Compliance Fatigue: Reducing Regulatory Pains in Accounts Payable
webadmin 25 Jun 2015Few things in life are as painful as a visit to the dentist. But dealing with regulatory pressures in accounts payable is no piece of cake either. Three pesky compliance issues – sales and use tax, unclaimed property and 1099’s – cause 99 percent of the pain. The good news is that a little preventative maintenance can keep AP professionals away from the dentist and even eliminate the possibility of a root canal.
The first line of defense against dealing with regulatory issues is having a robust policy in place that outlines the company’s responsibilities regarding compliance. It is also important that AP personnel who manage this process are aware of the regulations, get the necessary training and have access to the right tools.
Related: Get real-world tips on dealing with the thorniest compliance issues, specifically in one of our scheduled INNOVATE 2015 breakout sessions: Developing an Ironclad Foreign Supplier Payment Process in Compliance with US Withholding Tax Regulations.
These policies are also extremely helpful if the company is audited for non-compliance. A formal policy shows that the organization intended to comply with the regulatory requirements, even of it did not do so adequately. On the other hand, lack of a written policy document might be construed as an indication that the company did not plan to comply at all. Finally, even if your company has instituted formal policies and procedures, you need to update them periodically to ensure it’s in line with the changing business environment.
Sales and Use Tax
Complying with use and sales tax regulations can be very painful, especially given that there are over 7,500 taxing jurisdictions in the United States, each with its own tax rates and rules as to what is and is not exempt. The combination of supplier relationships that span multiple states and an increase in the number of transactions conducted over the Internet compound the pain experienced by accounts payable departments.
Further complicating this issue is the fact that state and county revenue departments come down hard on organizations that underpay taxes in their efforts to close loopholes in tax laws and fill revenue shortfalls. Non-compliance with sales and use tax can prove very expensive to companies in the form of audits, penalties and punitive interest, not to mention the sheer time it takes to provide documentation to the auditors.
Direct-Pay Program. One way to reduce the hassles associated with tax issues is to take advantage of the Direct-Pay program instituted by the government. Through the Direct-Pay program, approved businesses are allowed to buy goods without having to pay sales tax to the seller at time of the purchase. Instead organizations can pay the applicable sales and use tax directly to the Department of Revenue of the relevant state. The Direct-Pay program has a positive impact on cash flows and also significantly reduces over- and under-payments as well as audit risk.
Any company wishing to participate in this program needs to apply for a permit from the Department of Revenue. Business that make over $10 million in taxable purchases in any given calendar year are eligible for Direct-Pay. Anyone that is required by the Department to use electronic funds transfer for the payment of taxes is also eligible to apply.
Leverage Technology. The time is ripe to replace manual and error-prone activities around sales and use tax with tax automation tools that integrate seamlessly with an organization’s invoicing systems and streamline the filing process. Automated solutions cover all US jurisdictions and Canadian provinces and automatically calculate taxes for sales, purchases and rentals including special rates, exemptions and caps. Vendors also regularly offer updates to tax codes depending on changes to tax laws. These services reduce errors in applying the appropriate tax rate as well as problems associated with under- or over-payment.
Further, reporting and analytics features embedded in the solution provide an extensive audit trail, which can be extremely useful if your organization ever undergoes an audit. Automation of tax processes also frees up AP professionals to spend time on more strategic activities and the accompanying reduction in staff hours can result in significant savings.
Reverse Audits. Despite all the due diligence and the use of automation, under- or over-payments are in some cases unavoidable. Businesses with high-volumes of transactions often conduct internal audits, many times provided by a third party specialist firm. Fortunately, you can hire a third party sales and use tax audit firm to comb through your transactions and identify overpayments. These firms will assist you in filing a refund and also fix the root cause of the problem. Similar to recovery audit service firms, these experts get paid on a contingency fee basis, which means they get a percentage of recoveries.
What about you, what compliance issues cause your regulatory pains? Leave us a comment and let us know! Interested in learning more in a hands-on atmosphere? Attend INNOVATE 2015 this year and get real-world tips on dealing with the thorniest compliance issues, specifically in one of our scheduled breakout sessions: Developing an Ironclad Foreign Supplier Payment Process in Compliance with US Withholding Tax Regulations, led by Kim Rankel, Director NASSC Purchase to Pay at Eli Lilly and Company. Register before June 30 and save $400!
