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Reconciliations and Risk: Ensuring Robustness in Financial Reporting

For most enterprise-level organizations, taking a phased approach to change is ideal and achieving finance transformation is most commonly a multi-year journey. As maturity in processes increases, the level and realm of benefits will also increase. However, changing a business process is no simple activity, and as such, a software implementation should not be treated in isolation. It should be approached as part of a financial transformation journey. And as organizations move from a mostly manual process to advanced automation, F&A professionals can shift their focus to strategic initiatives and completing the Record to Report (R2R) process through a risk-based approach.

A Risk-based Approach to Automation

As organizations progress through their financial transformation journey, the first step is often digitalizing the current process to enable both a simpler workflow and streamlined approval functionalities. After that, the focus becomes generating long-term continuous improvement by gaining visibility into the specifics of their R2R process. Finally, with both a standardized process and visibility into the number’s accuracy, automation becomes the final piece of the puzzle. However, it’s important that organizations make sure that the automation does more than just complete the entirety of the work faster. Instead, automation can be used to ensure robustness in the overall financial reporting process.

To help illustrate this, we’ll explore a company who had an established approach to reconciliations and looked to a software solution to enable greater automation. In this example, their approach was not to use automation to reduce workload, but instead to ensure they were performing the correct tasks by taking a risk-based approach.

The organization, a global life sciences customer, had implemented a financial close platform to help standardize their reconciliation process and had been successfully using it for more than a year. Additionally, they had a standard chart of accounts with more than a thousand which, they mandated should be looked at on a quarterly basis.

The Challenge

The reason accounts were only being reconciled on a quarterly basis was because they simply didn’t have the resources to look at every account each month. They would have a “flavor of the month” and would focus on specific account classes each period. Even by only reconciling accounts on a quarterly basis, there was still a significant spike in monthly close activities around the period end. So much so that work was becoming exhausting for their finance team as they regularly worked late into the evenings to close the books. Instead of increasing their working capacity by hiring additional headcount, they decided to try to reduce the amount of work for their current staff while still maintaining control around the financial close.

How Trintech Helped

To do this, they turned to Risk-Intelligent RPA™ with Cadency by Trintech. The first stage was to automate the lowest risk activities. These were accounts that hadn’t moved or had had few transactions in the period and included zero-balance accounts. These could be automatically reconciled by the software to help free up more time for the more value-add work. Then, by utilizing automatic risk ratings in Cadency, they were able to flatten out the workload throughout the month to reduce the spike of activities around month-end. The risk ratings were then used to adapt the schedule of each reconciliation. For example, a high-risk account would have to be reconciled each month, whereas a medium risk account would only be looked at once a quarter.

The automation introduced was all about reducing the spike of activities around period end, ensuring individuals no longer had to work late each month. They were able to accomplish this and redirect valuable attention towards the higher-risk accounts when they were reconciled more frequently. Additionally, this also had the unexpected benefit of reducing the turnover rate of employees. The flow chart below shows a representation of some of the risk intelligent automation they utilize.

Conclusion

Reconciliation fits into the wider R2R process and can be used as a starting point for the other instrumental components that companies, especially global enterprise organizations, should look to optimize.

In conclusion, when starting a finance transformation project, it is imperative to remember:

  • Start with one project, like reconciliations and then move to continuous improvement of other processes.
  • Transforming your R2R is a journey. It will take time, but if done right will provide significant ROI for years to come.
  • The reconciliation process is the building block that creates a solid foundation for all your financial processes. Improving this process allows organizations to ultimately strengthen their overall close.

If you would like to know more about how technology can transform your R2R process, check out our eBook.