Tax Innovation and Technology

EPISODE 57: DHG's Amit Arya and Kelly Necessary discuss how technology and innovation can help companies improve their tax department efficiency, specifically focusing on the use of data analytics and tax automation tools.

Transcript

Introduction

[0:00:09.7] JL: Welcome to today’s edition of DHG’s GrowthCast. I’m your host, John Locke. At DHG, our strength relies on our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG’s GrowthCast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace.

Thanks for joining us as we discuss tomorrow's needs today.

[0:00:42.3] ANNOUNCER: The views and concepts expressed by today's panelists are their own and not those of Dixon Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.

Interview

[00:00:58] JL: Today, we're talking about tax innovation and technology. And here with me today to dive into this topic are Amit Arya and Kelly Necessary.

Amit, who has appeared with us several times now on GrowthCast is DHG’s Chief Data Officer overseeing the firm's data and analytic strategy and providing guidance on data-centric decisions, and how to enhance firm wide operations. And Kelly is a tax partner serving as the practice leader for DHG Blueprint, which focuses on processes, data management and technology efficiencies within the overall tax function. Amit and Kelly, thank you for being with us today.

[00:01:37] KN: Thank you, John. Nice to be here.

[00:01:38] AA: Thanks John for having us.

[00:01:40] JL: So, we have discussed numerous topics on GrowthCast related to tax compliance, and updates to tax regulations during the year. But this is the first time we're talking about tax innovation, and how certain technologies can improve tax efficiency. So, Kelly, why don't you give us some insight on our topic today and why it's important.

[00:02:02] KN: Yeah, great. Thanks, John. For those of you listening out there, you know that the landscape in tax has changed greatly over the last few years, with the tax reform of the TCJA, as well as many of the changes that came out last year as a result of COVID and other things like the Cures Act, Employee Retention Credit, and the PPP program.

It isn't a surprise that these additional workloads and additional pressures on tax departments are creating an environment where our tax teams need to focus more on legislative analysis and or planning opportunities and tax. And they often are being asked to do this additional workload with the same workforce. So, I think our tax teams are realizing that even more than before, they're being asked to do way more work and way more analysis with the same resources. You couple that with legislative changes with other recent changes, and the accounting and tax functions around finance innovations and transformations as well as tax department’s ability to access new technologies. And this is really creating an environment where tax teams are looking at tax technologies and innovation to improve these efficiencies of their department.

[00:03:15] JL: So, Amit, why would companies take the time to investigate how technology can improve tax efficiency?

[00:03:21] AA: Well, John, the leverage on technology and how it can improve tax efficiency is an age-old problem. I would categorize this in two buckets, one being what I would call the low hanging fruit. These are problems where, from the beginning of time, we have been spending a lot of hours gathering and analyzing data for tax compliance and accounting purposes. This data has traditionally come from disparate sources, sometimes manual spreadsheets, computations are the norm versus exceptions.

Due to this manual nature of computations and data living in spreadsheets, we are exposing ourselves to potential human errors, if you will. And it is the inability of tax departments to efficiently manage all of this data, which is spread across the organization and the lack of audit trail that comes with this territory for internal stakeholders and taxing jurisdictions. So, these have been the age-old problems we've been grappling with since the beginning of time, what I call the low hanging fruit. But based on what Kelly said, some of the emerging issues that are on the horizon for us to tackle our companies are asking more of their tax leaders. We are asking CFOs and senior leadership to be able to quickly assess tax results, estimate future impacts on taxes of the company, and be informed by data driven decisioning mechanisms.

COVID-19 has certainly amplify the need for tax departments to be more efficient. And on top of that, we now are in an era of cloud-based technologies that can help augment the financial transformation processes by providing opportunities for tax departments to tap into innovative and cutting-edge technologies, if you will.

[00:05:15] JL: So, Kelly, can you tell us more about some of these tax efficiency drivers that could impact companies?

[00:05:22] KN: Yes, certainly. I mean, when we work with tax executives, we typically see that there are three drivers of efficiency. Process, technology, and the overall management of data, as Amit alluded to, and our opinion is a tax department, you must address all three of these if you're looking at a holistic approach to increasing the efficiency in your tax department.

So, maybe if I could take these one at a time, as it relates to tax processes, we feel it's important to look at how work and data is managed within the tax function, including how work is assigned among the team members. For example, a lot of tax departments look at the same data being pulled multiple times for different tax workflows, or do multiple multiple team members spend time performing similar data manipulations in Excel. These procedural and workflow issues are really important to understand and important to streamline those as much as possible before you decide to implement any technology or data management solutions. We found that not only may these efficiencies be gained through changes in process or procedure, but if you build technology and automation based upon a sub optimal process, or sub optimal procedure, you may actually limit the overall efficiency that you can gain by using technology and data.

So, if we move on to the second driver, which is technology, this is a really evolving and changing area within tax departments. And what we're talking about with technology is really how tax departments utilize third party technologies to automate a lot of that tax logic that you spend time creating manipulations and formulas in Excel. And when we think about technology and the tax base, we typically think about these tax centric technologies like One Source, Corp Tax, Power Plan, and the indirect tax base, maybe things like Vertex or Avalara. These have really flooded the market over the past 10 years, to allow users to really automate these really high risk, highly complex tax calculations.

What most people know is these types of technologies, while effective and efficient, have a pretty high implementation costs, and a recurring annual license fee that can really increase as you increase the modules. They do a really good job at providing automation for certain tax plays. However, one of the things we see out there as it relates to this driver of efficiency, i.e. technology, is that a lot of times our teams aren't maximizing the use of the technology. Sometimes we see that they're only using a percentage of the functionality of the technology and they're wasting money by essentially paying for a license that they're not fully maximizing.

One more comment on the second driver with technology is keep in mind that it's becoming so advanced, and it's so rapidly changing and becoming agile, that there are a lot of non-tax centric technologies coming out that can be placed in a tax function. One example is Alteryx, which is a very popular software tool that replaces Excel functionalities and can replace the need for Excel spreadsheet. And another is something that we're doing within DHG, where we're building, we are using cloud-based technologies to basically provide functionality similar to the other licensed softwares, but also expanding by incorporating data storage and some visualization components that we'll talk about later on in the webcast.

[00:08:52] JL: That’s fascinating. I'm just curious, we mentioned in your introduction that you lead DHG Blueprint. Tell me about this initiative and how does it help companies improve their tax efficiency?

[00:09:05] KN: So, we try to help clients look at all three of the drivers of tax process, technology, and data management and help clients realize and the potential and the what's possible by implementing various solutions. We acknowledge that there's not a one size fits all approach to tax efficiency. In other words, what we realize is that each tax department has a customized need and customized pain points that they are looking to solve.

So, what we do in DHG Blueprint is we take an assessment-based approach where we help our clients identify the root cause of all their pain points. And then what we do is we help clients properly, look for prioritization opportunities, look for solutions and help lay out their roadmap for efficiencies. The result of this assessment-based approach is that we can provide various solutions that help with our process or workflow design. We can do discoveries that help prioritize solutions. We can also help provide data consulting services to bring to life the possibilities with technologies. And we can also help implement various visualization and analytics solutions so that you can really take all of that tax data and turn it into valuable information at your fingertips and in a proactive manner.

[00:10:25] AA: I agree with everything that Kelly has just said. And in addition to that, I want to emphasize that the DHG’s tax cloud-based automation tool addresses all of these facets for tax transformation purposes for organizations, which incorporates data storage, automation, and visualization. So, basically, it encapsulates the entire data cycle, if you will. And the unique proposition here is, since we are leveraging cloud-based automation tools, we're able to offer this cutting-edge technology at a very scalable and affordable cost versus what might be a traditional licensed based alternative.

[00:11:09] JL: So, Kelly, tell us more specifically about the technology enablers that can help companies address issues around tax efficiency.

[00:11:18] KN: Yeah, the first enabler and probably the most common one we see is the transition of enterprises to the cloud. Gartner Group reported that from 2018 to 2019, there was a 17.5% market share increase in companies transitioning to the cloud. I was shocked when I saw that the cloud market went from 182.4 billion, up to, in 2019, 214 billion. So, we're definitely seeing enterprises moving to the cloud. And the reason for that is that going to the cloud opens up this enormous rich ecosystem of automation and analytic toolkits, that include many self-service tools.

So, our tax departments are now realizing that their enterprises through transitioning to the cloud can possibly give them access to tools that they once did not have access to. And the impact attack is really an increased importance in finding that integration with any sort of strategic initiative that is going on with finance. We're seeing tax departments work much more closely with finance and it once their enterprises transition to the cloud. We're also seeing that the cloud transitions are allowing tax departments to rely much less on these hand softwares and really rely more on technologies that are readily available to them within their organization.

[00:12:42] AA: I completely agree with what Kelly's saying. In fact, Kelly referenced these analytical toolkits, and part of the cloud migration strategy that we have is to insert artificial intelligence and machine learning algorithms, which are part of the analytical toolkit ecosystem, on these cloud computing platforms. The application of AI, and machine learning really opens up a whole new facet for the tax transformation process where the firms can leverage things that they know, which is what we call creating insights. But the AI and machine learning algorithms can also shine light on things that were perhaps not known to the firm, what we call creating foresights. And that is available to us today due to this dense data that we have available from the GL and the other trial balances that were previously sampled versus being analyzed at every level of detail in the past. So, that's really a fascinating development on the cloud computing side.

[00:13:52] KN: Yeah, I agree, Amit. And when we look at the transition to the cloud, we also are seeing this evolution towards self-service tools. And what I mean by that, one cloud technology that is very popular is called Power BI. This is a visualization tool that is extremely inexpensive, comes with sort of the Microsoft Cloud transition and it's very, very easy to use. So, it's a way for our tax departments to bring that data to life through visualization. Some other ones out there on the market around visualization, our Tableau or QlikView. And we're seeing a big influx of tax department interest in these types of tools.

The other self-service tool that is not necessarily a cloud-based tool, but is a separate software is called Alteryx. We mentioned it earlier on the webcast. What tax departments are really liking about this is it kind of makes you feel like a data scientist without actually having to be a data scientist. It is an excellent tool that operates through workflows and allows tax departments to replace complex Excel functionality through a customized self-service software, called Alteryx.

When you translate these self-service tools into sort of the tax department vision, what we're really seeing is we're seeing a lot of non-accountants entering the tax departments. I think I saw a statistic that said, 31% of our 2019 hires in the accounting industry were not accountants. So, because of the self-service tools, tax departments are hiring these non-accountants, and they're putting them through work, learning and implementing these self-service tools as they try to increase their efficiency.

The last enabler I mentioned that we're seeing in the market is this evolution in finance. We're seeing a lot of finance functions, which obviously tax is as a part of. We're finding them really looking at transformation and continuing to figure out how the whole finance function can work more seamlessly and in fusion with the enterprise with the overall operations of the company. So, the impact of tax is, again, we're seeing finance functions create these centers of excellences, and we're seeing tax and finance folks work more collaboratively to do more in-house implementations as well as to untap the technologies that are available to them within their organization.

[00:16:14] JL: And, Amit, I know we've talked on previous GrowthCast episodes about the use of business intelligence tools and visual analytics, I think we've returned referred to them as dashboards. Can you tell us how a dashboard would work in aiding a tax transformation process?

[00:16:31] AA: Yes, John, when it comes to visualization in data science, we consider that as a last mile problem, where you have ingested the data, you have transformed the data based on business logic, or the rules of the transformation process. And now we want to give it back to the users to make data driven decisions. So, it's all about ingesting, enriching, and transforming the data and extracting the value out of it. This is where visual analytics or the so called dashboarding comes into the picture.

Today, these tools allow for self-service analytics that create additional efficiencies, by not having to wait for a dedicated business analyst to decipher the data, translate it, and provides insights or foresights for that matter. So, once the data is piped into a dashboard, users can extract key insights from the data themselves and one of a wonderful tool, is Power BI that Kelly mentioned earlier as an example of this piece of technology.

[00:17:33] JL: So, tell us more about the why behind adding innovation and technology to how we run our tax departments. What's the contribution to the overall bigger picture for a company and why is it so relevant in 2021?

[00:17:45] AA: Well, John, the relevance really comes in from the facet of the information age in which we are living. We are recording and processing more and more data. And from our tax transformation perspective, there is a need to look at all facets of this data and process it as efficiently as possible. With human intervention comes the habit of making mistakes, not being able to process the entirety of data, and by the way, if you do it, it comes at a great cost, takes a lot of time. And time being of the essence with regards to cost, data analytics and automation can certainly help firms gain an upper edge, not only as a competitive edge in the market by having a clear insight on your operating efficiencies of the business, but also in streamlining their operations as a whole, if you will.

[00:18:50] JL: Kelly, any final comments that you would add to that?

[00:18:53] KN: Yeah, I agree with everything that Amit said. I mean, tax departments are being faced with an increasing amount of data. And you combine that to the fact that COVID related legislation as well as the economy in 2020, has really tightened our tax departments budgets. So, what we're saying the why 2021, and what can you do for the overall enterprise, we're seeing tax departments really use innovation and automation to reduce their technology costs and their budget. We've seen and reduced outsourcing costs or use those valuable corporate dollars to outsource more of the valuable tax advisory services. We're seeing it free up team members times and tax departments so they can focus on review and risk reduction or planning that can positively impact the company's bottom line.

And then finally, with data visualization, analytics, tax departments are able to more proactively and be more predictive in their executive level reporting. Now is definitely the time.

[00:19:51] JL: Well, Kelly, Amit, thanks so much for the updates and insights today. Appreciate your taking time to be with us.

[00:20:00] AA: Thank you, John, for having us.

[00:20:01] KN: Thank you.

End of Interview

[00:20:04] JL: Thank you for joining us today as we discussed the new innovations and applications of different tax technologies, with Kelly Necessary, Partner and Leader of DHG Blueprint and Amit Arya, DHG’s Chief Data Officer. We hope that you have a better understanding of the advancements in tax technologies and how these will help address tax department pain points, and the development of more efficient tax strategies.

I'm your host, John Locke, and I look forward to reconnecting with you soon on a future episode of DHG GrowthCast.

End of Episode
About DHG's GrowthCast

At DHG, our strength lies in our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser focused on company goals. In this ever-changing world, DHG’s Growthcast, provides insights and thought -provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace. Join us in discussing tomorrow’s needs today.

Disclaimer: The views and concepts expressed by today’s guests are their own and not those of Dixon Hughes Goodman LLP. Always consult with your legal and financial professional before taking any action.

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