The finance department in most organizations is coming under increasing pressure to transform and streamline the financial close and reporting function while continuing to maintain the integrity of the financial statements and close process. A key part of this close process includes the completion of detailed account reconciliations, which can be a major bottleneck and headache in the close process. The necessity for understanding and certifying an account balance and its transactions is prompted by regulatory and audit control requirements. In addition to the statutory pressure for account reconciliations, the current economic situation makes it imperative for Finance executives to understand the details and transactions behind every account. They need to be able to easily identify fraudulent, improper and excessively aged transactions. In most organizations, the account reconciliation process is a very time consuming and manual process. A robust and integrated account reconciliation software application will allow Finance to more effectively manage their business.
Account Reconciliations Can Extend the Financial Close and Introduce Risk
Medium to large organizations often have the need to perform thousands of account reconciliations during the quarter-end or month-end close. Examples of the typical reconciliations include tying general ledger balances to sub-ledger balances, general ledger balances to bank account balances, general ledger balances to data warehouse balances, and consolidation application account balances to general ledger account balances. Most organizations also maintain reconciliations of general ledger balance sheet accounts such as prepaid expenses or accrued liabilities.
This tedious process is typically performed in Microsoft Excel, where Finance staff manually tie out the list of items in a spreadsheet to those in the general ledger and other systems. Managers usually send emails or make phone calls to track progress and follow up on delinquencies. Due to the challenges in tracking account reconciliations, companies typically prepare and review most reconciliations on the same schedule and are often not factoring in risk when determining frequency and due dates. Common failure points include:
- Missing or lost reconciliations
- Unreconciled accounts
- Improper use of roll-forwards
- Reconciliation of the wrong balance (balance changed after certification)
- Insufficient justification or documentation
When these failures occur, audit findings can result in a significant deficiency or a material weakness in internal control, and costs can reach the hundreds of thousands, or even millions of dollars.
Integrated Account Reconciliation Management Applications Meet the Challenge
Leading edge Finance organizations are now looking to eliminate spreadsheets and manual processes used to support account reconciliations, and adopt packaged software applications designed to automate and streamline the process. But it’s not enough to have a packaged software application to support account reconciliations, this application should also be integrated with financial close workflow, and the various systems in which account balances and transaction detail reside, such as financial consolidation applications and specific general ledgers. Key features in account reconciliation software packages include:
- Currency translation
- Audit controls for all activities
- Reporting and Monitoring
- Pushback of reconciliation adjustments to source systems
- Rule based thresholds for automatic certification and risk assessments
- Workflow support for reconciliation process
- Tasks and task assignments
The key benefits of integrated and packaged account reconciliation software packages include efficiency gains as well as reduction in risk to Finance organizations. Efficiency gains can be measured by the value in labor savings achieved by making the administration, preparation, and review of account reconciliations more efficient. Reduction in risk can be measured by the avoidance of costs associated with a failure in internal controls around account reconciliations. If material weaknesses are found and announced in external audits, the consequences can be costly. Companies incur expenses for additional legal and audit fees and there can be an impact on the stock price for publicly-held entities.
In summary, with increasing pressure to reduce close times and improve the integrity of financial reporting, Finance departments need to eliminate spreadsheets and manual processes and adopt technologies that can help automate and streamline the financial close process and eliminate the chances for errors, omissions and fraud. Integrated and packaged account reconciliation software applications can help alleviate a major bottleneck in the financial close process, increase accuracy and reduce risk, and can complement existing investments in financial consolidation, financial reporting, financial close workflow and transaction processing systems.
Here’s a link where you can find information about how the new Account Reconciliation Manager feature in Oracle Hyperion Financial Close Management can help make account reconciliations less of a headache:
Also, here’s a link to a recent webcast replay on this topic:
Please contact me if you have any questions or need more information: firstname.lastname@example.org