Navigating the Automation Journey on a Budget 

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All tax departments either have begun or should be beginning the exciting and game-changing journey to automate their operations. But what does this really mean, from a practical budgetary perspective and from a mission-driven one? To find out, we interviewed two professionals in this arena, Mindy McGlaughlin, CPA and director of tax transformation, and Kelly Necessary, CPA and partner, tax transformation, at Dixon Hughes Goodman LLP. Michael Levin-Epstein, senior editor of Tax Executive, moderated the discussion in late February.

Michael Levin-Epstein: How should tax departments begin the automation journey on a budget?

Mindy McGlaughlin: I think the first step is to determine if they have room in their budget for automation, how much discretionary budget they have to spend. And then I think it’s important for a VP of tax or somebody that they designate to talk to the different stakeholders in the tax department and really understand where their pain points are when it comes to manual processes and data. Then, based on those conversations, they need to ask things like “How much time are you spending gathering that data or on this piece of the process?” They want really to determine what they’re doing manually and how much time they can potentially save. They want to do this to determine their return on investment. They want to look for—especially on a budget—low-hanging fruit, or those processes or parts of processes where you’re spending the most time doing that manually, because that’s where you’ll have the most time savings. This will allow them to come up with a list of opportunities for automation, and they can prioritize those based on which take the most time and potentially [pose] the highest risk to the department if there were to be a mistake because it’s being done manually.

Levin-Epstein: Kelly, anything to add to that?

Kelly Necessary: I would add that, as tax teams are looking within their department operations and assessing pain points, they might also want to talk to their IT or finance leaders to investigate and understand what different tools and technologies they might have at their disposal already within the enterprise. Clients can save external consulting budget on automation by utilizing tools and technologies already available to them within their organization.

Securing a Budget

Levin-Epstein: How can our members at TEI secure a budget for automation?

Necessary: Without a doubt, the most optimal way of securing budget for automation is to apply a return on investment to each one of the pain points that are identified. I would suggest starting with the highest pain point that is able to be implemented at the lowest cost or at a cost within the current budget. Oftentimes people would like to address the highest pain point, but it tends to be at too high a cost. So, find that one that will give some relief but is the least expensive. Automation journeys often gain a lot of momentum as tax teams begin to experience the benefits. We’ve also seen tax departments team up or tie automation initiatives to current company initiatives. You can look to your finance department or another enterprise operating group for a companywide automation project using similar data. Maybe there’s an overlap between what the CFO team is implementing on an ERP system and an improvement that would also benefit tax. Another way is to find those tools and technologies that the enterprise is using in another area and show interest by asking to apply those tools and technologies in tax.

Levin-Epstein: Mindy, anything to add?

McGlaughlin: I think, especially with smaller tax departments, there’s a lot of pressure to not spend money—to cut budgets—but in order to cut a budget and have a sustainable tax department, often they have no choice but to do automation to increase efficiency. So often it’s showing leadership that in order to meet budget targets, certain automations need to be completed.

The Importance of ROI

Levin-Epstein: Anyone who has budget authority over automation is going to want to know what the return on investment will be. What’s your advice on estimating ROI?

McGlaughlin: There are different types of ROI. There’s ROI that’s very tangible, quantitative, right? That’s hours saved in a department. You can look at the hours you’re saving in a process and that’s part of your return on investment. But there’s also a more subjective ROI: how are we managing risk? Kelly and I just recently did a proposal for a client, and they would save quite a few hours by doing the automation project, but they were also able to, over time, reduce their reserves that they were calculating, so there was also the reduction in reserves. On another very large project I’m doing for a client for a data lake, what they were able to prove is that, by having better data for R&D purposes, their R&D credits would be quite a bit larger. It’s not just looking at the hours saved; it’s looking at risk, and it’s also looking at the impact on deductions or credits that you can get through automation by having better data, quicker access to that data as well.

Levin-Epstein: Kelly?

Necessary: I would add that it’s a lot easier to secure budget if you tie the return on investment to something that is interesting to your CFO or to your executives within tax. For example, some of the questions you might ask are, “Are we more focused on cash taxes, or are we really focused on reducing our rate?” and “Did we recently get an assessment on an audit that was either a large cash or reserve item?” Tying your return on investment to areas of interest within your company culture may get the attention of your leadership and could get looked at as a more valuable return on investment.

Levin-Epstein: Have you seen some creativity in terms of calculating return on investment?

Necessary: In my experience, return on investment is very customized for each client’s facts. We had one client who wanted to bring some of the data manipulation in-house, in order to stabilize controls. They used the reduced consulting dollars spent to fund the implementation of automation. As you know, you can take a one-time cost for implementation, and it can provide an annuity as it relates to the return on investment. That’s one way to save consulting dollars, use some of that money for implementation, and then net over, say, a two- to four-year payback period [and] have that benefit from a cash perspective, but also get the automation benefits into perpetuity. Also, given our aging workforce within tax organizations and as tax department professionals retire, we’ve seen companies use the salary of the retiree to fund automation projects. Given the benefits, these companies don’t need to replace that retired professional—they can take the money, build a return on investment, and realize in perpetuity the benefits from that automation.

Levin-Epstein: Those are all really good points. Finally, what specific tips do you give your clients in terms of how they should proceed in beginning the journey toward fuller automation?

McGlaughlin: I think one of the tips is what Kelly said up front: look at what’s available to your tax department. For example, your enterprise may have Power BI or Tableau available for visualization or Alteryx for workflows. Look at what you have available so you don’t incur additional license fees, but also go out to your third-party providers, the consulting firms you work with. Ask them to come in and train your team on some of these tools. Also, when you do that, ask them to make that investment with you so that it’s a free training perhaps or lower-cost training, and give them one of your pain points so that you’re actually solving one of your [own] pain points in the training and your people are seeing the immediate return on investment that automation can [provide] to your group. This will get your people excited about doing further automations with these tools once they’re trained on it. So, I think that’s really important—get the consulting firms you’re working with to make that investment in your department. I think that’s one tip. Another tip is to show your leadership that return on investment. Make sure that it’s measurable and that you can go back and show the VP of tax or maybe even the CFO what the rate of return was, and they can see, like Kelly pointed out, that annuity over time so that they’ll be more willing to know that they may have to invest dollars to save dollars later.

Levin-Epstein: Kelly, you’ve got the last word.

Necessary: As we expand technologies available for automation, tax departments should understand that we’re moving more and more toward the model of self-service. I would advise that they dedicate someone in their tax department—or a part of someone who is passionate about technology—to really explore some of the self-service technologies, because I believe that’s where we’re going.

Levin-Epstein: That’s a good way to end this discussion. Thank you both.

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