Why checks and balances are critical to the compliance process

Published on
Mar 11, 2024
Written by
Andy Smith
Read time
5 min

Let’s face it, no one enjoys dealing with tax compliance. Compliance can be complex and the consequences of not doing it properly can have drastic effects on a company both financially and in a company's valuation. When it comes to compliance, there are four main components: registrations, tax calculation, billing, and filing/remittance, with three of the four components relying heavily on the tax calculation side. Tax calculation is what makes sure the correct amounts, as well as the right legal descriptions, appear on the invoice. The tax calculation platform is also what tells the compliance vendor how much to remit to the various taxing authorities. With something so fundamentally important to a company’s success, don’t you think it makes sense to have some checks and balances in place?

The three main reasons some companies choose an all-in-one solution is because they want one invoice, it may be cheaper sometimes, or they want to set it and forget it. However, consolidation of billing to make your life easier is very different than relying on one vendor having total control over your company’s compliance process. One makes a ton of sense, the other eliminates the checks and balances we spoke about earlier.

Think about it. The compliance vendor knows your business intimately. They know what products you sell, and they usually have a hand in determining the right way to treat these products from a taxation perspective. They should also periodically review whether you had a change in your business that predicates a change in your tax policy. Most of all, they know what data they are expecting to see when filing your taxes, and they are the ones who will represent you should an audit situation arise. If your compliance vendor also owns the software that calculates the taxes, and they identify an error or the data is inconsistent, are they motivated to bring this to your attention and point the finger at themselves? Does the filing team have the ability to choose another calculation platform to support you? Conversely, what if the calculation platform is providing all of the right data, but there is a breakdown in the filing process and dates are missed?

Splitting up the process between multiple vendors helps ensure that the data is consistent and keeps your company honest by filtering information through several different parties and/or individuals. Usually, when there is a problem with compliance it is one of the components, not all. Having your tax calculation platform disconnected from your compliance vendor gives you the flexibility to switch either component, at any time, if a problem arises, with less disruption to your business.

In summary, if you are leaning towards the one-provider approach, make sure you evaluate the potential impacts to your business.

o What if your tax calculation software is not being improved or maintained but you have a great relationship with your compliance filing team?

o What if your business expands and you have outgrown your automation software but you have a great relationship with your compliance filing team?

o What if your compliance filing vendor misses critical filing dates or returns but your automation software is embedded in your finance package and working effectively?

o What if you feel like you need better or different legal or compliance advice?

o Think about it this way, would you want to have to change your accountant just because you outgrew QuickBooks, or changed financed packages?

It is critical that the software platform and the compliance filing vendor have a close-knit relationship and it is not uncommon for these processes to be sold in tandem. Purchasing one or the other through a bundled solution can often yield discounts on the services as a whole and provide the ease of one invoice. Just ensure you have the flexibility to bifurcate the relationship if needed. This will ensure that both parties are holding up their end of the process and still maintain the checks and balances that will protect you in the long run.

Reach out to CereTax today to have a discussion with us or any of our industry-leading partners to discuss your compliance needs!