[IMGCAP(1)]Although the month-end reconciliation process requires significant resources and staff time to provide a correct picture of a company’s figures, current processes at a majority of companies typically contain severe flaws that create distrust even in the finance departments.

According to a survey of hundreds of finance professionals we at Adra Match recently concluded, finance departments are frustrated with the month-end close process. They often struggle with the conflicting demands of accuracy and corporate pressure to close each month’s books quickly. As a part of our product development project we set out to gather more insight into the month-end close process. Several of the findings surprised us.

Some important highlights of the survey: Only 28 percent of respondents trust the reported numbers. Only 39 percent are satisfied with the quality of the closing process, and 90 percent are under pressure to close faster.

Low Trust in Reported Numbers
Respondents told us the most important factor was the ability to trust their reported numbers, yet ironically only 28 percent trusted their figures. Also notable was the finding that 30 percent of managers (such as CFOs, controllers and finance Directors) trust the reported numbers, compared with just 15 percent of accounting staff.

Since the staff are much closer to the numbers, this raises some important questions about the differences. Could it be that respondents with management roles trust the numbers more on the assumption that the numbers are correct simply because the staff has submitted them?

Uncertain Quality of the Close Process
Only 39 percent of respondents said they are satisfied with the quality of the close process, and there are many reported issues that affect this quality. A high workload, in combination with very tight deadlines, creates a clear tradeoff between accuracy and timeliness.

This is particularly true when combined with poor overview, communication and coordination processes, data access issues and the use of spreadsheets as the primary tool for the close process.

Pressure to Close Faster
Ninety percent of those surveyed responded that they are under pressure to close faster. We expected this figure to be high, but not that it would hold true for 9 out of 10 companies. The pressure comes not only from shareholders and top executives but also very much from within the ranks. Many responded that they personally wanted to shorten the close process in order to be able to spend more time on value-added activities.

We didn’t only want to gather the statistics; more important was to try to understand how companies work today and what the underlying issues are. We did that by inviting the respondents to tell us their greatest challenges during the monthly close process, in their own words.

We then analyzed all the responses and were able to group them into 10 different categories.
Biggest challenges during the month end close process:

1. Lack of unified and consistent process
2. Quality of the reconciliation process
3. Pressure to close faster
4. To be able to trust the numbers
5. Overview and visibility of the process
6. Communication and coordination
7. Task management
8. Spreadsheet issues
9. Access to data and information
10. Lack of good systems to automate the process

How Organizations Work Today
Most companies use a combination of spreadsheets, binders and digital archiving in shared folders for their process. But it is common that different departments, or even accounting staff, have their own processes and ways of working. Traceability is low (if not nonexistent). This, combined with a lack of segregation of duties, results in uncertainties in the reported numbers.

Finance departments typically use checklists for everything. But they run checklists in spreadsheets without tracking and with limited status overview. Many find it very inefficient as illustrated by a comment from one survey respondent: “Our biggest challenge is manual processes, spreadsheets rather than systems to track various things, systems that do not talk to each other, which results in duplication of efforts.”

Root Causes
Of the 10 reported main challenges, it is the first two that are the most critical. It is the lack of a consistent and well-defined process that is the root cause of many of the other challenges outlined. As one respondent put it, “There are too many accounts, poor systems and account reconciliations being done in too many ways and saved all over the place.”

When we did a correlation analysis on the responses we could clearly see that companies that are happy with the quality of the process could both close faster and demonstrate a higher trust in the numbers. Unsurprisingly, companies without consistent and strong processes only did more damage if they demanded shorter close cycles.

Three Steps to Reinstate Trust
Based on our research, customer feedback and 20 years of experience of providing software to finance departments, we recommend our customers go through a three-step approach.

Step 1: Take a holistic approach and review the whole process. Take a hard look at how you work today and what your key challenges are. Do you have overview, traceability and a unified process? Can you truly trust your numbers, can you work more efficiently or can you close faster?

Step 2: Evaluate if purpose-built software could help you achieve your objectives with a positive ROI.

Step 3: Make sure to develop, document and implement a consistent and smooth process.

With or without purpose-built software, the quality of the process is critical. Accounting staff might object to more guidelines and processes. They may feel that tight processes limit their freedom, but it is this freedom that tends to be the root cause.

Martin Thunman is the CEO of Adra Match, a provider of software for advanced data matching and reconciliations.

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