Every company has some kind of control framework for their financial close process.

But how effective is your financial control framework? And, if you have specific controls in place, what is your accounting team’s process to determine if those are both quality and enforced?

Spreadsheets, the most common financial close tool of choice, don’t leave many options for an effective financial control framework. Additionally, there is also very little visibility or financial insights to be gained to determine if any controls are working.

The results of poor financial controls, unfortunately, can be very dangerous for not only audit preparedness, but for the health and future of the business.

The Impact of Poor Financial Controls

While every company has some sort of framework of financial controls, each serves a different purpose and is also defined in different ways, depending on the reasons behind the framework and the requirements they must meet.

For example, one public company might have to meet public reporting requirements (e.g., SEC) like SOX regulations, while a private one must maintain its financial integrity to a board of shareholders. The financial controls of a private manufacturing business preparing to IPO is also very different than a private healthcare business that maintains HIPAA.

Regardless of how a company’s financial controls are set up, every company will have to face impactful repercussions if their financial reports are found to be inaccurate and in violation of those compliance requirements — whether those repercussions come in the form of reputational damage, revenue loss, or fines.

It is much easier to build an effective, automated framework for your business than to recover from the results of poor financial controls.

How to Establish an Effective Control Framework

So now that the “why” has been discussed, let’s talk about the “how” of financial controls.

What happens when analytics behind operational processes — such as account reconciliation and financial close management — are combined with accurate results of control testing? Together, these might reveal more financial insights about the gaps and opportunities within the financial close process.

Spreadsheets, however, cannot provide any of these insights, but an automated financial close solution would be able to provide the necessary visibility and control.

Let’s look at an example of combining financial close analytics with control testing.

The Business Case for Automated Financial Controls

A company uses financial close automation and is able to routinely check the effectiveness of its financial controls. At the same time, through automation, their accounting teams can assess the progress of the reconciliation and journal entry processes and run historical reporting.

One quarter, this company looks at its control test results which show that everything is working as designed. However, there seems to be a high volume of exceptions, lateness, or incompleteness. What this suggests is that there’s a misalignment in the business somewhere that must be addressed. This issue would then be up to management to resolve to support a strong, functional financial control environment.

In the example, this company was able to identify where the gap was occurring and then turn that challenge into an opportunity for further financial accuracy and improvement. The issue was caught and resolved and now there is a higher confidence that the resulting financial reports will be accurate.

Benefits of Effective Controls and Testing: Audit Preparedness and Financial Insights

The first benefit is pulling companies out of using personal productivity tools like spreadsheets to manage their financial control framework. In tools such as spreadsheets, the controls tend to be inefficient and low value.

Secondly, automated financial controls produce significant efficiency gains, especially when coupled with automated multi-way reconciliations. With Adra^® Matcher, accounting teams can save up to 70% of the time they typically spend matching transactions.

Lastly, effective financial controls and an automatically produced audit trail boost a company’s audit preparedness. Accountants can’t attach supporting documentation, like invoices, to reconciliations in spreadsheets, but in an automated solution like Adra, they can.

“I like that our auditors will have everything right at their fingertips for looking at supporting documentation and reconciliations, as well as processes for internal controls.” –Reviewer on G2

If auditors see that a business has a routinely tested financial control framework and reporting capabilities, there is a greater reassurance that all data in the financial reports are accurate. And without the added complexity and lack of visibility of spreadsheets, audit costs will be lower.

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Take a step back and think about your own financial controls. Are you able to pull financial insights through reporting to determine if they’re effective? If the answer is no, then it’s time to think about another tried-and-true tool for your financial close process.

Written by: Ashton Mathai