February 5th, 2010 | Posted by Account reconciliation is an underappreciated control, one which has become increasingly important with the advent of Sarbanes-Oxley (SOX). In the past, when inconsistencies were discovered, a Staff Member could simply create an adjusting entry to ensure that the company financials were accurate. But section 404 of SOX requires a whole new level of diligence. In today’s highly regulated world, the same inconsistency will likely necessitate a top-down review of a company’s entire financial close and reporting processes, and the creation or enhancement of controls to ensure that the inconsistency does not happen again in the future.
Automation is the critical lifeblood of an effective account reconciliation process. But software can’t solve everything – just as important is the continuous controls improvement process surrounding the software. At Trintech, we’ve identified seven best practices to help our customers ensure an effective, factual, and high quality account reconciliation process. Some of the key elements of each practice are highlighted below.
- 1: Account Assignment
- Administration must be performed efficiently, either in a decentralized or Centralized environment
- New accounts are identified automatically ensuring 100% coverage of the GL
- Ideally Business Units should be empowered, with central visibility and control
- 2: Procedural Documentation
- Complete account descriptions exist, with supporting controls, policies and rules
- Document repository contains account and reconciliation history, including attachments
- Approval and change management workflow is documented
- 3: Timely Reconciliation and Substantiation
- Live, role-based dashboards track progress in real-time
- Automated support for account grouping, interactive matching, high-volume transaction matching and search/filter criteria
- Bulk reconciliation tools support zero balance, no activity, threshold, and Dynamic Risk Ratings
- 4: Issue Isolation
- Past dues are highlighted automatically, with triggered notifications to users and managers
- Audit trail captures all commentary and notes
- High risk accounts are flagged for continuous monitoring
- 5: Issue Escalation and Resolution
- An automated and collaborative escalation workflow exists
- Configurable reporting features capture all facts
- Item aging and carry-forward rules exist, enabling lock-down on completed work
- 6: Adjust with Integrity
- A highly controlled adjustment workflow exists: including creation, review, and approval
- Reconciliations are re-performed when balances change
- Controlled closure of open items
- 7: Empowered Personnel
- Standardized reconciliation templates, with built-in account certification and confirmation
- Easily accessible reference information to ensure high-quality reconciliations
- Continuous and inclusive audit trail
Strategic companies won’t view SOX compliance as just another box to be checked off. They will instead approach the account reconciliation process with a best-practices mixture of tools, processes, and attitude that ensures not only compliance, but savings in hours, effort, and fees … all of which translates directly to the bottom line.
Over the next few weeks, we will take a look at each of the 7 elements above and focus closer in to highlight areas of efficiency, automation and ultimately 20/20 transparency and accountability.
