Information Technology

How decentralising process can make painless year-end a reality

By Alice Allegrini, Managing Director Unit4 prevero UK
Information Technology
Published: 6 April 2018

Despite all the advances in accounting tools for corporate finance, year-end continues to make life difficult for CFOs.

A good year-end close happens efficiently, with full confidence in the numbers, and includes strategic insights about company performance.

Some finance teams are able to deliver this, but escalating reporting demands, multiple data sources, and catching discrepancies still makes end-of-fiscal a slow, stressful, and headache-inducing experience for many.

At those organisations, the struggle to close last year’s book looks remarkably similar:

  • Backlogs of unposted journal entries
  • Inability to run reports quickly due to lack of confidence in the integrity of data
  • Slow consolidation due to entities and subsidiaries all running different systems
  • Too much time spent validating data and trying to get to the bottom of unexplained variances
  • Up to a month or more to complete the process

The efficiency of year-end close affects the office of finance’s ability to deliver credible financial reports. Teams that can close the books in 5 days or less gain a lead on competitors who take much longer. Closing quickly leaves more time for analysis and delivering insights into the peaks and valleys of overall results.

Closing the year in days rather than weeks and eliminating the stress and mounting sense of panic that comes with it is entirely possible. It starts by understanding the root causes of the pain: inefficiencies, out-of-date tools, and broken processes.

Sources of frustration
Many organisations still rely on Excel to make year-end happen. In today’s finance environment, with its growing complexity and pressure to produce more information faster, using outdated tools adds un-needed stress.

Too many CFOs start the year-end process by gathering spreadsheets from across a group with data sourced from various financial applications. There is no reliable way to know quickly how accurate the numbers are, or even if you have the latest version.

Excel is often based on data drawn from ERP systems. While using spreadsheets as a database is sub-optimal in an event, ERP solutions are designed mainly for capturing transaction data and have limited reporting capabilities.

It’s often the case that the extraction process that prepares ERP data for export creates errors, and depending on the system’s level of technical complexity, may require the intervention of IT staff. Pulling ERP data into spreadsheets can cause delays and add lots of manual work: fixing errors, configuring and re-configuring report formats, and tracing unexplained variations.

Another issue dragging down year-end close is the number of data sources that have to be integrated. Business data can be stored in spreadsheets. On ERP systems, or on third-party platforms like payroll.

If the company has a number of entities, currencies, and intercompany reconciliations within a group, data may need to be consolidated from different accounting systems, time zones, languages, and variances in accounting rules. All of this threatens the speed and quality of financial statements.

In that scenario any lack of shared system expertise can also hold things back. Using more than one system for reconciliation means many people in many locations need the skills to use them. Without a clear understanding across the extended finance team of how key systems work and connect, discrepancies are more likely to occur.

Finance teams need a ‘single source of truth’ so that everyone is working with the same numbers, the same systems, the same timelines, the same access to the latest information, and the same processes.

Making pain-free year-end a reality
In today’s finance environment, a fast & efficient close is only possible when teams de-centralise the process and make it more collaborative. If responsibility for timelines and the integrity of numbers can be returned to subsidiaries and entities, the resource bottlenecks and errors that happen with a combination Excel and ERP can be eliminated.

The idea is to empower entities within a group to carry out their financial reconciliations on the same system – in real time and independent of geography. This way, intercompany transactions can be carried out directly by the entities themselves throughout the fiscal year – eliminating year-end backlogs and making variances more visible as and when they occur.

Automation is an important element in all of this. CFOs will need to consider investing in finance software capable of matching all transactions automatically, and detecting unusual entries or activity. That will enable the team to fix errors as they arise at month-end (or even as they happen), and focus exclusively on any major discrepancies that are detected at end-of-fiscal.

That shouldn’t mean overhauling your entire finance IT infrastructure. There are decentralizing tools available that integrate and connect with current accounting systems, ERP, as well as consolidation and reporting tools.

With the outlook for mergers and acquisitions still robust, CFOs are likely to face more complexity in reconciliation and consolidation within groups – not less. Shared finance systems with automation capabilities can cut the time spent chasing entities and investigating historical variances. Achieving a faster year-end close will strengthen trust in the office of finance’s numbers and free you CFOs to focus on delivering insights that support broader business strategy.

The key is to empower individual entities to ensure the integrity of their numbers at the source.