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Abu Dhabi, UAEMonday 17 December 2018

Don't forget IT in your VAT preparations

While the primary focus for many businesses planning for the implementation of VAT is their accounting processes, they are often overlooking their IT requirements

Events dear boy. Events.

I should be a few articles into specific industry reviews, but a week is becoming a long time in "VAT World".

Value added tax (VAT) World is not a new Netflix series, but you will be seeing it everywhere in the UAE from January 1, 2018. On the same day it will be showcasing in Saudi Arabia, who on May 29 published their draft VAT law. Do not mistake this for the GCC framework, that was issued in April this year. The rest of the GCC has "it is coming soon" festooned on it.

As VAT is primarily about processes, information technology (IT) is a critical pillar upon which your solution will stand, in many cases more so than finance. In the last few weeks we have seen how open these infrastructures are to threats from external forces.

IT is not a slave to your needs, but a millstone you wear around your entity’s neck as you navigate the ebbs and flows of transactions. What is almost satirical is that each entity is responsible for its own ensnarement. Whatever culpable third party helped attach the mechanism, did so at the entity’s request and expense.

On May 12 we saw the "WannaCry" virus, without any apparent focus, attack IT systems across the world. Chaos reigned for days. The National Health Services, the UK’s public health service, the world’s largest such employer, was forced into emergency measures as its systems locked them out. Where large entities catch colds, smaller ones suffer pneumonia. Sometimes fatally.

Why today’s focus on IT systems? I’m concerned that where VAT projects have begun, the primary focus is on accounting processes potentially masking the enormity of IT solution requirements. The fact is many companies have systems that would qualify for display in museums.

If you require a new solution, you're probably too late to get it launched on time, both from the perspective of time to delivery and availability of competent manpower. There is time to put in place standalone systems, with a focus on solid interfaces to ensure integrity. There might even be time to deploy individual modules of enterprise resource planning (ERP) but this risks compliance leakages and with that fines.

Ever since ERP won the systems war, standalone software has been waging an asymmetric fightback, its adherents seen as eccentric antiquarians. Yet when I worked in a division of WPP, one of the world's largest marketing companies and an employer of a quarter of a million people, it delegated these system decisions to its many constituent entities. End of period reporting was via a common platform, but the requirements were manageable.

ERP is one of those anacronyms most people can successfully decompress, but when pressed fundamentally don’t understand what it is. Training and ongoing interaction means individuals understand up to the extremities of their interaction, but this leaves them unable to see the wood for the trees.

If you’ve ever been told a system change was impossible and that you wouldn’t understand why, it’s not because you’re talking to a stroppy teenager. The internal ERP team are conscious of the limitations - limitations not expected when some well-attired individual convinced your company that it could achieve material efficiencies by implementing their ERP software.

Imagine your entity is an apartment building and a decision is made to manage all its functions using a single end-to-end software solution. An external team is matched to one of yours and having mapped all the process flows, these are digitised and voila! Your entity is now operating with enhanced material efficiency.

Apartments on the first floor don’t want air conditioning but the ground and second floor do. Post completion, the residents on the first floor complain that the temperature is so icy they need to keep all their windows open. This has led to nimble thieves climbing in and stealing their possessions. You get the idea.

Like this imaginarium, individual process owners very often don’t work together and their requirements are driven by their own localised needs. They probably missed the meetings that dealt with other functions up and down the company's supply chain.

Worse, rather than try to ensure congruence across the project, with time and cost pressures piling, your consultants often find it easier to deliver a complete but disjointed project and rely on the one certainty that will follow the ERP’s launch: change.

Entities change and that change shunts processes. Doesn’t work well for trains and little better for organisations. Welcome to the world of spreadsheets, where tweaks to solid state information begins and with it human error - adding to the developing IT ones.

Solutions may be priced to include change requests, but we return to the selfish requests of individuals and internal ERP boffins advising that solution fixes cannot work because they will make someone else’s solution up or down stream even worse.

As internal tinkering with the system architecture will probably invalidate your warranty, better give that well attired consultant a call. At some point the dirham will drop that your ERP has become the life support machine of your entity.

For those who are operating on unsupported versions of your software, chief executives - ask (in writing) whether yours is - there are some brands that have begun removing the patches that were readily available to encourage migration to one of their supported products. This upgrade isn’t always free.

In simpler environments, that decides that ERP is the only route they are willing to countenance, a partial launch of a new or upgraded system that captures the main VAT elements might suffice. As VAT compliance is about processes and it permeates right through an entity, this might not even be possible for complex ones.

Your "VAT World" season one cliffhanger should be dull enough not to warrant a second season and not fade out with the VAT antagonist hollering "I’ll be back".

David Daly is a chartered accountant [CIMA] who leads a consultancy practice in the UAE