With tax season officially underway, many corporate tax and accounting departments are busily preparing for the looming March deadline. Each year, however, tax and accounting mistakes end up costing U.S. businesses billions. In 2013 alone, U.S. businesses accumulated nearly $7 billion in IRS civil penalties stemming incorrectly reporting business income and employment values.
Despite a growing reliance on internal tools and technology, the potential for human error and its costly consequences remain. To uncover the most common mistakes plaguing corporate tax and accounting departments today, and find out how those mistakes vary across company size and industries, Bloomberg BNA conducted a survey of 200 in-house tax and accounting professionals, over half of which represent firms with revenues above $1 billion. From technological pitfalls to regulatory confusion, here’s a look at the top ten end-user and tax-and-accounting rule-based mistakes that may be costing your organization.
1. Manually inputting incorrect data into an enterprise system.
With the amount of data entry that occurs in most accounting departments, it’s probably not much of a surprise that manually inputting incorrect data is the most common mistake. While the occasionally erroneous spreadsheet cell is inevitable, when left uncaught it can lead to an audit and penalties.
With so many data breaches topping the news, it’s concerning that nearly one in five (18%) professionals reported that employees have saved files with corporate financial or tax data to their potentially unsecured personal device. Companies must stress that saving corporate financial or tax data to personal devices is against company policy and threatens the security of sensitive company data. A leak or hack of such data puts the company’s reputation at risk.
Given that Excel is still used, at least to some extent, at most businesses, it’s not too surprising that errors related to the program made the list. Losing a formula in the program not only throws off your entire data, it can also lead to inaccurate reporting data, and ultimately, penalties. Rather than relying on spreadsheets to complete calculations, whenever possible, companies should opt for an accounting or tax software system that is aimed at serving its specific accounting needs.
While some employees may believe working online at their local coffee shop is harmless, accessing sensitive company information on a public network is a data-security issue. Companies must make it clear to employees that working from a non-secure public Wi-Fi networks threatens the company and is strictly against the company policy. If your organization doesn’t already, consider offering employees access to a virtual private network (VPN) to work more safely outside the office.
While there are reasons an employee may need to override an enterprise system, doing so opens the doors to a variety of possible errors, including inputting miscalculated data. Such technology-related mistakes often occur when tax and accounting professionals aren’t involved in the planning of ERPs and other new accounting software systems and, therefore, are forced to work around the software to meet their goals. Companies can lower the chance of error by involving the accounting department in the software selection and implementation phase. Companies may also want to require a manager’s approval before an override in the system can be done.
Mistakes 6 and 7 both involve data, and may reflect a disconnect between the information professionals’ need and what their enterprise systems are capable of providing. A major danger of such process-oriented errors lies in the fact that they can easily be carried over years’ worth of records until they’re noticed. Unsurprisingly, asset-intensive industries like manufacturing are more likely to falter with using the most efficient depreciation tables and modifying historical asset information.
8. Incorrectly applying unitary state tax rules, and
9. Failing to keep track of or adhere to city-specific tax regulations.
Keeping up with changing tax law and how it varies in your state and city can prove challenging. Nearly one in ten professionals indicated that their firms have incorrectly applied unitary state tax rules and the same amount admitted that their firms failed to track or apply city-specific tax regulations. Such mistakes ultimately cause firms to miss the benefits of local tax incentives.
10. Failing to maximize depreciation by using the most advantageous tables.
Confusion over city and state tax rules may cause firms to miss the benefits of specific tax incentives and, in turn, fail to maximize depreciation by using the most advantageous tables. A combination of retaining qualified staff and working with up-to-date accounting software can help elevate mistakes eight through ten.
Addressing all of these common errors is an initiative that must begin at the top. Fostering executive awareness and support for tax and accounting operations is critical to ensuring that firms make financial decisions fully informed of the tax implications. Recruiting and retaining qualified tax and accounting personnel will also likely decrease the chance of oversights and misjudgments.
Organizations should also periodically identify and address weaknesses within their current accounting practices to help avoid financial risk or reputational damage. With a more robust approach, businesses can better plan their financial investments and more accurately determine their tax burden.
Dean Sonderegger is the executive director of product management for Bloomberg BNA, Software Segment.