Digital enablement will predominate business transformation for the next 5+ years. It is within this context that organizations are envisioning a “touch-light” close, consolidation and compliance vision. Simply put, it will be the digitally innovative accounting organizations that will be best positioned to efficiently and effectively provide business support and informational insights, while also meeting control and compliance demands. An effective touch-light vision necessitates an extremely high level of automation – far greater than what accounting and finance organizations have typically operated with before.
From a control and compliance perspective, effective management of balance sheet account reconciliation activities greatly increases executives’ ability to proactively identify and resolve issues that could result in misstatements in financial accounting and reporting records.
As part of this journey, companies are setting high automation targets and they are achieving them. For example, automated balance sheet account reconciliation percentages of 65% or more. This level of performance can be accomplished only by identifying the risks in the balance sheet account reconciliation process and mitigating or eliminating these risks through specialized account reconciliation software.
All processes have potential risks, but some processes contain more inherent risk than others. The balance sheet reconciliation process is one of these, given the volumes of data, the complexity of the underlying economic transactions and the direct financial and legal impacts.
Common risks in balance sheet account reconciliation process and management include:
- Control risk and possible audit failures as accounts may not be reconciled through lack of ownership, insufficient visibility in the full chart of accounts structure or reconciling to incorrect account balances
- Improperly identified and insufficiently monitored high-risk accounts
- Widespread use of Excel® with all its inherent accuracy and control risks
- Potentially defective controls arising from hard to enforce policies across a complex enterprise organization structure
- Non-existent or insufficient visibility into balance sheet exposures resulting in unnecessary financial risk
- Poor resource allocation arising from unnecessary manual reconciliation and related controls process(es)
- Inadequate audit trail
Automation Capabilities and Enabled Improvement Areas
Leading with an enterprise-wide account reconciliation automation platform is imperative to improving the balance sheet account reconciliation process, making it more efficient and ensuring greater accounting accuracy and risk management insights:
Key automation capabilities and improvement areas for balance sheet account reconciliations include:
- Risk mitigation and quality control through automated and secure reconciliations can transform a program that was once administrative into an effective risk mitigation program
- An automated account reconciliation system that seamlessly interfaces with ERP and GL systems and sub-ledgers to bring in all relevant data automatically
- Remote access to reconciliations through an automated reconciliation dashboard that provides managers and auditors with account and reconciliation access
- Live status monitoring and automatic tracking provides managers the ability to see the status of individual accounts across a global enterprise
- Financial process automation, including automated workflows, keep accountants, reviewers and approvers notified with submission confirmations, due date reminders, approvals, rejections, completions and alerts
- Cloud capabilities provide ability to access data from any device with an internet connection
- Standardized templates for different types of reconciliations improves consistency and makes it easier for others to review the reconciliations for completeness and accuracy
The Automation Journey
Process is important. People are critical. Do not underestimate the importance and value of technology.
Recent studies by The Hackett Group conclude that the global events of 2020 are driving imperatives that did not previously exist including some form of a work-from-home model. Additionally, most companies are accelerating various elements of their digital transformation strategy, including redefining or accelerating new initiatives, accelerating the implementation of their existing roadmap, and transitioning to a more technology-intensive operating model.
Written by: Bill Marchionni, Account-to-Report Advisory Global Program Leader, The Hackett Group