In a recent survey EY performed of 47 banks in the US and Canada, focused on operational risks, 69% cited data quality issues as the top driver of excess time spent in their operational processes, and less than 50% indicated that they had predictive analytics to help in early identification of potential issues1. Consistent data input errors, incorrect data mappings and high volumes of manual interventions in automated processes can be primary drivers of reporting anomalies that could be identified through year-to-year comparisons.
Reevaluate firm risk. There are financial penalties for noncompliance, with penalties up to $270 per form for failures to file, but many current evaluations of risk stop at these fines, because in most cases the fines are capped at $3.3m per entity. That underweights the risks in two critical ways. In severe cases where there is intentional disregard on the part of an organization, those fines rise to $550 per form with no cap. Perhaps more importantly in the current environment, the risk of fines significantly underrepresents the potential reputational risks to the organization and impact to customers, especially in situations where corrections to statements are required2.
Failure to adequately consider the client impacts may lead to significant dissatisfaction and ultimately client defections over a poor process. Late, incorrect or amended forms being supplied to clients can result in clients having to amend their own income tax returns, incurring additional charges from their accountants. If they don’t amend their returns, clients may receive automated audit notices from IRS systems.
Regardless of if the reporting is completed accurately, if clients are receiving information returns without adequate communications, there is a risk that they may disregard them. For example, recent increases in customers receiving Forms 1099 for incentive programs and other promotions without sufficient advance communications have created confusion and dissatisfaction.
Increase efficiency through automation. The proliferation of highly configurable automation tools, typically referred to as “robotics,” creates significant opportunities to increase efficiency in your customer tax reporting operation. These tools can improve operational functions leading to standardized and consistent performance. The result is a simultaneous increase in efficiency, with a reduction in the risks of human errors associated with data entry and manual processing.
Robotics can fully automate repetitive steps and complex reporting and withholding rules. Automated tools can also facilitate the review of data to identify issues and inconsistencies, either as a part of routine ongoing testing or year-end reporting checkouts. This reduces the burdens associated with resource intensive and time-consuming processes.
The views reflected in this article are those of the author and do not necessarily reflect the views of the global EY organization or its member firms.
This article originally appeared on Bank News.