Tax Risk Defined

Tax risk is the unintended exposure of the organization to adverse tax consequences from unidentified perils or the cost of missed opportunities. 

Historically, tax and finance have operated independently; however, a myriad of nascent factors now point to the need for change.  Among these factors are a major shift in the role of the tax function, changes in the regulatory environment, increased investor scrutiny, heightened tax compliance enforcement, evolving interpretation of tax and accounting issues, and the growing complexity and speed of business.  Because of this shift, tax must become more engaged in other business areas and more proactive and nimble; it must be involved at the front end of business and financial decisions and have an obvious presence throughout the entire organization.  Organizations that don’t migrate the tax function to a more proactive and holistic approach will carry significantly more tax risk.

An organization’s tax risk profile can be reduced through the effective integration and execution of the tax function as a critical component of the overall business strategy.   True Partners’ Tax Risk Management Group has developed a process that focuses on practical and concrete steps that tax functions can implement to reduce their risk profile.

Symptoms of an Ineffective Tax Function

The increasingly complex regulatory environment has made strategic planning and risk management a highly valued contribution of a corporate tax department.  Despite this, the great majority of tax functions devote their resources to low value activities such as tax compliance and data management. 

These increased demands are outside the role of a traditionally designed tax department. This paradigm shift requires companies to reevaluate tax function design with the focus on aligning the tax function to meet the increased demands, ensure tax is embedded in key business processes, and that the tax risk strategy is aligned with the overall business risk strategy.  

By taking an objective look at the tax function, these symptoms or risk factors can be an indicator that some degree of re-engineering or process improvement may be needed:

•  Unable to support day to day business decisions nor a contributor to strategic planning
•  Siloed function with little connectivity with audit committee; senior leadership; and key business processes
•  Significant manual processes or “rework” of data for tax purposes
•  Lack of perceived value of the tax function by key stakeholders
•  Resource constrained with turnover or inability to attract tax professionals
•  Increased enforcement, lingering audits or unanticipated audit adjustments
•  Misalignment of tax processes with information technology        

Effective Tax Function Design

An effectively designed tax function focuses on improving management of people, processes and technology.  In many tax functions, the highest priority initiatives focus on process improvement and technology updates. 

Though these initiatives may appear to focus on improving core tax compliance activities, close observation will show that the tax executives’ improvement priorities track very closely with the tax function’s expanded, more risk sensitive agenda. 

How Effective is your Tax Function?

External business forces and regulatory changes are pressing the tax function to stretch beyond its traditional bounds to participate in broad business management and risk management activities.  Recognizing this change and planning to implement change raises a number of questions:

1. How do you effectively integrate the tax function with business operations outside of tax?
2. How do you execute on an effective tax design?
3. What is your return on investment in such areas as:
       • Strategic and Business Alignment
       • Operational Support
       • Audit Management
       • Compliance and Reporting
4. Is your tax information technology spending an asset or a cost?

• How we Assess the Tax Function
  
  True Partners utilizes a comprehensive approach to managing tax risk which ensures alignment with key business drivers: 
  
  •  Define – Identify stakeholders; develop objectives and priorities; establish consensus and approach
  •  Inventory –Document/map the current state including processes, resources and systems
  •  Review – The review of such processes as controls, compliance, audit management, planning, financial reporting, systems and resource functional review
  •  Assess – Identify tax function capabilities, deficiencies and gaps
  •  Develop/Improve – Assemble a plan to eliminate deficiencies and provide recommendations for enhanced capabilities to close gaps
  •  Validate – Ensure design changes meet defined objectives and desired results are achieved
  •  Communicate – Expand communication to key process owners and transfer knowledge to achieve sustainable process improvement
  •  Monitor – Survey periodically in order to ensure a sustainable solution.
  
  This approach provides practical solutions that result in tangible improvements which increase efficiency and effectiveness.  Often the risks mitigated are quantified providing a defined return on investment of the process improvements. 

OUR TEAM

Andrea L. Gronenthal, CPA, Managing Director
312 235 3328 | This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

David F. Jarmusz, ESQ, CPA, Senior Manager
312 924 3236 | This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Timothy D. Nolan, CPA, Senior Manager
202 465 6544 | This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Joseph R. Ochoa, PMP, Senior Manager
813 434 4013 | This e-mail address is being protected from spam bots, you need JavaScript enabled to view it