With many treasurers now setting their sights on board-level positions, confidence in the numbers that underpin the business is crucial. More importantly, these financial stewards must find the space to move away from simply producing the numbers and deliver the strategic analysis that will shape the direction of the business and cement their value within the company.
Charged with driving efficiency to improve the bottom line, treasurers should be looking to technology to help them restructure and improve their processes. Of course, as in any high-pressure role, taking the time to analyse the current system with a fresh pair of eyes can be difficult, although the potential rewards are great.
Redwood Software recently conducted a research project with Global 1000 companies using SAP software. Designed to better understand the gap between perception, reality and best practice with regard to the financial close process, it revealed some interesting findings. The survey found an extraordinarily high volume of undocumented processes and manual activities. Within the 56 businesses canvassed, no less than 82% of financial close processes are completely manual. Meanwhile, within these companies up to 23% of financial close transactions that are formally documented are never actually executed.
These statistics should ring alarm bells for corporate treasurers, whose ability to deliver insightful analysis will be undermined if they build on a foundation of error and misunderstanding. Needless to say, reliance on manual tasks brings great risk associated with human error, while undocumented processes have a significant impact on compliance and auditability requirements. The research also highlighted the number of man-hours required to complete the close, showing an average of seven days and 142 full-time equivalents for each entity to analyse data, adjust, review and create reports.
The Problem with Speed
Fuelling the issue is the traditional, but misguided, perception that ‘a quick close is a good close.’ Although time to close is important for many enterprises, particularly for those that are listed and vying with competitors to report numbers, speed isn’t all you need. The close demands complete accuracy as well. There is little point closing the books in record time if valuable team hours must then be used to go back through the data and reconcile errors.
These errors can usually be attributed to manually consolidating data from disparate, multiple legacy and enterprise resource planning (ERP) solutions – along with spreadsheets. Companies often use hundreds of different spreadsheets in their financial close reconciliation process and most of these sheets have more than 150 rows. The potential for error is glaring, yet one mistake is too many – particularly when one considers the cumulative impact on other information.
Automation ensures data integrity and supports standardised, streamlined processes to change the way teams manage errors – by exception, rather than constant firefighting. However, automation, which has historically oversold and under-delivered, must often battle an image problem amongst businesses. There are many ‘automation’ solutions for the back office which are the IT equivalent of the Mechanical Turk – a chess-playing machine from the late 18th century, exhibited as automaton, but later exposed as an elaborate hoax.
Many providers appear to offer automation, but when one looks just beneath the surface it becomes apparent that they are really disconnected point-solutions that still rely on considerable human effort behind the scenes. Other financial close software packages offer a dashboard for the finance team, or provide a ‘to do’ list to accomplish the close. Even with lists, pie charts and attractive dashboards, the same painstaking error-prone manual tasks still continue at the heart of the financial close process – monitoring alone isn’t automation.
Businesses that don’t take a structured and unified approach to reporting often suffer a lack of transparency in the financial close. This is particularly true of companies with multiple corporate entities; typically those that have grown by acquisition. With a different employee in charge of financial reporting across a range of different markets, reports are likely to be inconsistent and repetitive.
Despite this, there is still some way to go to convince financial professionals of the level of activity that can be truly and successfully automated and dispel the myth that setting up automation of key processes will require a complete IT system overhaul.
As corporate treasurers seek to increase efficiency to reduce errors and costs, they should take care not to lose sight of the real purpose of the financial close. It is not just a race to fill a neat spreadsheet on time. It’s the way to provide a transparent, auditable, centrally-managed financial process overall that helps corporate leaders make confident business decisions.
Insurance professionals will not write a risk and decide the terms of acceptance if they do not have all the underwriting information that assists in their evaluation of that risk. Nor should corporate treasurers be willing to steer business decisions based on numbers that they know are shaky or incomplete. The costs of complexity are far too great.
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