In an account reconciliation process, balance sheet accounts need to be reconciled on either an account balance level or a line item or transactional level. It is natural in this stage to find errors, be it journals posted to the wrong accounts, missing journals, errors compensating other errors and errors in accruals, reversals, allocations, and so forth. Resulting in a lot of manual work activities that are an addition to the manual work you need to complete in the reconciliation phase. When you add this additional manual work and the exponential volume of balance sheet accounts which international companies have, we are dealing with a financial process that is both complex and complicated. Combine that with ever-increasing demands on finance and accounting to deliver more for less, less resources, less time, more stress…
Tackling the challenges inherent in this process requires both a reduction in complexity, eliminating unnecessary process steps, activities and causes of rework – as well as making complicated tasks easier for users and accountants to complete their work within the process.
A good way of looking at the challenges is first to understand what activities, tasks and processes cause the complex and complicated work:
- identify accounting errors resulting from the current tools and processes, such as large and complex manual journals
- identify activities which have unnecessary process steps – these often highlight areas of rework
- identify error-prone processes – these will often cause you to fail to meet key targets or deadlines downstream
- identify work which is inefficient but accurate, provisions for bad debt for example
Automation and RPA is one way of tackling these challenges, but like a swiss army knife, often suffer from a capability to do all sorts of tasks but never actually being designed to manage and take care of the entire process. Instead of trying to work with quick-fix solutions that make a lot of high-level promises but leave the details out, organisations should look at integrated process control, automation and management solutions that have been designed with the entire process in mind.
Roadmap to account reconciliation process excellence
1. Poor tools and processes
With increasing regulations, increasing scrutiny by auditors and the ever-increasing speed of business, the world of finance and accounting is often seen fighting an uphill battle. That battle is an exceptionally difficult one if the tools in use were not designed for the internet age, and are dependent on processes that were designed originally around the limitations of a small group of users dependent on a million emails, and forests of paper printed out for record-keeping. Such processes are unenforceable, meaning that employees in field offices and subsidiaries are ‘almost’ following the corporate process. Generally speaking, any processes that are designed to work around problems and limitations are by definition imperfect and are thus especially troublesome for large organisations spread across multiple countries as the likelihood of not one, but multiple ERP systems raises its head. Even if you have only one ERP system, (for example SAP or Oracle eBusiness Suite) you typically have multiple versions and instances of the ERP, and therefore multiple versions and deviations of the main corporate process.
Large and complex manual journals are a common area of headaches, as the more rows and columns of data there is, the more likely it is for human error to occur – errors which pass through unnoticed during posting because validating the data between Excel and the ERP system caused so much hassle that the details got overlooked. This is especially true for examples that consist of a lot of work before the actual journal is processed, such as bonus accruals or bad debt provisions. Another problem global organisations struggle with is account reconciliation solutions that were originally designed to fulfil requirements of the process according to the Pareto Principle – such as reconciliation for account balances only – and present users with a completely different and highly manual process to deal with accounts managed on a transactional or line item level — resulting in your end-users jumping back and forth from one system to the other to export the required data from the ERP system into Microsoft Excel, manipulating that data and adding explanations, saving the file into SharePoint and then uploading that file to the disconnected cloud-based account reconciliation tool.
2. Redundant activities
Sometimes the best fixes are simple ones, simply getting the basics right is and will always be fundamental. Account reconciliation processes are no different, and the solution used in that process should be able to re-use work that has already been done earlier. Unfortunately today many organisations are struggling with this, and their end-users are posting manual journals with supporting evidence attached, re-posting that same supporting evidence a few days later to explain that same journal in the account reconciliation process.
Where ever you identify account reconciliation processes and process steps, where your employees are repeating work that has been done before, or need to jump back and forth from one system to the other, you have areas with unnecessary process steps involved, and those should be eliminated. The problems to look out for could be as simple as incessant login/logout loops from one ERP database/instance to another as your accountants change the legal entity they are working in from one task to another. Another area of completely unnecessary rework to question is the joint spreadsheets used to track and report on the work progress as there your users are asked to do extra work to record that they completed the work they were supposed to do.
3. Error-prone processes
The tool of choice in every financial organisation in Excel, finance and accounting can neither live without Excel, nor do they want to – the problem is not the tool but its overuse.
“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”
-Abraham Maslow, The Psychology of Science, 1966
Spreadsheets lack means of validating data, lack built-in approval and review workflows and need only one small error in one cell for all of the data, formulas and conclusions in the file to be erroneous. It is human to make mistakes, but in accounting, every mistake needs a correcting entry, creating an ever-growing volume of work. Automation and solutions designed on purpose to resolve the problems and challenges in Account Reconciliation help in decreasing the number of errors in the process, increase employee productivity by speeding up the work and delivering the latest numbers to analysts and data scientists in the next phase earlier. Meeting compliance requirements, improving governance and decreasing risk are all concrete outcomes of working with purpose-built Account Reconciliation software.
4. Inefficient work
Whether or not you recognise the errors mentioned earlier, processes like them others can also be incredibly accurate. Some of the settings, formulas and macros finance professionals have been able to do with spreadsheets to help limit or minimise the number of errors in complex tasks is quite amazing. These can still, however, be tedious to complete and time-consuming, and even if the spreadsheet is pure gold, it’s capabilities often end before the process is completely completed. Think of reconciling accounts receivable with an allowance for doubtful or bad debt. That is a process where you need to work with the very latest ERP-data, run that data through a set of calculations, formulas and rules based on what percentage of bad debts you have historically incurred and what sort of guidelines you are required to follow by your auditors, with differing rules and calculations for different countries, and only after all of that work has been performed do you come up with the answer as to what sort of impairment journals you need to post. For every business unit in your organisation…
Inefficient but accurate processes do not need a point solution, but to be looked at from one end to the other as a whole – to identify that the right solutions are a tool, software or system that manages the entire process workflow and can complete the work or much of it at the same time. Aico is such a solution. Aico integrates directly into your ERP system(s) and will run and export the required bad debt report on your behalf, work with that data using your existing spreadsheets or the same set of rules and calculation and perform the same steps you do now to export, prepare and present for your judgement the adjusting journal entries which you can then put into an approval workflow, then later when you are reconciling the related account all of that prior worked is hyperlinked to and auto reconciled already.
Aico helps large organisations with multiple legal entities and a large amount of manual finance activities to complete their financial close faster and more accurately.
Aico platform is a suite of financial close automation and management applications, which automates manual and repetitive work and connects finance teams, applications and ERP systems into one workflow. Aico platform enables finance teams to complete period-end closing tasks, manual journal entries and account reconciliations from one user interface with live connection to the ERP systems.
Book a demo to learn more about Aico.