Midyear conference survey shows tax departments need additional resources to address tax risk needs.

Corporate tax departments appear to need additional resources from corporate senior management, particularly in the area of information technology, to effectively address tax risk issues in today's Sarbanes-Oxley environment, according to a survey conducted by KMPG LLP during TEI's 2006 Midyear Conference.

Supporting this conclusion is the survey's key finding that a majority of tax departments still rely heavily on manual tax-control processes, leaving them vulnerable to inaccuracies and reporting errors. In fact, three-quarters of tax-risk control processes are currently manual for 57 percent of respondents, while more than half are manual for 32 percent of respondents. The survey of nearly 300 tax directors, which was conducted with the help of hand-held audience response units, was part of a conference session featuring Steve Rainey and Brad Brown of KPMG.

"Continued reliance on manual processes clearly raises risks for tax departments in an increasingly regulated business environment," said Timothy McCormally, Executive Director of TEI. "The survey confirms that tax departments need more resources to respond to the growing demands being placed upon them."

Brad Brown, KPMG's National Tax Leader for Sarbanes-Oxley Section 404, concurred: "Tax departments tell us they want to update their tax control processes so that they can transform the business-unit-based financial information they currently receive into the legal-entity-based information they need for tax reporting purposes. Their focus is on enhancing their ability to deliver timely and accurate information internally and externally."

"Tax has been a source of material weaknesses as reported under Sarbanes-Oxley 404," Mr. Brown added. "There appears to be a disconnect between the resources allocated to tax departments and the demands of regulatory compliance."

"In the current environment, the entire organization can benefit if corporate senior managements provide their tax departments with additional support such as IT solutions, increased headcount, and skills training," Mr. Brown said.

Among other key findings: (1) More than half of the respondents cited tax technical and computational issues as the top risk areas to which they devote most of their time and resources; and (2) 74 percent of survey respondents said they believed that the level of "coordination between their departments and their external auditor has increased compared to two years ago, while only 24 percent reported that it "stayed about the same."

"Companies have made strides in providing support for their internal tax functions but more needs to be done," added TEI's McCormally. "As external demands increase--whether from the SEC or FASB for more transparency in financial statement reporting of tax liabilities or from the IRS and the States for reconciliation of book and tax results or e-filing of corporate tax returns--tax directors' responsibilities and profiles will continue to increase. In this environment, it is critical for senior management to ensure that tax departments receive their support for additional resources and have a seat at the table whenever tax interests are involved," he concluded.