For many of your peers, the pandemic exposed areas of their financial systems that were out of date, especially when it came to month-end close.
For example, research by Robert Half found almost seven out of 10 companies rely on spreadsheets to control financial close and cover any gaps in their reporting process (which are probably caused by errors within the spreadsheet).
In its 2022 Financial Close Benchmark Report, accounting software company Trintech asked 160 Finance leaders about what their biggest challenges are concerning month-end close – and why they might consider automating their company’s financial close. Here’s what they said were the biggest pain points over the past 12 months:
- Meeting deadlines/time pressure, 52%
- Providing analysis to gain business-critical insights, 40%
- Reduced team size, 31%
- Visibility over core KPIs, 24%
- Cost pressures, 18%, and
- Remote work, 16%.
In a Controllers Council webinar, David Woodall, FCCA, director of strategic marketing, record to report (R2R) and finance operations at Trintech, said fintech that’s on the market can help manage each of these challenges and close quicker with confidence. Some eye-opening ROI data that he presented on digital transformation of the financial close process:
- 99% of businesses reduced the time spent completing reconciliations
- 76% reported a reduction in losses
- 62% had a reduction in write-offs
- 60% reduced the time spent on supporting external audits, and
- 40% reduced the time spent on internal audits.
More good news: The transformation from manual month-end close to digitization to standardization and process optimization to automation can be done in stages, and doesn’t have to be a “big bang approach that revolutionizes the organization overnight.”
“It’s worth reflecting (on) that you can influence the pace of change,” he said.
Prepare for a modern month-end close
The first move toward digital maturity, Woodall said, is collaborating with your IT team to align your people, processes, policy and technology.
To build a foundation for leveraging the capability of modern technology to manage financial data, your people must first develop standardized month-end close processes, which can then be automated. The time saved can free your people up to identify profit-generating new opportunities that drive growth.
Cultivating a culture of continuous improvement also requires effective processes that support the organization’s control framework, Woodall commented.
And when effective policies are created with tech in mind, it can lead to automated controls and reduced workloads, which then builds confidence among your internal audit teams and among external auditors, he said.
Digital, risk-based approach
Woodall said that what’s hampering a lot of Finance departments in their financial reporting is multiple and fragmented IT solutions – or business requirements that are driven by internal stakeholders, internal audits or a manual control framework – that can’t be supported by their existing enterprise resource planning platform (ERP).
“Documents are flying around with different comments in Word documents and Excel spreadsheets, messages incorporated from telephone calls, multiple levels of communication between each of the participants … adding no strategic value to the organization,” he said.
Adopting a digital strategy that incorporates an ERP system can streamline those high-touch processes and provide improved visibility and transparency into your Finance operations, while also reducing errors from reliance on spreadsheets.
An evolution to digitizing your monthly close also means updating risk management strategy for how to proactively handle high balances or transactions that need investigation, including setting thresholds.
One of the major benefits of automation is that reconciliations can be completed throughout the month prior to month-end, keeping the balance sheet tidy continuously.
Standardize processes across entities, locations
If you have sites in different states, or even different countries, how do you know that your data management processes and internal controls are being applied across the organization?
Some key actions to take in standardizing your month-end close processes:
- Collate: Identify all tasks and activities from across various operating models. And in collaboration with your compliance team, identify related statutory activities from the local level to the international level that impact the business.
- Analyze: How business-critical are these activities?
- Standardize: Align activities with a common reference with clarity of the process, dependencies and an expected delivery standard.
- Document: Ensure that streamlined processes are fully understood, including exception handling, and ensure the details are outlined in a written standard operating procedure.
- Automate: Use technology to automate rule-based activities and controls to ensure consistency.
Optimize month-end close with automation
Once the stakeholders are engaged because they understand how digital tools make their jobs easier, there may be an opportunity to take it to the next level by adopting:
- Risk-intelligent routing: Identify the amount of reconciling items and route approvals to additional reviewers or a higher authority.
- Automation of remediation: Ensure that control test failures automatically trigger a control to go through remediation prior to being tested again.
- Artificial Intelligence (AI): Explore and embrace opportunities to deploy AI to compliment your existing control framework.
- Data integration: Move data with extract, transform and load capability to drive more automated reconciliations.
Digitally transforming your month-end close process can have ripple effects that break down silos in your organization. For instance, it can get you thinking about how to use automation tech to simplify workflows and data entry among your non-Finance teams.