Tax departments: response to COVID-19 changes and challenges
June 2020 | TALKINGPOINT | CORPORATE TAX
Financier Worldwide Magazine
June 2020 Issue
FW discusses how tax departments are responding to the changes and challenges presented by COVID-19 with Emily VanVleet and David Landers at Deloitte.
FW: What are some of the greatest challenges you see tax departments facing as they respond to the pressures and uncertainty of COVID-19?
Landers: The evolving landscape is impacting all departments, just as it is impacting all people, but just not all in the same way. We all have friends we know that are socialites. They get energy from being around other people. We also have friends who get energy from being home and do not require the same level of social interaction. The same dichotomy is true of tax departments. Some are faring just fine, and some are struggling. One difference between the two paradigms seems to be the maturity of the process standardisation and technology adoption the department had in place before the pandemic.
VanVleet: The greater degree of process standardisation, the more easily processes can be executed and trusted in a virtual environment. However, where processes are poorly defined, insufficiently documented, or allowed to vary person to person or jurisdiction to jurisdiction, the requirement to operate remotely has highlighted and exacerbated challenges that tax departments were better able to control when their teams were all working together in the office. You could say that the legacy process debt – the needed improvements have been neglected over the years – is now becoming due. To ensure that tax processes can be operated in a sustainable and well-controlled way, this is the time to improve, standardise and automate where possible.
FW: With many organisations having recently completed the close process for the first quarter of 2020, how do you see tax departments dealing with the new virtual close environment?
Landers: Since the ‘work from home’ (WFH) scenario began, we started to see signs of stress in companies’ business processes, but then companies started adapting very quickly. New ways of working and new tools were put in place to help connect people and work. The concern was seeing whether those adaptations to the normal work environment would hold up under the pressure of a tight close process. Based on our conversations, there were some challenges, but all in all the close got done. What did come out of this quarterly process was a recognition of what changes need to be addressed before the next quarter. The tight close window highlighted pre-existing risks such as large spreadsheet files and manual data movements or links between files that do not work well over remote VPN connections. In addition, the impact on controls and how those controls are operated in a completely remote environment in some cases changed dramatically. We are seeing companies now focused on these business process and technology weaknesses and the need to address them before the next cycle.
VanVleet: Tax leaders had to very quickly figure out how internal controls can operate and be evidenced virtually, how team members can access the data and documents they need to perform their jobs, and how to keep processes moving steadily forward so that work is completed on the timeline required. There is a sense that the first quarter may also have had fewer requirements, as controls tend to be tested later in the year, so in that sense calendar year companies were a bit fortunate in the timing of the first virtual close. And of course there were plenty of technical accounting complexities to address this quarter, with economic challenges making certain judgements both more critical and more difficult, concerns about the validity of financial forecasts, and legislative and regulatory changes to incorporate as governments around the world have responded to the pandemic.
“To ensure that tax processes can be operated in a sustainable and well-controlled way, this is the time to improve, standardise and automate where possible.”
FW: How are tax departments responding to the new challenges they face?
Landers: Many tax departments are responding to these new challenges by leveraging new tools, including video conferencing – in some cases hosting multiple video conferences per day. There is also a focus on the human aspect of work which is as important as the business process and technology aspect. Companies are finding creative ways to keep people connected during this pandemic. Business works better when the team works as one. This is something that technology can certainly help, but not create.
VanVleet: We have also seen companies working to quickly deploy the technology needed to support a remote workforce – with video calls being perhaps the most obvious example, but also other tools such as collaboration platforms, electronic document libraries and workflow engines to guide processes. And of course, everyone is also figuring out how to make work from home actually work for each individual person and situation. Heightened awareness of the importance of wellbeing will make this situation sustainable over a longer time horizon – for instance, tax departments are doing things like taking a shift approach to work, having daily ‘stand up’ meetings each morning to align workloads for the day, limiting the length of virtual meetings to help people stay focused and energised, and respecting the need to take breaks through the day.
FW: Governments have responded to COVID-19 with a massive series of tax legislative changes for companies to evaluate and make choices that can have a complex impact not only on tax positions, but on the operational aspects of managing and tracking all the changes in filings and due dates. In what ways are tax departments managing all the moving pieces?
Landers: There are a lot of moving pieces. Some companies are looking further into the year for when the tax department will need to provide documentation, including the analysis that went into decisions being made now in relation to all the changing legislation. That becomes less about what you decided but more about having the processes and tools in place to document those decisions. Then there is the challenge of managing and tracking all the new due dates for hundreds or thousands of delayed payments and filings. Companies are looking to business process management platforms where this documentation can be organised and kept for use in the future rather than in email storage, and where new due dates can be managed, tracked and reported on, for example. The ability to see from anywhere the status tracking dashboards and filing calendars to quickly see where attention needs to be focused is something many departments lack when trying to use a spreadsheet as a management tool.
VanVleet: Spreadsheets are widely used for modelling the impacts of various legislative changes. There are some leading practices companies are looking to incorporate into the design of their critical spreadsheets – for instance, redesigning the data flow to isolate inputs from outputs, and creating a series of leadsheets for the source data that can be copied into multiple models as needed. Those types of approaches can really help companies maintain data integrity in their spreadsheet models, while also standardising processes to a degree that enables automation of reconciliations and data processing.
FW: What are some success stories you can share?
Landers: Technology is a powerful resource. In our experience, companies that have leveraged technology to improve the operations of their department through standardised business processes have been able to quickly and successfully adapt to the pandemic. More companies are looking to quickly adopt these collaborative solutions. Continued innovation will drive more and more success stories as we all move ahead through this evolving situation.
VanVleet: Companies that were on the automation journey before the pandemic remain determined to see those efforts through to completion. Even the exercise of walking through processes in working sessions, which of course we are now doing virtually, can provide a level of transparency that has supported WFH, as well as a greater cross-pollination of knowledge to help protect against key person risks. These companies have also experienced the benefits of automating recurring tasks and reducing the time their teams spend gathering and manipulating data – since that resource capacity has been urgently needed for new tasks related to modelling, forecasting and identifying potential cash tax benefits to drive much needed value to the bottom line.
“Having a tax risk readiness plan allows the tax department to manage and monitor emerging risks, while creating and preserving value for the organisation.”
FW: In your experience, how are tax leaders thinking about tax operating model challenges in the current environment?
VanVleet: We are seeing leaders respond in a number of different ways. Some are really working on identifying ways to be more efficient with their existing resources and capabilities – that is where we see a surge in implementing collaboration and automation technologies and redesigning processes, workflow and spreadsheets to increase transparency and control. Other leaders are looking to service providers to help drive greater efficiencies for in-house responsibilities, leveraging the service providers’ investments in tax technology and automation to drive the value they seek. Others are expanding relationships with service providers further to help address gaps in capacity or capabilities. Moving quickly to address immediate needs facing tax departments is absolutely critical, as is identifying potential tax cash flow opportunities, but leaders must also think strategically about how to design a more agile tax operating model that will allow them to flex and scale given the level of uncertainty they face now and in the future.
FW: To what extent have tax leaders had to rethink their risk and governance postures in light of the COVID-19 force remote working scenario?
Landers: There is absolutely a heightened level of focus on risk readiness and business continuity plans in this environment. We have seen tax departments emerging from the first virtual close and developing a one-, three- and six-month plan to ensure they are able to continue getting the basics done while delivering on the new business needs in this changing environment. Some of these efforts are focused on the tax function as a whole, while others are drilling down into a specific risk, opportunity, tax or process area. This planning exercise can provide confidence that the team is ready to work remotely, with clear accountabilities understood, agile processes in place, and updated controls tested and operational. These plans are also being stress tested, based on potential future scenarios for additional disruption. The end result is a game plan to respond quickly under different scenarios, which also allows the tax department to communicate proactively with both tax personnel and business stakeholders. The adage that if you fail to plan you plan to fail certainly seems relevant today. Having a tax risk readiness plan allows the tax department to manage and monitor emerging risks, while creating and preserving value for the organisation.
As a partner in Deloitte’s tax management consulting practice and the leader of the firm’s robotics and intelligent automation team, Emily VanVleet thrives on anticipating what might be next and boldly embarks on the path to get there. This approach to her work and her life has afforded her the opportunity to support her clients in driving incremental value and staying ahead of market trends. She has over 20 years of experience in tax consulting, strategic process design and practical approaches to tax transformation. She can be contacted on +1 (404) 631 2715 or by email: evanvleet@deloitte.com.
David Landers is a partner in Deloitte’s tax management consulting practice and the leader of the myInsight Client Edition Cloud based product offering. With more than 20 years of experience, Mr Landers has worked with large and mid-sized global companies in the areas of tax accounting, tax process improvements, and accounting periods and methods planning. For the past 13 years, he has served organisations extensively on the implementation of tax process improvements and technology solutions, including software selection and integration with existing finance and tax technology and processes. He can be contacted on +1 (713) 306 2767 or by email: dlanders@deloitte.com.
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