Ann Furlong discusses why conducting reconciliations via spreadsheet is wasting your time and money, and increasing errors.
Account reconciliations are one of the best forms of control for ensuring financial statement accuracy. However, they can only do this if they are meeting their purpose: assessing the validity, correctness or appropriateness of an account balance at a specific point in time. The assessment must be fully documented with relevant calculations, clear and complete explanations and copies of supporting documents.
A great number of organisations still rely heavily on uncontrolled reconciliation processes, and manual methods based on paper and email. Every month accounts staff are retyping information for reconciliations, crippling the use of staff in the process. Requesting, gathering and copying reconciliations wastes auditors’ time that could be better spent testing internal controls. As a result, organisations find themselves grappling with problems ranging from overtime and poor employee morale to large adjustments and material weaknesses.
Unfortunately, one of the most commonly used tools in an accounts department, the spreadsheet, falls into this manual category. It requires an extensive amount of people-time but is unable to delivery the certainty of a fail-safe result due to errors that creep in through mis-keying or corrupted formula, lost or overwritten supporting documentation. What’s more, the lack of security and workflow inefficiencies make spreadsheets a poor choice for such a critical and frequent task.
The solution is to utilise a mix of technology and process improvement in a way that allows the company to redirect staffing resources to value-focused analytical activities while also reducing costs. Simple cost/benefit analyses can be developed around staff and manager time savings, reduced paper and storage needs and lower audit fees and travel costs.
Automated account reconciliation solutions
Commercially available reconciliation solutions streamline the reconciliation process, ensuring accurate results supported by the right documentation. Most software in this class is relatively inexpensive with benefits that far outweigh the cost for any size company.
One of the biggest differences between automated solutions and manual systems or spreadsheets is increased visibility. Automated software provides real-time status and metrics, with dashboards and reports that show what’s done, what is yet to be completed, what was late, what was rejected, and what’s at risk for all levels of the business’ operations.
Balance changes, new accounts, delinquencies and other risk-associated events can be monitored proactively. Email alerts are sent to the appropriate users before a situation becomes critical, giving a company valuable time to take any necessary actions.
Productivity and efficiency increase as standardised templates with pre-defined formats allow reconcilers and managers to concentrate on content rather than form. Transaction matching functionality using a rules-based process speeds up the reconciliation of high volume accounts. In addition, auto-certifying low-risk accounts and pre-populating reconciliations with account balances, sub-ledger balances and certain reconciling items can considerably reduce a preparer’s time and effort.
Other byproducts of an automated solution include greater consistency, reduced operational costs, and reduced audit cost and risk.
What to look for
There are several account reconciliation software solutions on the market so it is important to discuss your precise needs with the vendor and to assess solutions carefully if you want the right software for your end of month process.
Start by considering what kind of software delivery model suits your business best. If you have a strong IT department, an on-premise deployment may present no problems. However, if IT resources are limited a software-as-a-service delivery model may be ideal.
Whichever way you go, you’ll want a system that saves you time. Therefore, it must be intuitive, easy to use and easy to administer. To avoid retyping data, look for automated interfaces with your ERP system and other data sources.
One big time-saving functionality is auto-certification of low risk accounts, such as a zero balance account that has had no activity. If the auditor requires a record that the accounts are indeed checked and reconciled, under certain criteria, a rules-driven process can create, pre-populate and then automatically certify the reconciliation. Some larger companies report successful auto-certification of 70 to 80 per cent of their overall accounts, resulting in enormous cost savings, satisfied auditors and less bored accountants.
Built-in role-based workflows speed the process at the same time as providing user guidance and an additional level of management control.
For data integrity, make sure numbers and documents can’t be changed after certification. This includes balances in sync with the general ledger and other data sources via automated interfaces. The system should also provide extensive dashboards and reporting.
Given the risks and errors inherent in a manual approach, it’s surprising that the use of spreadsheets for reconciliations has not yet become fully obsolete. An automated account reconciliation system replaces the manual process of updating a jumble of spreadsheets with a streamlined, controlled environment. The smart combination of this relatively new technology and kept-in-check process improvements ensures a faster, more controlled financial close while supporting greater confidence in financial results.
Ann Furlong, FCCA, is director of operations, APAC, for BlackLine Systems. She can be reached at ann.furlong@blackline.com.
