Automation Helps Ease Regulatory Compliance

This document provides a broad overview of a business organization’s regulatory systems and potential of areas of automation within the same enabling a high level of compliance.

The Systems Staircase — A Viewpoint of an Organization’s layered IT Systems

Depending on an organization’s information systems maturity, it could have a mix of manual, semi-automated & automated systems — electronic spreadsheets, standalone software packages, integrated ERP (Enterprise Resource Planning) software & EAI (Enterprise Application Integration) software. These systems could either be onsite, internet cloud based or hybrid (mix of onsite and cloud) and accessible via both mobile devices and non-mobile computers.

Ensuring that these systems are up-to-date & relevant to serve an organization’s changing information needs is an uphill steep task. One can visualize an organization’s existing information systems as a steep systems staircase as shown above.

Based on its business verticals and geographies of operation, the organizational regulatory systems can be visualized to exchange both data & monies. These are shown in the image below which is specific to India based organizations. But the same principles can be extended to other non-Indian organizations also. Examples of exchange of regulatory data and monies include:

Some Regulatory Information & Money Flows Between an Indian organization & it’s regulators

(i) Tax payments, interest payments, fines, etc. with regulators either directly or via external regulatory supplier intermediaries such as Chartered Accountants (CA’s), Tax Advisors, etc.

(ii) Regulatory data is the organization’s financials, tax returns — both direct taxes like income tax and indirect taxes like GST (Goods & Services Tax), providing payment details, tax assessments & responding to audits and other queries as regards reconciliation with external entities such as suppliers & customers.

(iii) Various Indian regulatory entities are MCA — Ministry of Company Affairs (for reporting corporate financial data), Income Tax, GST authorities, EPF — Employee Provident Fund, ESIC — Employee State Insurance Corporation, ELWF — Employee Labour Welfare Fund & others.

(iv) Overseas regulators such as European Union’s DPA (Data Protection Authority) for Indian companies doing business in Europe as per the recent GDPR (General Data Protection Regulation) guidelines.

Automation can benefit regulatory systems in the following six areas using a layered approach :

A Layered Automation Approach For Regulatory Systems

(i) Organization’s Policies & Procedures – Creation of company, department, function wise policies & procedure manuals which can be made available to existing and new employees in Web HTML and Adobe PDF formats on the proposed intranet. This will help reduce new employee training & on-boarding costs and also drive uniformity & compliance at all locations.

(ii) Information Systems (IS) Level (Processes, Controls & Alerts) – Work with your functional and IT team to identify the processes within your existing information systems where additional controls and alerts can be incorporated to ensure better compliance. This necessarily assumes that your organization has access to the various source codes and / or configuration settings in the information systems.

(iii) Interfaces between Core Accounting & Other Regulatory Reporting Systems to help reduce unnecessary & repeated data entry. Detailed schematics to further illustrate the linkages between the core accounting & other allied add-on systems can be done. If required, Robotic Process Automation (RPA) tools can be used.

(iv) Customer and Supplier Web Interfaces for Reporting & Reconciliation via Extranet - Customer and supplier ledger accounting statements can be exported from the accounting software and published in secure customer and supplier portals respectively in either Excel or HTML format for them to access via the Extranet. Once the company auditing has been finally completed, these frozen accounting records are then republished for lifetime access by the concerned customer or supplier for all their future queries by either Income Tax or GST authorities. We have found that even the internal company staff find access to these records easy as it is at a single central location. Of course, this access has to be secure and safe to prevent any unauthorized access.

(v) Owner and Employee Web Interfaces for Reporting & Reconciliation via Intranet - Similarly, all employee related accounting and payroll related matters can be provided to them via secure access on an internal web based intranet. This will help reduce the administrative load on the HR department and also improve the employee satisfaction levels. A similar communication network can also be setup for the owners of the company. There are tools that are better equipped to the workplace than WhatsApp and can help create a modern communications hub for all team work in the organization.

(vi) Management (Notifications & Alerts) – It is possible to create an information layer on top of your existing information systems to notify management of important events happening within the organization based on escalation policies. This will be the EAI (Enterprise Application Integration) layer as shown in the visual earlier. Based on the capabilities of your existing information systems, the same can be integrated with them as well as the proposed Intranet and Extranet.

Automation of Reconciliation between Regulatory Information Systems depicted via four examples below :

Automation of Reconciliation of Information Between Different Regulatory Reporting Authorities

(i) The internal accounting system and external reporting systems — Income Tax ITR & XML formats, MCA Annual Financial Reporting Excel & PDF Documents, MVAT & Service Tax Returns reporting, etc.

(ii) Organization’s systems and external entities like customers & suppliers — MVAT J1/J2 Sales / Purchase returns and reconciliation between external accounting entities accounting records and an organization. This facility can also be provided on the organizations extranet on the customer and supplier portal respectively as mentioned earlier. The same can also be done for GST.

(iii) Transactions between an organization’s accounting system & linked entities — It is possible to automate entry of accounting transactions in the organization’s owner personal accounting software based on entries made in the organization’s core accounting system for linked transactions. This of course depends on the software used for the organization’s accounting & director’s personal accounting systems.

(iv) Automatic Import of Accounting Bank Transactions from Bank Website directly into the organization’s accounting software. This helps us minimize data entry and time for the same. As most of the banks use the same back end software, the same can be done for other banks too. Of course, the accounting system used by the organization has to allow the same. The visual above partly depicts the same.

An overview summary of the above visuals are shown below :

Summary of Automation of Regulatory Compliance Activities in an organization

In summary, automation of an organization’s compliance activities can be accomplished using a layered approach. As business complexity and global regulation increase, automation can help ease the pain in these areas.

Engineer, MBA (Finance) - Entrepreneurship, Software Architecture, Business, Management, IT Consulting, Advisory & Mentoring services.