Study Finds Only 10% of Companies Are Automatically Validating Suppliers’ Tax Information to Help Comply with IRS Withholding Tax Requirements
A significant percentage of businesses do not have a payables transformation strategy in place today
San Mateo, CA, May 15, 2017 – Tipalti, the leading global payables automation solution, has released the findings from a survey of controllers and other finance and business executives that indicated a concerning number of organizations don’t have AP tax measures in place to comply with the IRS chapter 3 regulations and avoid tax penalties.
The survey, commissioned by Tipalti and conducted by market research firm Gatepoint Research, found that only 10% of those surveyed are automatically validating whether suppliers have submitted error-free tax forms. Furthermore, 30% do not bother to validate forms at all and, of those that do validate, 45% are validating tax forms with a highly manual, time-consuming process, which often can be error-prone.
The tax compliance portion of the supplier onboarding experience is especially important because the IRS’ policies now puts the responsibility on the payer, not the payee, to comply with the chapter 3 and the Foreign Account Tax Compliance Act (FATCA) provisions by validating that payees provide the right tax form and that they have completed their form data correctly. The IRS has hired and trained over 3,000 IRS examiners with process verification and tax audit efforts to enforce the tax regimes. Companies that don’t prioritize tax compliance are at risk of substantial fines and penalties, as well as opening up other areas of the business to scrutiny and exposure through tax audits.
The survey results are concerning. We know that the IRS has become increasingly focused on AP cross-border payments. We also know that these exams are very much forms-driven. It is the low hanging fruit for the Service. It really is important, now more than ever, that AP departments establish robust processes, not only for documentation collection, but also for validation. Minor mistakes on these forms can quickly turn into large IRS assessments.
Laurie Hatten-Boyd, Principal of the Information Reporting Practice at KPMG LLP
While invoice workflow automation (49%), AP fraud controls (42%) and electronic payments (31%) were top of mind for organizations focused on payables transformation, only 11% of organizations recognized that it’s essential for them to get the supplier onboarding process right. A frictionless onboarding experience is crucial because it streamlines data entry (putting the responsibility on suppliers for maintaining accurate payment data), ensures tax compliance with collection and validation of the correct tax forms and information, and screens this payee data to eliminate errors and compliance issues. Issues with tax compliance begin when organizations don’t recognizing the importance of collecting and validating tax data during the supplier onboarding process.
Also concerning, one-fourth of respondents do not currently have a strategy in place for transforming payables. One reason for this may be that 34% of organizations are struggling to understand the costs and risks involved with running legacy manual AP processes.
Additional findings from the survey include:
- The responsibility for transforming payables rests on the Controller or VP of Finance (64%)
- Organizations are remitting across a broad range of payment methods adding to process complexity
- 63% of respondents felt that retaining payees was critically relevant to their organization
- OFAC SDN checks are rare to see in an organization (13%) putting AP at risk of regulatory penalties.
“Modernizing the payables operation to ensure it’s managed cost effectively, accurately, and efficiently is challenging, but having a strong supplier onboarding system and making sure you’re tax compliant should be top priorities for any CFO,” said Chen Amit, CEO and Co-founder of Tipalti. “This report highlights the need for finance teams to evaluate their processes to ensure they’re eliminating AP risk and truly streamlining and automating the payables process. For finance teams to succeed, they need to focus on three payables transformation areas: making the global payout process more scalable and efficient, making the function cost-neutral, and eliminating risk by instituting comprehensive tax, regulatory, fraud, and financial controls.”
About the study
The survey was conducted between January and March 2018. Gatepoint polled 100 finance and accounting executives from a wide variety of industries across a range of company sizes.
About Gatepoint Research
Gatepoint Research has been conducting market research surveys since 1997. Each year over 20,000 management-level executives, across a broad range of US and International organizations, complete surveys on business and technology trends. The insights are analyzed to help guide decisions regarding product development, operations, sales and marketing.