4 Ways to Decrease Risk Within Your Financial Close
As the old saying goes, an ounce of prevention is worth a pound of cure, because it’s always easier to fix an issue at the start rather than repair the damage in the aftermath. In the office of finance, accountants are always eager to know what problems are hiding within their balance sheets long before the books are closed. Thankfully, preventative controls and this blog covers four ways you decrease risk within your financial close, specifically regarding Journal Entry posting.
1. Reduce JE Challenges
Accurate Journal Entry postings are necessary for a reliable financial close process. However, they are truly a risk when completed manually, and the sheer number of postings could lead to error and possibly fraud. As well, the volume of journal entries has only increased in recent years, while the workforce available to handle them has not kept pace.
By utilizing not only an automated solution but one embedded with preventative controls, the office of finance can mitigate challenges related to JE posting, specifically those related to risk management. Preventative controls, through automation, visibility into data errors and posting delays before they compound to impact other areas of the financial close.
2. Increase Workflow Efficiency
Oftentimes, JE posting is a struggle due to delayed and overly complex workflow processes. When completed manually, the level of error or risk is not always clear to each member of the review chain. Further mistakes could be made while reviews are stagnated or incorrectly moved along the workflow.
When high risk items are involved or could be involved, then the workflow must be as efficient and timely as possible. The longer the potential risk lingers unchecked, the higher the chance it has of compounding. Fortunately, when an automated solution is applied, and the team has easy visibility into their tasks, every step of the workflow can be completed in a timely and thorough manner.
3. Improve Higher-Level Analysis
In addition to a clearly-defined and efficient workflow, automated preventative controls enable higher-level analysis. One of the struggles tied to inefficient workflows is the lack of communication among reviewers. Conversely, too often, financial professionals are busy worrying about “the robots taking their jobs” when, in fact, their fears are unfounded. While an automated solution can remove much of the drudgery of the financial close, human effort will still be needed on higher-level analysis.
With preventative action applied, the appropriate personnel are alerted only when necessary. In fact, with a system calibrated to your internal level of risk evaluation, they are alerted according to the level of potential risk involved with a task. By embedding risk evaluation within your financial close solution, the financial team can resolve potential problems before the books are closed. Furthermore, well-trained financial professionals will only be called in to resolve tasks related to high-risk.
4. Decrease Fraud
AI Risk Rating for JE using Financial Controls AITM. Purpose-built for the complex needs of the office of finance, this technology is embedded within the Journal Entry process. Risk Rating can identify high-risk entries for timely resolution during the R2R process and also increase automation by identifying those with a lower risk.
AI Risk Rating takes a visibility-focused approach to analyzing the risk of journal entries throughout your month-end close. Human intervention is factored into the workflow for higher-level analysis of the higher risk item and automation is used on the lower risk items, ultimately creating more peace of mind every step of the way.
Preventative controls are only the first half of this equation and Part 2 of this blog series focuses on best practice after the month-end close is complete with the use of Detective Controls.
To learn more about AI Risk Rating for JE and its impact on your financial close, visit our webpage.
Written by: Chelsea Downey