A guide to using Excel as financial accounting software
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Tax provisioning software has come a long way, and the myriad companies that are clinging to the spreadsheet-intensive approach of yesteryear for computing tax liabilities might want to get hip. Growing tax complexity and the always increasing pace of marketplace change combined with advances in technology make automated, software-enabled tax computations a smart investment.
In this story, we highlight three companies -- Molex Inc., Caesars Entertainment, and GATX Corp. -- that have figured this out, with each in the process of learning just how much better life with a good tax provisioning software package can be.
Molex eases integration woes with Corptax
Up until a couple years ago, tax provisioning -- in which a company calculates its current and future tax liabilities -- was an overwhelming process for Molex.
With 10 legal entities and 60 foreign entities, the $3.6 billion maker of electronic components based in Lisle, Illinois, was drowning in manual tax-processing tasks. As reporting deadlines approached, packages of Excel spreadsheets filled with tax information from all those entities would start arriving via email or the company's SharePoint environment. As many as five people -- more than half of the nine-person tax department -- would devote their time to acknowledging receipt, reviewing the data and manually entering it into the company's financial system.
Some of the packages from larger, more complex entities would go through as many as three levels of review before they were deemed ready for reporting. And this was often after an entity had its numbers reviewed by a third-party tax firm before submitting them to the corporate tax staff.
"There was no consistency around naming conventions and things like that, so keying in data took a long time," said Natalie Setter, a senior tax accountant at Molex. "It was a headache, and we had a lot of late nights and weekends."
Eventually, the headache turned into a migraine.
"We had two really hard year-end closes that opened everyone's eyes that we really needed to get a system to manage it," Setter said. "We knew there had to be a better way."
That better way was the emerging category of tax provisioning software. In fact, Molex had already worked with compliance software from Corptax, one of the best-known makers of tax provisioning applications, for several years, so it was only logical that the company eventually adopted Corptax's tax system to ease its integration burden.
The two years since deploying Corptax have been as if Molex had suddenly switched on a light, according to Setter. The cloud-based interface has enabled the company to create a unified format for data submission that ensures the tax information coming from all of its entities conforms to corporate guidelines and is automatically uploaded into the system.
"The amount of time it saves on data entry has been huge for us," Setter said.
But despite that progress, Molex finds itself with more work to do on the tax-provisioning front. It was acquired last year by Koch Industries, which doesn't use tax-provisioning software yet, so merging the two companies' processes is top of mind. Meanwhile, Setter said, her team would also like to start using Corptax's capabilities on the state level to break its provisioning work into smaller chunks.
Onesource cuts back on close time for Caesars
Like Molex, Las Vegas-based Caesars Entertainment also relied on spreadsheets for its provisioning processes a bit longer than it should have, leading to what Craig Fjelsted, director of tax reporting and compliance, described as a "significant deficiency" in its deferred tax calculations in 2009.
"It got out of hand," Fjelsted said. "It was a massive workbook of several hundred different Excel tabs and hundreds of different files. It was all this desegregated stuff without a repository for how it was calculated, and you ended up with a mess."
Caesars was contending with 350 legal entities, 100 of them foreign, and because of the combination of gaming industry regulations and complex debt financing, it had to file four 10-Ks with the Securities and Exchange Commission, as well as numerous breakouts for debt guarantors.
In 2010, Fjelsted was brought on as part of a new tax team hired primarily to help the company implement technology to assuage this problem. In fact, the company had already decided to acquire Thompson Reuters' entire Onesource suite of tax applications; Fjelsted said his team simply finalized the sales process.
And it's a good thing it did, as the complexity has continued to mount. Today, with Onesource's automated capabilities replacing the spreadsheet logjam, Caesars is adding as many 50 legal entities a year and deleting as many as 20, and every deferred tax asset and debt financing detail has to be tied to the right entity.
"There's no way we could do what we're doing now in Excel," Fjelsted said. "The spreadsheets would be so unmanageable, it would be crazy."
In particular, he said, Onesource's capabilities line up well with Caesars' deferred tax liabilities, which are one of the biggest categories of liabilities on the company's balance sheet.
What's most important, however, is that the move from manual to automated, application-based spreadsheets has enabled Fjelsted and his team to focus on analyzing the data and reducing the potential exposure to risk instead of sweating the numbers themselves. And they're able to get those pesky closings done quicker.
"Our quarterly close processes went from a solid two weeks to a couple of days, and we probably could do it in a day," Fjelsted said. "The technology has helped us to not be so totally out of control."
Excel standardization project ditched for Longview
Moving away from Excel was a suggestion the tax team at GATX Corp. at first regarded as undesirable. The Chicago-based company, which leases industrial equipment, had long used the same Excel-based process for determining its sizeable depreciation computations. It broke up the business into four segments, and the accounting and tax groups would split up calculation duties while the tax team checked accuracy across the board.
As it became apparent that a lack of consistency between the Excel schedules was slowing the process to a crawl, the company attempted to standardize them to allow for better comparisons across segments. But after a few years, it was clear that the manual data-entry burden was just too heavy, according to Richard Slinko, senior manager of domestic tax.
So, in 2012 the company pulled the plug on its Excel standardization effort and invited some of the top tax-provisioning vendors -- Corptax, ThomsonReuters, Longview and Vertex -- to bid for the business, bringing the entire tax department into each presentation. Ultimately, Slinko said GATX chose Longview because of its ability to slice and dice data and allow for reporting on multiple levels.
The company will go live on Longview for its domestic operations in the coming months, and the deployment is being handled in a way that will enable GATX to add its international operations down the line without having to reconfigure the system, Slinko said. Based on a test in which the company used Longview to recreate its closing process for the last three quarters of 2013 to compare the results, Slinko expects to slash 50% off the time it currently takes to complete the tax provisioning process in Excel.
"We're able to find things using Longview that we wouldn't have found out in our old process until we were almost done," he said.
And that's a significant potential improvement for a company that's under increasing pressure to speed up reporting processes and get tax provision schedules into the hands of external auditors.
"We're going to be able to react to changing business circumstances instantly," Slinko said. "It will help with tightening internal controls, and it will make auditors happy."
And, as many tax professionals will tell you, that alone might be enough to make the investment in tax provisioning software worth it.
About the author:
Tony Kontzer has been writing about technology and business for nearly 20 years and currently freelances from his home in the San Francisco Bay area community of Albany. A 1988 graduate of the University of Missouri-Columbia School of Journalism, Tony spends his spare time relaxing with his wife, playing with his three sons, tinkering around his home, and when time allows, playing saxophone and traveling. His somewhat infrequent Twitter posts can be found at @tkontzer.