Sound tax and accounting procedures are essential to growing a financially secure company. Unlike individual taxpayers, who habitually wait until April to get their information in order, businesses have to maintain accurate records and workflow year-round. But multiple hiccups –from simple human error to rampant technology adoption – threaten the accuracy of these processes, elevating the risk of compliance penalties and harm to your reputation.
The impact of such mistakes can be huge. In 2014, the IRS collected more than $7 billion in civil penalties from U.S. businesses due to misreported income and employment figures.
Bloomberg BNA recently surveyed 200 in-house tax and accounting professionals to explore the blunders their departments frequently face. A look at the top 10 mistakes reveals a diverse set of IT, regulatory and organizational struggles that both seasoned and first-time business leaders should strive to overcome.
Unsurprisingly, the most common misstep for tax and accounting professionals is the occasional botched data entry. More than a quarter of survey respondents have seen false numbers plugged in to their enterprise systems, a seemingly minor problem that can result in egregious mix-ups on tax filings, financial statements and business planning.
Related: The Basic Tax Deductions Most Small Businesses Forget
1. Failing to attract or retain top tax staff
In any department, success typically correlates with the quality of the people in them. Unfortunately, nearly one in five tax and accounting professionals report that their team struggles to find and keep talented employees. Given the deep subject matter expertise and quantitative chops required to fill these positions, companies that contend with high turnover or under-trained staff expose themselves to increased oversight and accounting misjudgments.
2. Saving files with financial information to personal devices
BYOD policies and employees who work from anywhere on their personal mobile devices might be a boon for productivity, but they’re a menace to data security. For companies today, it’s not even a matter of if a data breach will occur – it’s when. Enacting stricter file-sharing policies or investing in more secure collaboration systems is critical to protecting sensitive tax and accounting documents.
3. Deleting custom Excel formulas
Using Excel spreadsheets for important tax and accounting calculations is problematic enough. When colleagues regularly share and resave the same worksheets, the chance of accidentally erasing intricate formulas spikes. If whoever created the original formula is no longer with the company – or kept no record of it – tax and accounting departments can burn hours trying to reconcile vital information.
4. Overriding tax system data with external figures
Even companies that wisely invest in enterprise tax and accounting programs grapple with employees’ working outside these systems. Relying on figures estimated outside of a central system leaves no paper trail for internal or external auditors to review and distorts any analysis performed for future tax years.
5. Working on unsecured Wi-Fi networks
Employees and executives at growing businesses aren’t usually office dwellers. Cranking through to-do lists from coffee shops, coworking spaces or airport terminals may be efficient, but connecting to their public Wi-Fi networks exposes confidential tax and accounting information to malicious intruders. Stronger remote access policies and staff cybersecurity education, along with virtual private network (VPN) access, can help staff work flexibly and safely.
6. Prematurely closing the books
More than one in 10 tax and accounting professionals have seen their team close out a tax year’s financial books before all of the necessary information was collected. Process mistakes like these can go unnoticed for months or years, skewing future book numbers and triggering surprising fines.
7. Lacking C-suite awareness
Executives in small and medium enterprises wear multiple hats, overseeing strategic growth, product development, and even sales and marketing. Tax and accounting may be seen as a less strategic corporate function, and C-suites that don’t understand its impact (then fail to invest in high quality tax tools and personnel) put their entire operation at risk.
8. Not tracking city-level regulations
Between the Federal tax code, GAAP accounting standards and state laws, tax and accounting teams have no shortage of rules to follow. Businesses that already lack tax and accounting resources are prone to missing city-specific regulations, a blind spot that can inhibit a company’s geographic expansion and tarnish its local image.
9. Avoiding tax tool investments
One glaring problem underlies many of the aforementioned mistakes: companies’ insufficient investment in the right tax and accounting systems. Businesses that settle for free or half-baked tools won’t have full visibility into their assets or cash flow, making it difficult for investors to conduct pre-funding due diligence. Similarly, inadequate tax tools usually don’t have the functionality or financial controls necessary for companies planning to go public.