Episode 23: How to Have a Successful Tax Transformation

Transcript

IRIS LAWS

On this episode, we talk to our Tax Transformation team to understand what makes tax functions successful and efficient. Most companies say they're transforming tax, but many are rebuilding the same problems with new tools. We welcome our guests to talk about what actually separates successful tax transformations from expensive reworks. From your one stop for tax updates and analysis, I'm Iris.

DEVIN TENNEY

And I'm Devin.

IRIS LAWS

It's Tuesday, April 7, and this is “Tackling Tax.”

We are so excited today to welcome some members from the Forvis Mazars Tax Transformation team. We have Kelly Necessary, the leader of the group, who's been with the firm nearly a decade now. She came to us with a long time of sitting in the seat of a corporate tax executive.

And she's joined by Jenna Stutz, who's a managing director with the team, who sits in our Wichita, Kansas, office. While she hasn't been with the firm for too long, she comes with a wealth of knowledge from her time in industry focused on tax and tax transformation. So, welcome to “Tackling Tax,” everyone.

KELLY NECESSARY

Yeah, thanks for having us.

IRIS LAWS

So, Kelly, let's start with you. I'm not sure everyone listening maybe understands exactly what you mean by tax transformation and what you do. You know, when I envision tax transformation, I think of a technology upgrade. So, new ERP, new tools, new automation, that kind of thing. But in hearing you talk before, knowing you, you seem to focus on operating model decisions first, potentially, and technology decisions second. Is that true? Can you give some background there?

KELLY NECESSARY

Yeah. Iris, I can see why you would think that technology would be the driving force here. I mean, when we think about where we are in this day and age, you know, our tax teams and finance teams are just inundated with technology choices, especially hearing a lot about things like AI and emerging technology. So, it can be, you know, tempting to think that the tools of the technologies should come first.

But we really like to help clients think about it a little bit differently. So, what we advise is they should really think about their tax operating model and what are those desired outcomes that they wish to achieve in that operating model and then choose the right technology to support those outcomes. What I kind of mean by that is when you think about an operating model, you think, maybe they think, how do we standardize and connect all of our tax processes?

What is that data that's critical to establish and accomplish that connectivity? And I think the most important one is, how do you translate those outcomes into the value that tax can drive for the organization? Once you're clear on those outcomes, you can then ensure and use technology to serve as an enabler to meet those outcomes in a really efficient and speedy way. And if you use modern technologies, you can do it and have massive scale across your entire organization.

DEVIN TENNEY

Clearly these changes sound like they can at least be fairly substantial for companies. And I'd imagine there's probably a number of ways in which they could probably approach them. In working with my clients, at least, it does appear that they're taking more of a like an incremental approach to transformation, really just addressing one pain point at a time.

Kelly, I want to keep with you. Why has a fragmented approach made sense historically, and does it still work today or would you recommend a different strategy at this point?

KELLY NECESSARY

Yeah. So, maybe we start by addressing this concept of this incremental automation. And this is probably resulting significantly from being a tool-forward kind of mindset instead of an operational outcome mindset. You know, when I think of incremental transformation, just to define it, I kind of think of it as like more process-driven workflows where a tax team is struggling to meet their deadlines, they've got more work than they know how to handle, and they start tackling transformation sort of one pain point at a time.

For lack of a better word, they're just like, we got to fix something and we're going to fix what hurts the most, right? And I think tax teams that are doing this or have traditionally been doing this, they've done this because they haven't had access to the right data. Maybe their organization hasn't converted to a cloud ERP enterprise, they've got lots of discrete finance systems they're pulling data from.

Maybe the organization, or maybe they've gone to conferences and heard about these really cool self-service, low-code/no-code tools. And so I think tax was just, for lack of a better word, jumping on the bandwagon and doing what they could do to solve one pain point at a time.

But I think, fast forward to today, I think we're in a much different place. And so, we've got modern technologies coming in, we've got finance and IT teams adopting those technologies. Data volume continues to come into the tax team. Regulations are more and more complex. And so, I think that's a lot of what's driving this focus to a more “what are the outcomes that we want to accomplish from doing any sort of transformation?”

And so, you know, what that really equates to is this concept of this end-to-end transformation, you know, which assumes the data from start, when you're looking and collecting that data, all the way through the entire cycle, there are minimal handoffs between people, minimal handoffs between systems. And that really means you have to have a strong data foundation so that you can accomplish that end-to-end automation.

So, like, I would like to think about it a little bit like incremental automation using some of these less modern tools. It does deliver value, so I don't want to say it doesn't deliver value. But when we're moving into a more modern environment with our IT and finance teams, if you don't focus on that data foundation, it's going to be really hard to kind of scale and create a solution or an end state that has resilience and can adequately meet your end-to-end outcomes.

IRIS LAWS

And I think, Kelly, you're touching on a point that I was going to ask you as well, which is, you know, there's still value in that incremental approach, right? So, even if maybe that other, more sweeping approach, end-to-end approach is what's making sense more frequently now. But for that incremental approach, what circumstances does it still make sense, maybe, as you're talking with clients moving forward?

KELLY NECESSARY

Yeah, that's a really good question and I think it's very common. As Jenna and I talk to organizations, all sizes, all industries, every organization, tax, as well as finance, as well as the enterprise. They're all at a different point within their maturity as it relates to the technology stack that they have, their impression of technology. And to be honest, the desire to move to more modern solutions around transformation.

So, when you think about this incremental automation, it can be pretty effective if tax is sort of early in their transformation journey. If they're very clear that, you know, we're just trying to have a proof of concept or trying to start small and leverage from there, maybe that's a place you put an incremental, you know, automation or, you know, a lot of times people, the companies might be struggling. Tax wants a benefit, but they don't have the budget, or maybe they don't have leadership that is ready for that level of change.

Those are really good indicators of places where you could do that incremental automation. And I want to add that incremental automation, it's not like incremental or end-to-end. There's a lot of variations between the two. So, even if a tax department decides to do some of this incremental automation, they can do it, you know, designing in a way that has data structures in place, and taking a more data-centric approach so that they are moving a little bit more towards that modern approach to transformation.

DEVIN TENNEY

Thanks, Kelly. Jenna, I do want to move on to you. And based on what Kelly just said, if fragmentation still has a limited role, what does the opposite of fragmentation actually look like in practice? So, how are we leading organizations approaching tax transformation in a more modern, integrated way today?

JENNA STUTZ

Yeah, I think as we look at some of our clients and what people are doing in the market and those that are wanting to approach tax transformation maybe more holistically and in a modern way, a couple of things come to mind in the way that they approach it. I would say the first is around centralization. So, they have a mindset of we've got data all over our organization.

It's difficult to get to one-by-one. So, what is a more modern approach to centralizing the data in a common place that more and more people can access that data, do analytics on that data, apply automation to that data? So, that first kind of concept, I think that a lot of people go after is how do they begin to centralize really what their data strategy is, to make that data more available?

And then that leads secondly into scalable. So, now they're looking also in a modern way, okay, if I've got centralized data, so it's not fragmented all over my organization or one-by-one trying to go get it, now I want to be able to scale that.

And so, they think of ways to manage that data in a more scalable way so they can apply logic on an entire scale of data sets instead of spreadsheet by spreadsheet. They're also able to apply a lot more analytics, to look at, organization-wide, some of the insights that they need to get to for tax and finance.

IRIS LAWS

So, you mentioned finance there. You know, there's probably been a good amount of transformation in the finance function. But that is different from tax, right? And we're a tax podcast here. So, from your perspective, how does maybe the finance transformation actually impact tax and where are the opportunities with that?

JENNA STUTZ

Yeah, I actually have a lot of passion around this topic, as I have background in both finance and tax. And one of the things that I've seen is just there is so much opportunity for finance, accounting, tax, and honestly across the entire CFO function, to really collaborate and get value together, and that value just compounds when you actually bring finance and tax together on a data strategy like this.

And the biggest reason for that value compounding when you bring those groups together, I think, is the reusability of the data. So, if you think about the datasets that tax and finance typically use on a day-to-day basis, it is about 20 to 30 core data sets and not much more than that. So, if you think about the prior question around centralization, if you can centralize and get access and transparency to about 20 to 30 data sets, you are reusing those same data sets for all the finance processes and all the tax processes at a starting point.

Now there's context applied when you're looking at, you know, GAAP and accounting financials versus your tax context. But that's the beauty of kind of a modern approach is that if you get those data sets centralized, you can reuse them over and over again and add on the context, add on the insights that maybe finance and tax need to do differently.

But you're able to reuse that that data set from the very beginning. So, if you've been able to kind of think of, okay, where is this reusability most valuable to your business, then you can start to put your operating model around that. So, things like data governance. So, once you have those data sets, how do your finance and tax folks trust the data and ensure there's quality and validations in that data, so you can start putting data management practices, data governance practices around those data sets?

Then that reusability really starts to become valuable because finance and tax can go and source their data one time instead of many, many times and cut out a lot of that waste. And that operating model now can start forming and supporting the data, the data assets that you make available to finance and tax.

DEVIN TENNEY

You know, Jenna, I really love the point that you just made. I have degrees in finance, accounting, and law, work in tax. So, I really am seeing a lot of all of that all wrapped in one package. But as you pointed out, there's often a big wall between these concepts. So, bringing them together really would be, you know, fairly significant.

Are you actually seeing organizations that are successfully leveraging, like, finance data, you know, for their tax? And what is the practical implications that you think they should be seeing?

JENNA STUTZ

Absolutely. I think this is one of the highest growing spaces in finance and tax transformation is this concept of a data platform and being able to access your data faster.

You know, there are some statistics out there that say tax analysts, finance analysts spend about 60 to 70% of their day-to-day time just on farming data and formatting data. They haven't even started their expertise and their role maybe around tax, or finance. And so if you can cut out a lot of that waste of just getting to the right data and formatting it for your own use, there is a ton of elimination of waste there that we are seeing a lot of people start to, you know, shift to this new way of working.

And this finance data platform, again, the concepts that I introduced around centralizing that data in a common platform, you get scale in that platform because you can apply logic to an entire data set for your organization one time.

And then that reusability, all of those things you get when you can implement a finance data platform. And then obviously there is so much more you can do that opens the door for many other solutions, whether that's more automation, more scenario planning, more use of AI, you're able to then apply those on singular data sets that have already been governed.

And we're just seeing more and more organizations, you know, that snowball effect starts to happen when they have that finance data platform in place. They're able to add those much more modern solutions in their processes.

IRIS LAWS

So, Kelly, I mean, we're talking here, right, about sort of this massive push for automation. I know you and I, at least from a firm perspective internally here, have seen that happen, you know, from source data all the way through to reporting.

That being said, is end-to-end automation in tax actually possible though, or is that really sort of an unrealistic expectation when you think practically?

KELLY NECESSARY

Yeah. That is a very interesting question. And I think my answer would be almost possible. And my only caveat to that is that, you know, I think tax professionals, when we're dealing with like so many complex rules and regulations, which, you know, over the last 5 to 7 years have drastically changed with all the tax reform, it’s probably unrealistic to think that there's going to be like, no human involvement, in the end-to-end automation.

So, I mean, I personally think there will always need to be somewhere within that data flow, the need for a human to review and sign off or make judgments and interpretations because as we know, not all tax law is black and white. But, if you set that aside, I mean, in those situations where you do try to attempt the automation, you do use the automation that you implement to elevate and optimize where the humans spend the time.

We get a lot of questions about how can we take in our automation journey? How can we ease review time but also give humans the ability to see the data where it matters, whether it's where there's fallouts, or risk, or significant changes? And so, it is important to accommodate that human element to any end-to-end automation.

But putting that aside, I think you can, pretty much from a data perspective, accomplish the rest of the automation in an end-to-end component. And reflecting on some of the things that Jenna said, I mean, what this really means is you have consistent data flows from your finance systems all the way through your tax processes. You're using this concept of the data foundation.

You have normalized tables and your calculations are repeatable and explainable and able to do things like scenario planning that Jenna mentioned. You also have an importance around controls, you know, in terms of approvals and being able to make sure you can provide audit work papers. And then finally, any of those outputs are consumed in an efficient way by some of the more legacy-compliant software. And you have that data foundation which really eases the ability to have those insights, narratives, and analytics. So, I'm going to answer that question as almost.

DEVIN TENNEY

Almost possible. Okay. Well, I want to open this up to either or both of you. Let's say I'm the leader of an organization listening in. What are some key signals that you guys have encountered that really indicate to you that a tax org is ready to move beyond the fragmented automation, towards maybe at least making some efforts towards establishing end-to-end enablement?

JENNA STUTZ

Yeah, I can go first and, Kelly, you can add on here. I think when I look at a tax organization that's ready, I see indications from them that they are willing to take risks and eliminate the possible waste that might be in their process. I think those that hold on to old processes because they trust it and they know exactly what's happening tend to, you know, do small transformations or minimal transformations.

Those leaders of tax organizations that are ready for change, they're willing to throw out old processes and utilize new tools, even though they might not understand completely, you know, how the data moves from point A to point B. They are asking questions, learning the space to get comfortable with that new way of working.

KELLY NECESSARY

Yeah. And I would just add from a practical perspective, if we see a tax department that like literally is spending more time finding, reconciling, and validating the data than needing that tax math, that's an indication they might be ready to move to a more modern solution, especially if they're in an enterprise where there's an openness in the organization for a shared platform concept between tax, finance, and IT.

IRIS LAWS

Well, last but not least, Jenna, I think to wrap up, you know, thinking about our listeners today, most probably are looking at this from the lens of challenges in their own tax function. So, from your perspective, what does success here, what separates those who successfully modernize, maybe, from those who continue to struggle?

JENNA STUTZ

Yeah, I think the biggest thing that I see in successful modernizations are those that can identify and communicate the value they're creating. This is difficult to do in a tax or finance function, but those organizations or teams that know and understand exactly what value this is bringing to their business and can communicate that to keep this momentum of, you know, continuing to modernize their tax function are very successful.

They know what they're doing, they know the strategies they're deploying, and then they can communicate to the business, because after all they’re a tax and finance function that's really there to create value for the business. So, if they can add on to that and communicate the value to their leaders and to their peers, I think those are very successful modernization examples.

IRIS LAWS

Well, this has been great, you guys. Thank you so much for joining. We are excited to see what we come out with next, and we hope to have you back on the podcast.

JENNA STUTZ

Yes. Thank you for having us.

DEVIN TENNEY

Each episode we’ll bring you what we call a “Focused FORsight of the Week,” an article or webinar that might be of interest to you. Today's article was written by one of our guests from today, Kelly Necessary, and is titled “Cultivating a Culture of Innovation in Tax Departments.” There are some great nuggets about how to embrace innovation as a mindset rather than as a technology initiative, so be sure to give it a look.

IRIS LAWS

And that's our show. Thanks for joining. Remember to subscribe and listen for the next episode of the podcast. Until next time.

ANNOUNCER

The information set forth in this podcast contains the analysis and conclusions of the panelists based upon his, her, or their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the panelists as to any individual situation as situations are fact specific.

The listener should perform their own analysis and form their own conclusions regarding any specific situation. Further, the panelists’ conclusions may be revised without notice, with or without changes in industry information and legal authorities.

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