Finance and accounting professionals would, I’m sure, welcome solutions to make life easier when it comes to facilitating the monthly financial close process. For record to report (R2R) teams, the process entails collecting and processing large amounts of data to produce meaningful reports that the C-suite can use to understand how the business is performing and ensure compliance. Yet, systemic challenges such as slow manual data management, poor data quality and risky ungoverned processes are increasingly hindering the accuracy of this reporting task and are preventing strict deadlines from being met.

External pressures at play

Prior to the Covid-19 pandemic, many finance teams were already operating in highly dynamic business environments, constantly reacting to the aftermath of ever-changing customer behaviours and surge in competitors. With ever-increasing amounts of data to capture, coupled with the limitations of ERP and accounting systems, these functions were working harder than ever before. The sudden introduction of the pandemic disrupted operations further, increasing this pressure. Asking people to work at home while maintaining a consistent workflow to keep the business afloat instantly created a sense of chaos. Slow internet, increased distractions, and mental wellbeing are just some of the challenges employees have grappled while working under home conditions. Additionally, many enterprises that relied on manual processes were forced to make tough decisions contributing to lower employee productivity levels. This, in combination with a reduced workforce due to furloughing and the general surge in data generation raises the question: do finance teams today have the time and resources required to close the books without automation? The evidence suggests not.

Despite extensions to financial closing windows to help relieve some of the burden on finance teams in the peak of the pandemic, it’s clear that late and inaccurate reporting remains an issue for enterprises, especially since the markets are likely be unstable for the foreseeable future. Failure to report accurately or on time increases risks of non-compliance and can have an impact on share prices, cause financial loss and damage a company’s reputation. The accounting scandal that caused the café chain Patisserie Valerie to close a number of stores after discovering a ‘black hole’ in its accounts is a stark reminder of the impact of inaccurate financial reports. Extensive misstatements of its accounts, manipulation of balance sheets, thousands of false entries in its ledgers and overstated profits and cashflow were just some of the accounting irregularities revealed. Not only did this lead to mass redundancies but it also had to rely on a £20 million pound loan to survive. The stakes are high if you get it wrong.

Internal pains challenging the close

R2R is the end point of many complex financial processes, incorporating information from accounts payable, assets accounting, sales and distribution, and many other key functions. There are hundreds of tasks to manage when closing the books. Yet, according to the Journal of Accountancy, 73% of finance teams are still collecting and processing all this complex information using manually intensive, spreadsheet based systems, making it difficult for them to run an efficient and effective operation. This slow and laborious process consumes precious time that finance executives just don’t have when working to an imminent deadline, causing a huge 87% of them to work overtime during the financial close process. Journal entries, for example, are often managed using Excel files and then the data is manually rekeyed into the accounts system. Such tedious tasks are leading to many late nights and unhappy employees – add this to the impact of Covid-19, and the situation becomes even more intense.

With business-critical data increasing exponentially and manual processes slowing down the R2R team’s ability to achieve a faster close, the risks from error prone data are increasing in severity.

For instance, Gartner found that the average cost of poor data quality on business amounts to anywhere between £7.5 million and £11 million annually. Consequently, incorrect data induces a lengthy correction process. With the absence of effective solutions, often a finance executive will carry out this mundane work by hunting, identifying and crosschecking information against trusted sources which can take hours, if not days.

Remedies for success

The good news is that these data challenges can be remedied, which in turn will help alleviate the pressure on finance, improve compliance and reduce business risk. A good place to start is by investing in automation software which can support data management while speeding up the time it takes to prepare reports. Remember, the financial close is an end point, which means other processes including journal entry, general ledger and reconciliation should be automated too, to support the closing of the books.

Opting for flexible automation software that can be implemented quickly with minimal programming and engagement from IT is highly advantageous. It could also give finance teams the option on whether to use attended automation, which helps them replace time-consuming manual tasks, or process automation, which manages all aspects of an end to end process. The latter is an efficient measure when working with complicated processes that involve the orchestration of multiple steps by many different teams throughout the organisation – which is obviously typical in a complex R2R environment.

Automation tools can help finance teams process the abundant data required to finalise the financial close period more quickly and efficiently. However, they also need to be mindful of the accuracy of the data being processed. Developing a finance automation strategy that can address the interdependence of data and process will prevent bad data being entered into ERP faster than ever before. In our experience, companies that started their automation journey without re-engineering the processes that were creating poor data have subsequently struggled with quality issues at a later stage. Additionally, using a solution that can validate data before the review and approval process should also be able to significantly improve closing period activities while maintaining compliance.

Enterprises can also adhere to strict governance and compliance deadlines by using software with an inbuilt centralised management solution to govern data, ensuring audits are passed and penalties are avoided. This means that files such as Excel spreadsheets are not only managed centrally but workflows are tracked across the entire R2R process, increasing visibility, and eliminating the risk of errors. This is particularly important for organisations that are now operating with a fragmented workforce as a result of Covid-19, as it enables employees to seamlessly access files with little disruption.

With many challenges impacting the R2R team’s ability to close the books faster, it’s clear that more effective data practices need to be considered to avoid the associated risks. Using a flexible automated solution that can speed up manual processes while managing the overall data being collected and inputted into ERP will relieve some of the stress that is being placed on the finance department while also benefiting R2R activities. In turn, companies can be confident that their reporting will be on time and accurate, mitigating any risks that could otherwise come back to bite.