Financial Controllers Need to Have a Dual Focus on Balance Sheet Integrity and Seamless Automation

Blog post

Bill Marchionni, Account-to-Report Advisory Global Program Leader, The Hackett Group

Stephen Ferguson, Account-to-Report Advisory, EMEA Program Leader, The Hackett Group

Financial Controllers Have Subject Matter Expertise. They Need to Lead and Influence.

Financial controllers are well positioned to see, assess, and understand transaction efficiency and control risk enterprise-wide.   They are subject matter experts on accounting and finance process operations, technology leverage, and controls.  They have developed relationships with internal and external auditors.  They are respected.

Many organizations view their finance and accounting risk through legacy lenses and outdated understandings of risk and materiality.  Financial controllers need to bring their expertise to bear and influence decision makers and stakeholders to smartly move away from legacy understandings of materiality, controls, and risk.  They need to drive process and policy changes and, possibly, finance service delivery model changes.

Financial Controllers Should Expect, and Drive, a Sophisticated Understanding of Balance Sheet Risk.

Financial controllers need to balance the demand for higher value delivery (e.g., better, faster information) with the demands for greater operational excellence (e.g., leaner, more agile processes).  All while fulfilling their fiduciary duties related to financial reporting and safeguarding assets.  Their need is high for end-to-end process automation(s) that handle repetitive tasks while applying robust controls.

The approaches companies use to determine the frequency and timing of account reconciliations vary, sometimes significantly, and are usually a combination of objective and subjective judgments based on a particular company’s risk profile.  Financial controllers must be able to dynamically risk rank the balance sheet and apply risk-based approvals.  

A risk-based strategy should include algorithms that consider the following:   

  • Materiality
  • Volatility
  • Activity
  • Susceptibility
  • Complexity

Examples of risk parameters that need to be codified dynamically include:

  • Balance fluctuation from the prior month is greater than materiality thresholds
  • An increase in the level of activity by more than materiality thresholds
  • The reversal of a normal balance (e.g., a debit balance account has a credit balance)
  • A balance change in a “frozen” account
  • The number of manual journal entries recorded in an account rises by more than materiality thresholds permit

Financial controllers need to be more discerning about what they reconcile, how often and when.

Financial Controllers Should Expect More Transaction Volume and Must be Able to Flawlessly Process.

Customer and consumer tastes, needs, and wants are evolving.  Rapidly.  In response, companies are aggressively pursuing new customers and are hyper-focused on customer retention.  Part of the response includes the digitization of products and services.  Another part of the response is the customization of offerings.  In short, companies are going to market with more offerings and pricing options and models.  The Controller must manage these different transaction types and complexities.

Companies are working to drive customers to electronic payment options.  These payment options provide convenience, scalability, and improved cash flow.  Critical to all companies.

Financial controllers will need, and must expect, to be able to flawlessly process these transactions.  Driven by increased transaction complexity, channels and volumes, the automation of matching will increase its criticality for nearly all companies. 

Financial controllers must have automated and robust matching capabilities, including flexible:

  • Validation rules
  • Workflow rules
  • Algorithms
  • Open items management matching

Financial Controllers Should Expect to Have to Drive Process Automation to New Heights.

Standardized and simplified processes are more easily automated. According to The Hackett Group, 50% of activities comprising typical account-to-report processes are executed manually, largely because of enduring high levels of process variability. Most finance organizations still operate within legacy systems and data environments and have yet to make the leap to next-generation solutions.  This means they take longer to retrieve, vet and process transactional information across the enterprise.  

Early movers who have re-platformed onto new-era ERP are using this once-in-a-generation opportunity to get the data model, mappings and integrations finely tuned.  They take advantage of simpler file structures and easier transaction and analytical data access.  The bar is rising, with >80% balance sheet reconciliation automation now a realistic possibility.

Because process excellence is essential to the success of finance organizations, it is incumbent on financial controllers and account-to-report executives to optimize accounting processes and add greater business value. Account-to-report organizations aiming for top performance should transform by:

  1. Gaining a mandate to standardize
  2. Invoking a group-level operating model
  3. Investing in securing and retaining the best talent.
  4. Establishing transformation phases
  5. Focusing on optimizing and combining traditional and digital-era technologies
  6. Resetting performance targets and aligning with continuous improvement goals

Final Thought:  Financial Controllers Should Expect to Be Change Agents.

The # 1 transformational issue for Finance executives, according to The Hackett Group, is investing in and accelerating digital transformation.  This will necessarily drive business operating model changes.  As digital operations mature, transactional work is automated and knowledge work is supported by analytics. Businesses must reimagine, redesign, and radically evolve their operating model over time. Operating model success in the future involves decisions about scope, modality and placement of work that leverage organizations’ centers of excellence, customer-facing business units, the role of global business services, and strategic partnerships.

Financial controllers bring an important and needed perspective and subject matter expertise to these critical decisions.  They should lead with confidence.