Compliance issue have fallen down the agenda in response to Covid-19, says Tony Thornbury, compliance head at Grant Thornton

Responding to Covid-19 has knocked global compliance issues down the agenda, exposing multinationals to further risk. By reviewing the management of compliance obligations and the role of outsourcing, firms can reduce risk and retain focus on core operations.

Global compliance has always presented a complex challenge for the finance teams of multinational organisations operating in many territories. Local laws, regulations and other domestic specialities make compliance a risky headache. 

But, for many finance and compliance teams, the global pandemic has increased the challenge of doing business in multiple jurisdictions, heightening the level of non-compliance risk. The crisis has shifted the priority for chief financial officers (CFO) and chief accounting officers (CAO) onto the near term – keeping operations going by enabling and adjusting to a remote working environment and carefully managing cashflow.

Business continuity is the priority. The speed with which the global pandemic arrived forced businesses into remote working environments quickly, and the primary focus of multinationals has been keeping the show on the road.

But the compliance risk is still very much alive and hasn’t diminished. In a time of competing priorities, global compliance issues may have been pushed down the list, but the risk of not complying in each country remains. And a lack of attention and adherence to the local requirements raises tax issues, fines and even director prosecutions. You may also face risk to your brand and reputation in those local markets too.

In Association with

The activities that may have been immediately de-prioritised in the wake of the pandemic are broad ,and bear various weight and significance across different jurisdictions. They include local GAAP filing, tax returns for local statutory reporting, sales tax compliance (VAT, GFC etc.), payroll administration, local country filings and myriad statistical returns depending on the territory.

Payroll is a particularly acute area at the moment. The speed with which government implemented complex mechanisms to support payroll systems and reduce unemployment posed a big challenge for compliance. These programmes have been pretty varied in different countries.

In these challenging times, with increasing pain points for compliance teams, CFOs and CAO are asking if the structures they have in place are as efficient or as robust as they could be.

Compliance is an enduring challenge

Ordinarily, for large corporates operating out of the US, GAAP reporting is the compliance function’s primary concern, while global compliance, although an essential legal requirement, is a secondary issue that follows.

Even at the best of times managing compliance is complicated and can distract business leaders from the core business operations. On top of the regulations in individual jurisdictions, organisations face a wider complexity including different languages, time zones, and multiple professional services firms in different countries supporting primary reporting, corporate tax and sales tax. 

Managing the myriad of issues with multiple suppliers is a headache, especially if you’re dealing with 50 or 60 countries with maybe 30 or 40 different local suppliers.

From an accounting technology perspective, multinationals often report their core countries on consistent Enterprise Resource Planning (ERP) systems, such as SAP or Oracle, for their leading markets. But sometimes it doesn’t make financial sense to implement the same ERP system in countries where the business is less established, and a local service provider uses a different financial reporting system. 

However, the greater the disconnect in the systems and underlying infrastructure, the more risk there is when trying to bridge a gap between the primary and secondary reporting infrastructures.

This risk has been heightened by an environment of remote working. A disparate workforce accessing diverse systems creates a cyber-security risk as well as a headache for compliance consistency.

By reconsidering how they manage their global compliance obligations more efficiently, businesses can mitigate the risk and return focus to core operations, critical at this time.

Centralise expertise across your international operations

As businesses assess the economic impact of Covid-19, there will be a period of reflection on future strategic opportunities and operating priorities, alongside how they build the resilience to recover. Addressing global compliance responsibility and the process can be an integral part of building that resilience by mitigating risk.

Anywhere that you have multiple jurisdiction trading requires rigorous project management. So having someone that can take compliance off your hands and manage it for you can be invaluable. Having a single point of contact within an international network firm who is available, close by and who speaks your language gives you confidence in the coordination and quality of your compliance reporting at a time when it’s difficult to feel in control.

For many international businesses, introducing a global compliance solution can help provide additional support. A good outsourced global compliance solution can help CFOs and CAOs have visibility of where and when all the filing requirements are coming up, help liaise with statutory auditors, get statutory accounts prepared, audited and tax filed and paid.

Drawing on their compliance expertise and experience with other businesses, a trusted outsourced partner can also help identify insight on how to enhance compliance processes and oversight.

Outsource to support international growth

For fast-growth firms who move across borders quickly, or those that expect international expansion once recovery returns, the need for outsourced support is most significant. Many corporates will enter markets with just a small sales team and may not want to – or indeed have the time – to set up a fully operational local compliance team, whether for accounting or payroll. In these situations, outsourcing can prove a useful tactic to help international businesses take leaps forward with speed and agility.

Indeed, the more countries a business goes to, the more it makes sense to outsource. The prevailing model for multinationals now is to try and centralise accounting administration functions and, as much as possible, minimise the accounting and administration requirement in the local territory.

In the current crisis, agility and scalability are critical attributes of resilience and recovery. At the moment, you may be looking to scale down rapidly but you will probably have to scale up again, relatively or equally as quickly. 

Doing so with your people in a market that is not familiar can be challenging, and you may not be able to do that as fast as you want. Outsourcing supports that, allowing the business to respond fast, taking all the related legal and labour issues out of the equation.

• Tony Thornbury (pictured) is Head of global compliance and reporting solutions for Grant Thornton and is based in Dublin