In the past several years, we’ve seen an increasing trend of multinational corporations moving to a single global instance of SAP to maintain better visibility into operations around the globe and improve corporate governance. At the same time, governments throughout Latin America have implemented regimented e-invoicing and e-accounting requirements. The goals of each of these efforts are the same – increased visibility into financial operations. However, the two trends significantly counteract each other, making global implementation of SAP a distinct challenge in countries enforcing business-to-government compliance.
E-invoicing and e-accounting reporting requirements vary in mandated countries worldwide – affecting separate transactions and business operational units, detailing certain naming architectures and fields, having select character limits, etc. To adequately maintain compliance, SAP must be adapted to account for all of these irregularities. However, implementation of SAP in mandated countries is only a fraction of the compliance battle. Because regulations change swiftly, keeping transaction and reporting structures up-to-date with the latest requirements is an ongoing task.
For example, just this week, Mexico’s new Polizas reporting requirement goes into effect – requiring journal entry reports dating back to July 1, 2015. For effective compliance, it’s critical that a company’s ERP be the system of record for these – and all other – mandated reports. Leveraging a third-party solution or maintaining records outside of SAP leaves companies vulnerable to costly irregularities – the exact kind of discrepancies that trigger audits in Mexico and other countries with similar requirements.
When rolling out SAP in Mexico, it’s critical that the local template, e-invoicing transactions and mandatory government reporting are integrated. Any holes in the process leave companies at risk for significant fines and audits by the SAT (Mexican tax authority, equivalent to the IRS in the United States). Looking at the Polizas mandate specifically, a penalty of up to $3,368 MXN (approximately $200 USD) will be enforced for each transaction that should have been posted in the delinquent or inaccurate Polizas. That can add up quickly when you consider the dozens of transactions that may be tied to a single journal entry. Further, unreported income or taxable income adjustments uncovered through SAT audits carry even heftier penalties. In some cases, the interest, penalties and fines may very easily total 80% to 100% of the imposed tax deficiency.
The audit and penalty risks associated with compliance errors make it critical to implement SAP effectively in Mexico and other countries with business-to-government mandates. Despite the challenges and ongoing maintenance needed, managing compliance through your corporate ERP is the only way to minimize audit risk and ensure reporting accuracy.