obtain insight from the presenters:  John Myers, Cindy Shubin and Nathan Andrews of Deloitte.  They covered some great content on ERP’s (Oracle, SAP, etc.) and tax data management, managing data for tax audits and even shared some trends in electronic document management.    One of the other polling questions I thought was significant was:

“Which statement below best describes your organization’s strategy on tax record retention?”

• Considerable time spent locating workpapers and/or retrieving/requesting electronic data to support positions taken on returns on an as-needed basis – 28.5%
• Limited electronic data is available from financial system archives or the “live” system provided to tax authorities as requested; time required to analyze and reconcile available transactional data for completeness and accuracy – 34.0%
• Data necessary to support audits has been identified and extracted from source systems to support audits – 37.4%

In other words, over two thirds of the respondents said that it was difficult and time consuming to obtain, reconcile and provide data to support audit positions!  I guess I should not be too surprised.  The presenters then provided numerous data points and other supporting information for why and how you can get control of structured and unstructured data, and how best to facilitate and manage tax exams.  I thought I would share some key points that I pulled out of Cindy’s discourse as I think they are practical examples of what you may not already know, but what you should be thinking about when looking at your process and possible solutions.  These are helpful in determining if there are solutions that can help you to reduce your risk and make sure you don’t lose the benefits of current positions, credits, deductions, NOL’s, etc.  (which should be your main objective).

Top 10 things you may not know, but will want to:

1. Make sure you have a web-based solution that is accessible by all stakeholders in the process: Finance, Accounting, Tax, Controllers/Business Unit Managers, Treasury, Legal, IT, consultants, auditors, etc.
2. Make sure that access is secure.
3. Ensure timely visibility to all parties…when they need to know.
4. Enhance real time knowledge sharing.
5. Timely access to information to manage tax controversy.
6. Be able to locate documents and files many different ways, timely and efficiently.
7. Ensure that data is organized electronically to facilitate teams being able to analyze the impact of adjustments.
8. Have key metrics with detailed audit status at all times, with analysis reports.
9. Integrate with other internal systems and be able to have email notification of key dates and tasks, and export functionality.
10. Create “audit ready exam files” – AUDIT IN A BOX (or shall we say “electronic box”)!!

The key here is to “eliminate the fire drills”.  Reduce time to locate, analyze and compile documents, and to create a consistent, and controlled process to manage your work.  Feel free to share what you are doing out there.  We also have some additional thoughts you can check out on our website.