7 Habitual Mistakes Companies Make – Chapter 7 (6)

TaxConnections Blog Post
Communication to Eliminate Tax Risk –
Breakdown of Communication

PERSONNEL OFTEN MISUNDERSTAND instructions or make mistakes due to overwork, carelessness, or distraction. Temporary or new personnel may also not be adequately trained on new processes they have been introduced to. All of which contributes to the creation of additional unnecessary risks.

Breakdown can be avoided by careful and consistent communication, especially to new and temporary personnel.

Innermetrix ©

IN THE PROCESS of implementing the tax risk management system, in order to minimize tax risk on an ongoing basis, it will be necessary to implement a communication system between the tax compliance division, the financial accounting divisions, the transaction division, and the operations of the business. The communication process will require frequent documentation, which attempts to highlight any tax risk that has developed in each of the mentioned divisions, to the tax compliance division, through a systematic series of questionnaires generated by the tax compliance division.

The reliability of the information gathered from key personnel, in the various divisions by means of these questionnaires, will depend on the integrity of those key individuals which can be measured by paying attention to a number of personality traits of each individual:

• attitude to compliance
• attention to detail
• following directions
• respect for policies
• role awareness
• practical thinking
• consistency and reliability
• meeting standards
• personal accountability
• systems judgment

These subjective factors can be measured in each individual participating in the tax risk management system by putting them through the Innermetrix © process which takes each individual no more than fifteen minutes to complete. This process will provide the BO/CFO and tax manager with a report setting out the relevant strengths and weaknesses of each individual who participates in answering the questionnaires, in a procedure designed to maximize accuracy and limit the manifestation of the material weaknesses that regulatory authorities, like the IRS, are permanently trying to eradicate.

For instance, if an individual scores high on a majority of these subjective indicators, there is an assurance that he or she will take the process seriously and give accurate and complete information on a regular basis. If the score shows a weakness in a number of these subjective indicators, then management will have the opportunity through an initial training process to emphasize the significance of accurate and complete information, and they will also know which questionnaires that have been submitted to them need to be scrutinized with greater care to ensure that the participant has completed his or her task properly.

For example, if a participant shows a weakness in many areas, the tax manager would always telephone that individual after the completion of each questionnaire to discuss the answers given. In this way the tax manager can ensure that the proper attention had been given to the questionnaire by that individual.

Through this management process the individuals showing any weaknesses will usually, through a process of interaction and teaching, improve those weaknesses and as such become more reliable in the information that they provide.

The Innermetrix © testing will be repeated six monthly so as to keep monitoring any changes in the strengths and weaknesses of these personality traits. The test can be accessed at www.innermetrix .com.

In accordance with Circular 230 Disclosure

International Tax Attorney, EA, US Tax Court Practitioner in the USA, Counsel of the High Court in South Africa, adjunct Professor of International Tax at Thomas Jefferson School of Law.

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