What to do: Tax-related weaknesses on the rise

While companies (especially large cap companies) have made progress in reducing material weaknesses, one problem area sticks out: tax-related weaknesses. Financial Week notes that while the number of material weakness has dropped by 44 percent since 2005 (again this is mostly a large cap trend), tax-related material weaknesses have fallen by only 25 percent. What's more, incidences of tax-related weakness in the first six months of 2008 is up 12 percent compared with the first half of 2007--123 vs. 106. The sheer complexity of the issues involved can easily overwhelm a company's expertise. In such an environment, controls are going to be ineffective, if they exist at all. Regulators, however, are taking a closer look and building their expertise, so the issue cannot he ignored. Richard Larsen, global director for risk services at Ernst & Young, recommends hiring a tax risk coordinator, whose first task should be to conduct a thorough risk assessment. Ultimately, he or she will build controls into the process. Getting some tax expertise on the board would help as well. Article