As with every New Year, January marks a particularly busy month for two sets of professionals: personal trainers and accountants. Gyms are at their busiest at the beginning of each year, packed with people wishing to stick to their New Year’s resolution to lose weight. Accountants, on the other hand, are spending many hours in the office trying to tie up year end. As much as any financial controller tries to prepare, year end always ends up being a battle of time versus a multitude of tasks.
Big Data and Lean Processes
We live in the digital age where the importance of big data has become more salient than ever. Companies have come to rely on business intelligence to scour through vast data lakes in order to drive business strategy and increase profits. However, this increase in data volume impacts all departments, many of which still rely largely on manual processes. None of these are as critical to success as the financial control function. CFOs and Heads of Finance will no doubt appreciate that their teams are recipients of data outputs from a variety of sources, which are then consolidated for financial and management reporting purposes – often relying on hours of dedicated data mining and formatting by overqualified accountants.
This juxtaposition between the use of highly automated business intelligence to create strategy and revenue versus the manual, laborious approach taken by the back office could not be more striking in 2018. Often, the real casualties in this scenario are data integrity and financial intelligence. For most companies, the effort required to complete key accounting and finance tasks erodes time that could be used to ensure the integrity of the data and deliver continuous management information that adds value, such as liquidity and budget forecasting.
Gaining financial control means getting ahead of the many period end processes and gaining efficiencies in the routine tasks, such as intercompany or expense management, in order to produce reports that add value to your business.
Regulation as a driver
In addition to the pressures to gain efficiencies and data integrity, many of the recent regulations have started to focus on tightening controls, increasing the need for transparency and reducing operational risk. While many firms have decided to tackle each of the regulations in a siloed approach, the true nature and purpose of the regimes is to drive out process deficiencies, enhance internal controls and demonstrate auditability by making firms more accountable for their data. The Senior Management and Certification Regime (SMCR) requires effective controls and complete oversight of delegated responsibilities, thereby placing ownership of underlying processes with senior management. A regulatory requirement such as this should therefore be welcomed by finance controllers as it provides the opportunity for much needed transformation and automation.
The end of the spreadsheet? Surely not!
Without a doubt, gaining control requires automation. It would be easy to suggest that this could herald the end of the trusty old spreadsheet. For many this is not true, and a frightening thought. But consider this: as data volumes grow, the limitations of spreadsheets becomes all too apparent. For many finance professionals, spreadsheets are the primary tool of choice for ad-hoc scenarios. It goes without saying that most financial controllers are highly adept at using systems such as Excel, Numbers or Lotus 123. But all too often manual processes are initially used as stop gaps which, in time, become strategic and part of the problem. This is particularly true when it comes to reporting. Unfortunately, the reliance on manual processes can, and does, lead to error.
It would be easy to dismiss the importance of spreadsheets. The simple fact is that spreadsheets are irreplaceable and will continue to be a part of every day life in finance. The trick is to limit their importance in any process and seek automation wherever possible.
Be in control!
Gaining control is not just about automation. It is about standardisation of processes, building integrity through continuous validation of the data, having access to real-time status alerts before things go wrong, creating key control points to measure progress and ensuring that all participants are aware of their responsibilities throughout the lifecycle of month end. Constant communication is needed to create an environment of transparency.
The key to success is to tackle the problem without creating too much overhead. For example, maximising the use of existing data wherever possible will drive down the cost of IT. You can achieve this by:
a) Consolidating your data sources into one golden source of data. Putting all data into one repository reduces the risk of duplication and leads to richer data sets.
b) Using granular data wherever possible. It is easier to detect and escalate errors at a non-aggregated level thereby reducing lengthy analysis or investigations.
c) Creating sub ledgers to apply accounting rules for both legal and management accounting.
d) Ensuring that data has been fully reconciled before using it and has a full audit history. Data integrity is key!
e) Using dashboards to keep on top of Key Performance Indicators and Management Information.
f) Keeping on top of the period end sign off by actively monitoring progress and resolving issues as they arise.
Get rid of the month end headache
Financial Control is at its busiest at the beginning of each month. The number of tasks performed during the first 3-10 days (depending on the firm’s policies) of the month to close off the previous month’s books is typically a challenge leading to countless late nights. Adopting a more streamlined, automated approach as outlined above significantly reduces time pressures and leads to a cleaner, more efficient month end close.
Time to lose the tyre?
Just as we embrace the gym at this time each year, perhaps it is time to review your financial control function and see where advances can be made, efficiencies gained and accuracy increased. Building a leaner process has many benefits to your company’s health – not least improving the morale of the financial control team.