Contributed content from Avalara. Originally published on FEI Daily.
Most CFOs are rightly focused on navigating each new phase of the business lifecycle – raising capital, entering new markets, acquiring companies, and the like. As a result, they tend not to keep backend infrastructure and processes top of mind or actively participate in decisions about IT purchases. This is rapidly changing, however, especially for CFOs of fast-growing businesses in dynamic industries like software that are constantly evolving.
Savvy CFOs in dynamic industries now realize that the wrong supporting infrastructure can increase risk, create inefficiencies and stifle growth. To avoid this, they consistently communicate their strategic goals and requirements to the CIO and actively participate in evaluating IT solutions that support them.
If you are hesitant about engaging your CIO this way, here are four specific examples in which technology decisions currently being made can support or undermine your ability to reach your goals for the company:
Sales Tax Compliance
Tax reform may be dominating the news, but CFOs face another tax challenge. To increase revenue, U.S. states and other countries are taking measures to optimize the amount of sales taxes they receive, ensure compliance, and obtain taxes due faster. I’ll use the example of the software industry again, because it’s hardly surprising that the billion-dollar software industry makes for a fine tax target. As a result, the rules of sales tax are constantly changing and moreover, as the company grows (new products, staff or locations), more sales tax obligations are triggered.
All this means that at this very moment, your business may be engaging in activities that create nexus — the obligation to collect and remit sales tax in a state. And most certainly, if you have growth initiatives in 2018 you will face new triggers. Manually tracking and complying with evolving sales tax regulations is now impossible, and filing errors can lead to complex and time-consuming reconciliation efforts and fines. Therefore, CFOs should ensure that an automation tool is in place to be able to make tax compliance easy and that can scale with the business.
Meanwhile outside of the US, Brazil, India and other countries have established regulations requiring real-time reporting of transactions and full access to a company’s digital ledger, so they can reduce fraud and immediately reconcile actual tax obligations against the amounts received. CFOs should also begin preparing for a time when sharing a digital ledger in real-time becomes mandatory.
GDPR and Strategic Compliance
The EU’s General Data Protection Regulation (GDPR), which takes effect in May, is just one manifestation of the growing concern over the protection of personal information. In the case of GDPR, which essentially impacts any company anywhere doing business in the EU, failure to comply can lead to extensive fines – up to 4 percent of annual global turnover or €20 million.
While cost-avoidance may be reason enough to invest in the right technology to ensure compliance, a much more compelling reason exists. The foundation of GDPR compliance is a strong unified governance program that enables organizations to fully understand the value and location of the data they collect, then delete all information that has no regulatory, legal or business value, significantly reducing storage requirements and making it easier to access high-value data. By driving down costs, enabling more effective analytics, and making employees more efficient, a unified governance program based on the right tools can make businesses smarter and more competitive.
Many CFOs think of cybercrime as an IT risk covered by cyberinsurance. Unfortunately, the risks associated with today’s cybercrimes can’t be mitigated by transferring them to a third party. For example, while cyberinsurance may cover the fines associated with a data breach, those payments can’t cover the loss of reputation associated with the breach, and they won’t bring back angry customers.
Another increasingly common cyberattack, ransomware, encrypts an organization’s data. The attackers then demand a ransom before unencrypting the data. While this would also seem a straightforward financial transaction that insurance may cover, it’s not that simple. First, paying the ransom does not guarantee the attackers will actually unencrypt the data. Second, the ability of the attackers to deploy the ransomware could mean they were also able to deploy virus software, access personal information, or otherwise compromise the network.
Business email compromise (BEC), another form of attack in which attackers impersonate a high-level executive, can lead to fraudulent wire transfers, the theft of intellectual property, or the release of personal financial data.
It’s time for CFOs to recognize all the ramifications of cyberattacks and ensure IT is putting in the appropriate measures to protect data, employees, customers and partners.
While Blockchain is known for powering bitcoin and other cryptocurrencies, the underlying open ledger technology has practical uses in the enterprise. For example, blockchain can dramatically simplify the accounts receivable/ payable lifecycle. By eliminating the need for banks, credit card processing and paper-based invoicing, blockchain can accelerate reconciliation, increase transparency and simplify auditing. Blockchain can also be used for smart contracts, creating a far more efficient and transparent legal standard.
Because of the cost, efficiency and transparency benefits of blockchain, CFOs will eventually want to embrace this technology, but they will need to have confidence in the performance, reliability and security of the underlying technology. Once again, it’s important for CFOs to understand and weigh in on the technology solutions that will power this key operational infrastructure.
While some CFOs may hesitate to intrude on a CIO’s decision-making responsibility, a disconnect between these functional areas is no longer tenable. CFOs must work with their colleagues to get smarter about the technologies that power their businesses toward growth and away from risk. They must communicate their strategic goals and operational requirements to IT, and ensure technology purchases are positioning their organization for long-term success.
Avalara is a Gold sponsor of Zuora’s upcoming Subscribed conference, June 5-6 in San Francisco. Register now to join 1000+ subscription economy leaders at Subscribed and be sure to stop by the Avalara booth to learn how to get a grip on tax compliance.
Author John Sallese, Avalara
John Sallese has more than 24 years of tax compliance and audit experience. Before Avalara he worked at a Big 4 accounting firm, with other tax software providers, and in industries ranging from ecommerce and technology to manufacturing and telecommunications. Avalara helps businesses of all sizes achieve compliance with transaction taxes — including Zuora.
To read more about the ins and outs of tax compliance, download the “Sales and Use Tax Compliance for Dummies” ebook.