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SpreadsheetsSpreadsheets have been the backbone of finance and accounting for decades, with companies relying on them for financial, analytical, and operational processes.

But, businesses can rely too heavily upon spreadsheets, so as to lose sight of the original purpose and best use of this tool. Instead they are using it to manage – in some cases – multi-billion dollar balance sheets, and subsequently risk making decisions or reporting figures based on manually gathered, erroneous data. The challenge is, how do you convince your CFO that changes need to be made?

As with many things, the first goal is to make the company realise there is an issue that needs addressing. One of our customers achieved this in a remarkably simple way. They went to their CFO and commented “We are currently managing a $9 billion balance sheet in Excel”. This one statement got the board’s attention and opened the door to further discussions.

You can then back this up by focusing on what is strategically important and fit arguments around this. Just a few of many advantages of moving away from spreadsheets to an automated software solution include:

  • Increased productivity with fewer resources: Automating balance sheet reconciliation and verification enables you to flatten the workload, eliminating the high peaks in activity, so that the work can be spread out appropriately across the close. Work is focussed on exceptions and some manual tasks are eliminated entirely.
  • Reduced risks through complete accuracy in the data: By eliminating the “space” between technology silos, disparate teams, and manual spreadsheets/emails/etc, you reduce risk of errors and enable greater collaboration and efficiency.
  • A stronger control framework: Workflows, consoles and audit trails provide a risk based framework that ensures all controls are properly identified, scoped, scheduled, and performed. Additionally, the ability to quickly retrieve and reconstruct an accounting period helps the team breathe easier when auditors ask for files and statements.

A great example of all of these gains being realised is the case of a global communications technology provider. They had focused originally on getting their time to close right with a sophisticated use of spreadsheets. They thought they’d closed the books, but in fact they hadn’t because 30 days later they would find issues. They realised they lacked visibility into the process and controls.

By automating the process in a purpose-built application platform, they gained insight into exactly where and why the misstatements were happening. By correcting the regional issues and strengthening the control framework, they achieved the same workload with fewer resources, eliminated the risk of restatements and delivered a true reflection of their time to close.

As we have commented in a previous blog, what this really means is that if you take care of the quality of the close, the time to close takes care of itself.

 

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3StepsIn our last blog, ‘Should we all be thinking effort to close rather than time to close?’, we demonstrated how companies have been able to have the best of all worlds, providing their business with improved quality, reduced costs, and reduced time across their close process.

So, what can you do to reach this nirvana? While the analysts, such as Aberdeen, Hackett, Ventana and Deloitte, may vary in the number of steps, there are three consistent threads that they all agree on. These are: 

  1. Standardise your processes across your business: Take the opportunity to not only replicate what was being done before but establish best practice. Often this stage will include the development of a Shared Service Centre (SSC) or Business Process Outsourcing (BPO) company. If so, it is vital that the role of these are effectively defined and communicated.
  2. Automate wherever possible: This is across the entire Record to Report processes, including reconciliations, journal entries and close tasks. It is vitally important to ensure you have integration of systems across the whole process to reduce complexities, risks and costs.
  3. Optimise: Once general tasks have been automated, a proactive risk based approach can be implemented to further improve efficiencies. At Trintech we have helped customers to develop a risk rating as a means to drive reconciliation/review schedules, for example: A Medium rating might be given to a low risk account that has open items greater than a certain amount.

One of the main challenges is the order that these are undertaken. Some experts advise using technology to help companies standardise their processes, while others recommend standardising their processes and then automating. In reality, companies will often do a mixture of the two, standardising where possible and then implementing technology followed by further standardisation once everything can be seen.

The key is to talk through with partners and vendors and utilise their experience before and during implementation. They are the ones who have done it before and can lead you in terms of the questions you should be asking internally, and providing best practices from previous companies they have worked with.

For more information on how technology can enable Record to Report (R2R) transformation please click here to download our complimentary eBook.

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Companies pay specific attention to their time-to-close, and reducing this has been a key financial objective for years. However, is this the most useful indicator when looking at your close performance?

Effort to CloseSpeed vs Quality

The common adage in terms of speed, quality, and cost states that you can only pick two. One Trintech customer example that highlights this can be seen in the case of a global communications technology provider. Before implementing Trintech, they set time-to-close as a key metric and made great strides in reducing it. However, this had an unintended negative impact on their quality.

They found that 30 days after they’d closed the books, issues would arise around unsubstantiated figures and possible misstatements due to rushed work and a lack of visibility into the process and controls. However, I’m pleased to say that in terms of the close process there is another way.

The answer? What they did was deploy software that automated the process and provided insights into exactly where and why the misstatements were happening. By strengthening the control framework, they could drill down on any regional issues and ensure accurate data, while maintaining their time-to-close targets. What this really means is that by taking care of the Quality of the Close, the time-to-close took care of itself.

Quality vs Costs

Improving quality can also have a positive impact on the other variable: Cost. Recent studies from Hackett have shown that best in class companies are managing to have their cake and eat it too, reducing time and ensuring quality while reducing costs overall. Their research¹ shows that best in class performers have:

• A 40% reduction in the number of days required to close
• A 52% reduction in process costs as a percentage of revenue
• A 63% reduction in FTEs per billion dollars of revenue

While we would recommend that companies continue to review their time-to-close, we also believe that this should be as part of an overall improvement strategy and not a standalone metric. By doing this you really can buck the trend and deliver speed, quality and reduced costs across the close process.

For more information on how technology can enable Record to Report (R2R) transformation please click here to download our complimentary eBook.

¹ Leaders of Account-to-Report: Key Performance Levels and Methods

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In a recent SAP® Insider, Trintech EVP Robert Michlewicz discusses “Evolving for Efficiency: Financial Processes Gain Speed and Agility Through Cloud Deployment Options.” In the article, Michlewicz  explores issues faced by finance executives due to limited point solutions, globalization and rapidly changing regulatory requirements and the benefits of cloud-based solutions in resolving these issues. “On top of it all, with multiple lines of business in remote locations, executives on the move, and frequently changing regulatory requirements, companies need to consider solutions that can be flexible enough to change on the fly while also providing information to employees when and where they need it.”

Download the SAP Insider article "Evolving for Efficiency: Financial Processes Gain Speed and Agility Through Cloud Deployment Options"

Download the full SAP Insider article “Evolving for Efficiency: Financial Processes Gain Speed and Agility Through Cloud Deployment Options”

Michlewicz also discusses “The Importance of Integration” pointing out that system customizations combined with multiple instances of SAP can lead to inefficiencies and hinder senior leadership’s ability to guide their organization. “Even the most sophisticated technologies lose impact in the absence of smooth integration. If data isn’t being shared among systems properly, executives can’t make the vital business decisions that drive the company’s direction.”

He goes on to offer some examples of large organizations who have resolved these issues with Trintech solutions. One example was AstraZeneca (who recently won the Alsbridge Innovation Award for its balance sheet reconciliation transformation project). AstraZeneca used Cadency® for its global R2R processes, reducing costs and increasing compliance while fully integrating with its SAP® Systems. Another example is a large multinational organization who manages reconciliations across 20 different instances of SAP® using Trintech solutions.

Download the full SAP® Insider article to learn more.

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Record-to-ReportGartner recently published the latest IT Market Clock for Financial Management Applications 2014 and highlighted a new category of software entitled “Enhanced Finance Controls and Automation.” Briefly, they define this category as being focused on improving financial processes and controls across all aspects of finance. It includes financial close and disclosure management software, as well as automating and managing process controls and analytics for all finance processes, enabling finance to increase efficiency and effectiveness.

Not surprisingly, Trintech is noted as a vendor in this new category, since for more than 20 years we have provided software to 800+ companies to automate the processes that make up their record-to-report.

It is quite gratifying to be mentioned in the report, particularly since Trintech was the first vendor to announce and deliver a single solution that holistically addresses all of the processes that make up the record-to-report cycle. We do this with Cadency, our cloud-based R2R software solution. For those of you unfamiliar, the R2R cycle covers all aspects of the financial close process – including operational reconciliation, balance sheet reconciliation, journal entry, financial controls/compliance, close task management and workflow, as well as financial reporting and disclosures.

To be candid, we are STILL the only vendor to offer a single solution for the entire R2R process and not just a part of the process, which is the limitation of a point solution. Though you can definitely see point solution vendors scrambling with faux marketing messages trying to catch up to this all-important area of finance.

One of the reasons for this is that the operational and GL reconciliations market has become somewhat commoditized. Yes, each of us who offer solutions in the reconciliation space have certain features and functions that the others may or may not have. But that is no longer the end game. Rather, organizations have now begun to realize that point solutions for reconciliations do not scale globally, they create white space inefficiencies, and are very difficult to administer and integrate into their overall R2R process. This leads to rework, decreased visibility and added risk across the entire R2R cycle.

That is one of many the reasons that global organizations are choosing to partner with Trintech to manage the entire R2R process from a single source, and why we continue to grow 100% year over year.

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Record-to-Report-Cadency-1024x662In recent years many surveys have examined the R2R (Record to Report) process and have highlighted the uncomfortable truth that despite the large sums of money lavished on the process very few improvement initiatives can demonstrate enduring progress. The blame has partially been laid at the feet of limited automation, lack of integration and a patchwork quilt of incompatible solutions that impede the flow of information from one end of the reporting chain to the other. But past initiatives are also frequently criticized for not taking a more holistic approach. This of course begs the question; How many organizations actually empower an individual to take responsibility for the entire R2R process?

A cursory search of titles on Linkedin shows the number of individuals claiming to be “R2R Process Owners” can probably be counted in the low hundreds. Disappointingly, many companies have failed to appoint someone responsible for continuous process improvement around this crucial process. But the situation is changing for the better and while the numbers of R2R process owners may be small, they have been increasing year on year.

Meanwhile, recent Hackett Research indicates that organizations with top-performing end-to-end processes have a higher level of adoption of enterprise-wide ownership than peers. (See how top performing organizations approach global ownership of the R2R process in this post from last November)  As always technology goes hand-in-hand with process and organization. Top performing CFOs know that appointing an R2R process owner is a vital part of building a comprehensive framework for financial governance.

Learn more about managing the R2R process: Ventana Research, Implementing a Record-to-Report Process – Benefits of Managing This Finance Cycle from End to End

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Year-end Close is well behind us now but…There’s got to be a better way!

For many, the financial close process is a decently oiled machine, but demands personal commitment above and beyond the call of duty characterized by long days followed by long nights with lots of pizza-fueled meetings in between.

When it comes to overseeing the process that underpins the integrity of financial reporting, many finance functions fall back on a primitive checklist crafted in spreadsheets.  That might be fine on a very small scale but certainly is not best practice for any company with any level of complexity.

Risky at Best!

One Trintech customer instantly persuaded her senior executive team to automate their financial close process by saying this one simple sentence:

“We are managing $52 billion on our balance sheet… and we are managing it in Excel.”

Like so many companies, her executive team instantly recognized just how exposed they were to risk!

So is there a better way of managing the close process?

With the advent of cloud-based financial governance solutions that engender new and more productive ways of working and provide the finance team with process visibility across their entire finance organization.

Controllers can now know “who is working on what” and “which activities are late”, giving them the ability to proactively manage the process for the very first time, to eliminate manual processes, identify bottlenecks and issues as they arise, and to redeploy resources as circumstances demand.

A Repeatable Process!

It’s a new paradigm, but the good news is that once the year-end is complete the same solution can be used for all period-end close processes.

Check out our White Paper: Guide to 7 Strategies for Optimizing Balance Sheet Reconciliation

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On October 23, 2013, the Public Company Accounting Oversight Board (PCAOB) issued a Staff Audit Practice Alert in the light of a significant number of audit deficiencies observed in the past three years related to audits of internal control over financial reporting (ICFR).

In December 2012, the PCAOB found that in 15 percent of audit engagements inspected, firms failed to obtain sufficient audit evidence to support their opinions on the effectiveness of internal control.  This caused PCAOB Chairman James R. Doty to caution auditors to, “take note in planning and performing their audits, given the importance of the controls companies use to produce their financial statements.”

And, according to The Wall Street Journal, they have taken note.  As a result, auditors of public companies are ramping up the intensity of their audits (apparently blaming the regulator for the extra work) and businesses end up footing the bill.  So how can businesses protect themselves from audit fee increases?

It’s a complex answer.  One view might be that if an audit firm falls short of the professional standard expected of them then they should cover the shortfall.  But businesses that have fully documented their Record-to-Report process, the controls environment and have a record of the tests performed against those controls (together with the outcomes) should be in a strong position to resist requests for unnecessary additional work.  The key to unlocking an impasse is to ensure that there is sufficient audit evidence to place reliance on the controls.

Unfortunately many companies aren’t well-positioned today. Based on a recent independent survey of 150 financial executives, we learned that the majority of companies have only partially automated the record-to-report process, nearly half of respondents use four or more solutions, and many companies continue to rely heavily on manual Excel spreadsheet entry. The use of multiple technologies within the record-to-report process creates a risk that data will not be properly handed off between different systems. (The complete results of the study are available here.)

Perhaps not surprising – but still of concern – is the finding that 26% of respondents have difficulty ensuring the accuracy of their data. One can reasonably infer that this final group is not in a position to resist auditor requests for more exhaustive audits. Investing in financial governance capability has never before seemed so compelling.

See The Study

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What’s More Important, Processing Speed or the Speed of the Process in Financial Close?

Early this week, Larry Ellison announced Oracle’s SuperCluster M6-32; Oracle’s fastest machine yet at Oracle Open World.  According to Oracle’s press release this new capability promises 10-20 times faster performance on business critical applications such as the financial close.  But the obvious question is how important is speed of processing to the CFO compared to speed of the process?

Typically, a fully rolled up consolidation across all dimensions in a modern consolidation application will take anything from a few minutes to a few hours. And if your consolidation solution offers the option for an “impacted consolidation” i.e. only recalculating the nodes of the consolidation impacted by adjustments, the time to recalculate can be reduced still further.  But how does this sit with the entire Record to Report process?

Well the elapsed time for the whole Record-to-Report process can stretch from a few days to a few months, so at first sight the ability to re-perform a consolidation in a tenth of the time – attractive though it is – is relatively inconsequential.  In fact the announcement is a bit of a distraction.  For those organizations with deep pockets and hundreds of reporting entities the availability of faster processors is very welcome. But most organizations would be better off examining the efficiency of the entire process of financial governance.  That’s where the big time savings are ready for harvest.


 

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