Why Automated Reconciliation Solutions Are Important
Why is account reconciliation important?
The account reconciliation process gives finance and accounting teams confidence that their information is reliable and allows for the chance to see any mistakes or discrepancies that occur. It is the first step in an organization’s financial close process.
However, relying on manual reporting methods, such as spreadsheets, can lead to errors, lack of visibility, and compliance risk for the organization. To mitigate these risks, organizations should consider adopting automated reconciliation solutions that offer accurate and timely financial close.
Common Reconciliation Challenges
Even as technology has changed, evolved, and dramatically improved, many finance and accounting professionals continue to rely heavily on highly manual processes and tools like spreadsheets to manage the intricate and detailed reconciliation process required for the modern-day organization. Due to this reliance on spreadsheets, organizations continually need more time to catch up on deadlines while spending an inordinate amount of time and resources to maintain the highly manual process.
The most common problems associated with a manual reconciliation process are:
- Low visibility and transparency
- Lack of controls and efficiency
- High risk, cost and time
With these problems, it is easy to see how early errors can translate into more significant issues as the financial close continues. The good news is that today there are better options to choose from that can help organizations leave manual reconciliation processes behind, ensuring an accurate and timely financial close. Organizations can strengthen their foundation for reconciliation and other close processes from standardization to automation.
Tips to Create a Strong Account Reconciliation Framework
Tip #1: Improving Controls
Reconciling financial data is a process that doubles as an internal control capable of mitigating errors in balance sheet accounts. The transparency and efficiency of your reconciliation process is vital to detecting misstatements in advance of filing deadlines. Any errors identified by your auditor and not initially by your internal team point to material weakness in the internal control environment.
The primary tool many organizations use from the reconciliation process to month-end close is spreadsheets, even though this is manual and not the best practice today. When spreadsheets get shared across a team, it becomes harder to track changes and see any real-time status of your financial close. Furthermore, a team spread amongst many locations or working remotely can contribute to a higher lack of visibility, which means managers are doing more micro-managing to get status updates or know where the team is with deadlines.
“By automating our controls, it enables us to prevent errors, gives us confidence over our reporting and that our processes are operating as efficiently as possible.” – Serco
To solve this problem, organizations must improve their internal controls. This can be done by creating a standardized process for account reconciliation and testing controls through financial automation software. Account reconciliation controls are integral to the rest of your financial close — having accurate and timely reporting results in higher efficiency and transparency within your organization.
Tip #2: Standardizing Procedures
When looking at the close process, efficient and effective reconciliations set the foundation for all subsequent financial close activities. Establishing standardized practices is critical to ensuring close tasks are completed on time and ready to be approved and reviewed by the appropriate parties. When standardizing the Record to Report process, teams now have routine procedures that help streamline the close.
With standardization, organizations can have confidence, knowing that close tasks are completed with accurate data and enough time for the appropriate parties to approve and review. Additionally, there are many benefits of the reconciliation process when implementing standardization, such as:
- Increased visibility and transparency
- Lower compliance risk and cost
- Clear responsibilities and procedures
- Risk-based approach that analyzes the impact of items
- Automatic workflows that route to the right personnel for reconciliation preparation and approval
“We wanted to make our data gathering smarter to eliminate the opportunities for delay and bring it all together in a much more streamlined way. It was critical to us to deploy a financial close solution that would help standardize our data and ensure we are being as efficient and effective as possible in our closing process each month.” – Dallas Cowboys
Without standardized account reconciliation solutions, organizations are at risk for increased errors within their financial close. These errors can go undetected until much later, resulting in compliance risk when reporting and increased time delays. When organizations invest in a standardized account reconciliation process, they set themselves up for an accurate and efficient close that saves time and lowers risk.
As organizations invest in their financial transformation, they invest in their team and enable their full potential. With automation, mundane tasks are a thing of the past, and the team can feel empowered by focusing on strategic and challenging work. Not only is the manual process tedious, but it also causes stress as team members are responsible for the information reported without the help of technology to support them. Financial process automation gives the organization complete visibility and confidence in its numbers. Lastly, the newest generation entering the workforce is technologically savvy. Organizations must show they are as well if they want the competitive advantage to attract new talent. Leaning into technology and financial process automation can protect your current assets and increase the likelihood of gaining top talent. When reconciling financial data, organizations go through a long and tedious process that creates the foundation for the rest of the financial close.
Learn more about setting a solid foundation for your close process by downloading the 5 Tips to Improving Your Transaction Matching Reconciliation Process eBook.
Written by: Lauren McCrohan