SmartStream Technologies Ltd: A Cleaner Close: John Mason
John Mason, UK regional director at SmartStream, discusses how an automated reconciliation system can deliver control, consistency and compliance to the final close process.
It’s ironic that the finance function, one of the first to benefit from automation and for years an aggressive adopter of technology, still relies on largely manual processes for one of its most critical functions: the financial close.
The group finance team typically suffers from numerous problems at period end, including narrow time frames, cumbersome processes and incomplete reconciliation and review. This bottleneck of reconciliations from review through to reporting contributes to poor visibility, control and accountability.
As a result of the over-reliance on these tools, organisations have an inconsistent approach to their account reconciliation. From a risk perspective, this fails to provide a secure environment for critical controls. At the same time, there is increasing pressure to rein back the amount of time it takes to reconcile and review figures. Senior management wants to know the position of the business today, rather than six weeks ago or last quarter.
Currently, by the time management gets its month-end management information pack, four or five weeks have passed since the first journal entries and the information is seen to be out of date. Equally, consolidated figures for statutory reporting tend to be produced right against the reporting deadline leaving little time for verification or checking.
With pressure to close accounts and report on a timely basis at both half year and full-year intervals, firms need to be confident that their reconciliations are being maintained and cleared throughout the year. Without visibility into outstanding items, firms can struggle to re-direct resources to fix the issue and then find themselves into the next monthly cycle. Getting down to an exception level is crucial in understanding the issues and efficiently reconciling the outstanding items.
In Europe, the adoption of the IFRS reporting standards and their ongoing standardisation with US GAAP has acted as a catalyst for firms to look again at their financial governance processes.
Process automation is the answer
Many of the problems outlined above can be tackled by introducing an automated reconciliation system. Automation of the account reconciliation process enables firms to support much higher transaction volumes, whilst also making the close cycle more efficient.
Advanced matching capabilities achieve the highest match rates and ease of configuring match rules enables firms to introduce continuous process improvement. It can spot exceptions that fall outside predefined acceptable patterns and through the use of work flow, push these items to the right person for further investigation.
Automating reconciliations transforms the financial close into a proactive, exception-based process. Employees who were previously performing reconciliations are able instead to simply focus on the exceptions. Those exceptions that still cannot be resolved will be set up as cases and automatically assigned to the person responsible for investigating the account.
This shift benefits the corporate finance department in terms of time, cost and accuracy. It reduces the cycle time of the reconciliation effort, removing the time lag traditionally encountered before period-end reports can be produced.
Quicker reconciliation frees up time to fully investigate any out-of-synch accounts that are revealed by the process. It also delivers economies of scale to the business and a decrease in unit costs, reconciling higher transaction volumes without increasing head count.
With pressure to close accounts and accurately report on a timelier basis, firms need to be confident that their reconciliations are being maintained and cleared throughout the year. Automation delivers that confidence and the ability to deliver continual process improvement.
