US Corporate Tax Departments Need Additional Resources, Survey Reveals

by Glen Shapiro, LawAndTax-News.com, New York

29 May 2006

According to a new survey published by the Tax Executives Institute (TEI) and KPMG last Wednesday, corporate tax departments appear to need additional resources from corporate senior management, particularly in the area of information technology, in order to effectively address tax risk issues in today's highly regulated environment.

Supporting this conclusion is the survey's key finding that a majority of tax departments still rely heavily on manual tax-control processes, leaving them vulnerable to inaccuracies and reporting errors.

In fact, three-quarters of tax-risk control processes are currently manual for 57 percent of respondents, while more than half are manual for 32 percent of respondents. The survey of nearly 300 tax directors was conducted at the TEI's Midyear Conference, which was held in Washington, D.C., in late March.

Among other key findings of the survey were that:

• More than half of the respondents cited tax technical and computational issues as the top risk areas to which they devote most of their time and resources;
• 74 percent of survey respondents said they believed that the level of "coordination" between their departments and their external auditor has increased compared to two years ago, while only 24 percent reported that it "stayed about the same."

"Continued reliance on manual processes clearly raises risks for tax departments in an increasingly regulated business environment," observed Timothy McCormally, executive director of TEI, adding that:

"The survey confirms that tax departments need more resources to respond to the growing demands being placed upon them."

Brad Brown, KPMG's National Tax Leader for Sarbanes-Oxley Section 404, concurred:

"Tax departments tell us they want to update their tax control processes so that they can transform the business-unit-based financial information they currently receive into the legal-entity-based information they need for tax reporting purposes. Their focus is on enhancing their ability to deliver timely and accurate information internally and externally."

"Tax has been a source of material weaknesses as reported under Sarbanes- Oxley 404," Brown added. "There appears to be a disconnect between the resources allocated to tax departments and the requirements of regulatory compliance."

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