It's Time for Tax Leaders to Invest in AI

This article was originally published on AccountingToday.com on July 18, 2024. Reproduced with permission.

Most tax leaders understand that artificial intelligence will transform tax work by automating routine tasks, identifying patterns, and allowing tax professionals to focus on strategic work. However, many leaders are uncertain where and how to begin integrating AI into their tax processes.

They may have trouble finding the time to develop an AI roadmap and implementation plan. Limited budgets and high expectations may make it unclear where to begin investing in AI. Even with a plan in place, implementing AI without proper attention to change management or data security could create significant obstacles. Finally, tax teams must contend with busy seasons, when it will be even more challenging, if not impossible, to implement new technology and processes.   

The post-busy season period is the perfect time to prepare your tax organization for multiyear AI initiatives and implement strategies to unlock efficiencies in the near term. 

Develop a Strong Data Foundation

Many tax professionals know they cannot invest in AI without a mature tax data foundation. According to BDO's 2024 Tax Strategist Survey, the No. 1 reason tax professionals say tax technology initiatives underperform is because technology is implemented before data management processes are in place. Without clean, structured data, AI investments will not produce the intended results.

Tax leaders must institute strong data governance practices, including data management processes and quality controls. They should work closely with cross-functional business leaders to understand all business data sources, including ownership, accessibility and policies, and how they apply to tax. Then they should develop and implement established tax data strategies. 

Because data often originates in varying formats and from various systems, having a consistent data management methodology will help structure data for use by systems such as tax engines and compliance and provision software. With access to quality data, tax teams can drive strategic insights for their compliance and provision needs and reduce the time required for manual reconciliation of system outputs. 

High-quality data is also necessary for training AI models. Sophisticated tax teams are already experimenting with how AI can reveal higher-order strategic insights.

Foster AI in the Tax Function

Launching enterprise-wide AI initiatives is daunting for many companies. Even when an organization manages to launch such programs, the associated costs and complexities mean these initiatives are often the first to get cut when a company reassesses priorities. 

However, testing AI uses for specific business functions is more manageable and affordable. Because of their skills and interests, tax professionals are a natural fit to pilot AI. They have strong analytical skills and thrive on projects that require higher-order thinking and problem-solving, such as using data to drive strategic tax planning. 

AI-powered analytics can easily draw insights from the granular financial data that tax teams work with daily — sometimes even beyond human capabilities. Some programs can be deployed in a matter of weeks if a tax team has established both a strong data foundation and a plan for how processes will adapt to the new software. These programs include data analytics and visualization platforms, as well as compliance and provision software, that are enabled by AI and automation. Successfully launching these programs can yield immediate, tangible results, such as reduced time spent on compliance and provision work, and enhanced insights into tax planning opportunities.

By piloting AI within the tax function, tax professionals can prove AI's value to the larger organization with incremental successes and compounding financial impacts, demonstrate the return on investment that AI provides, and show why AI initiatives should be expanded to other business functions. 

Develop an Internal Communications Plan

Even the most promising AI initiatives can fail if they are not communicated effectively. Tax professionals may not understand why leadership is asking them to pick up side tasks that appear to deviate from their regular tax mandate. Leadership may not understand the ROI AI can provide and may hesitate to allocate resources. 

Tax professionals need to understand the short- and long-term goals of the project and how AI initiatives can make their work more rewarding. For example, when asking tax teams to follow a new data management methodology, it is important to explain that the methodology will result in fewer errors, enhance analysis, and reduce the time spent reconciling data. 

Tax teams should also develop a communications plan for tax AI initiatives to educate the C-suite and other senior business leaders on how AI and advanced analytics can potentially improve the company's total tax posture. Tax teams should consider supplementing their presentations to business leaders with examples of how similar organizations have used AI to reduce costs. An effective communications strategy backed by data can increase leadership's confidence that their investments in AI initiatives will result in returns. 

Finally, the tax team should communicate its successes to other business functions that might be considering how to integrate AI. Sharing both success stories and lessons learned helps foster cross-team ideation and positions the tax team as an internal center of innovation.

Hire or Designate Change Agents

Organizations often bring in external consultants to plan and launch tax AI initiatives. While consultants offer experience in implementing new data governance protocols and AI applications that in-house professionals may lack, AI plans will still require advocates within the organization to be successful. 

Consider designating or hiring at least one internal change agent who will champion AI, data analytics and innovation within the tax function. The change agent should be someone who has input into the AI rollout strategy but also has the trust and insight of junior employees. Consequently, change agents are often mid-level employees. They should listen to the needs of junior tax professionals and communicate those needs to leadership to inform strategy. This can help with employee buy-in at various levels of the tax team. 

Practice and Reinforce New Technology or Processes

Tax teams that begin implementing AI and technological innovation in the quieter months of the year should test their technology and processes and train their people so these new ways of working are not lost by the busy season. When professionals are stressed and facing time pressures, they may revert to methods they are familiar with, rather than using newer tools or processes that feel unproven or complicated.  

Tax leaders should work with their change agents, consultants and (if applicable) in-house IT departments to create a plan for testing new technologies and processes. For example, consider beta testing new technology with a pilot user group first to identify issues when using real data or in how the technology integrates with existing processes and systems. 

As they evaluate the new tool, teams should consider how processes need to change based on the functionality of the technology. Businesses can also form effective, cross-departmental focus groups, or task forces, to gather feedback and share success stories. Consider training as part of the change management and critical success strategy. Start with a few individuals in a pilot program who can provide early feedback on the new tech and identify common questions or concerns, so wider trainings can be more effective. 

Learning is reinforced when it can be immediately applied to day-to-day tasks. Leaders should confirm that trainings have immediately applicable takeaways. If employees cannot make immediate use of what they have learned, the information is likely to be forgotten before the busy season. Skills must be practiced and reinforced to increase the chances of successful adoption. 

Pave the Way for Future Innovation

Some business leaders may feel that AI innovation is still in its infancy and might not want to invest without a clear idea of how tax AI investments will pay off. 

However, investing in AI for the tax function now can lead to both near-term benefits and lay the groundwork for long-term transformation. By reinforcing a culture of innovation and laying a strong data foundation, organizations can build the architecture to adapt AI implementation strategies as technology matures. 

Implementing AI for the tax team is not a one-and-done process, but it also does not have to be as expensive or difficult as many may assume. The tax AI implementation process is about embracing a culture change of innovation to transform your tax team today and prepare for future transformation.

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