Only 10% of Companies Automatically Validate Supplier Tax Info

Only 10 percent of controllers and financial executives surveyed are automatically validating whether suppliers have submitted error-free tax forms to AP. Furthermore, 30 percent do not bother to validate forms at all and, of those that do validate, 45 percent are validating tax forms with a highly manual, time-consuming process, which often can be error-prone.

That’s according to the results of a survey commissioned by Tipalti and conducted by market research firm Gatepoint Research. Failure to have AP tax measures in place can result in non-compliance with IRS Chapter 3 regulations and avoid tax penalties.

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,” said Laurie Hatten-Boyd, Principal of the Information Reporting Practice at KPMG LLP. “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.”

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.”

The complete Gatepoint Research study can be found at https://tipalti.com/gatepoint2018.