How to Solve the Financial Close Dilemma

Sponsored by CUES Supplier member SkyStem.

The significant increase in entrepreneurial activity following the pandemic has caused a rise in disruptions in markets across all sectors, particularly evidenced by the widespread adoption of new technologies. A recent study conducted by the TCS Business 4.0TM Institute reveals that 75% of chief information officers are spearheading the development of digital strategies to enhance competitiveness and operational efficiency. Technologies like artificial intelligence and machine learning are being integrated into various departments, facilitating collaborative work and accelerating productivity.

Finance departments are embracing this digital transformation trend. Automation is revolutionizing the month-end close process by minimizing manual errors, optimizing internal controls, automating repetitive tasks and offering real-time insights, thereby expediting decision-making.

Nevertheless, implementing new platforms and technologies to streamline operations can be daunting and time-consuming, particularly without clear guidance. Thus, we have compiled three key strategies to guide your journey toward complete digitalization of your business, resulting in significant time savings, enhanced accuracy and improved efficiency in the close process.

Automation of Low-Value Tasks

Automating key tasks in the financial close process frees up time for your team. Tasks like balance sheet reconciliations, closing checklists, variance analysis and data analytics can be automated, streamlining operations and identifying core issues swiftly. Layering automation tools enhances speed and accuracy, fostering growth with improved analytics for better decision-making.

Streamline Internal Controls

As month-end deadlines loom, accounting teams often face a dilemma: prioritize speed and risk neglecting internal controls or ensure compliance and prolong the close cycle. However, teams automating internal controls with AI and new tech solutions don't have to compromise between speed and compliance.

Modernizing internal controls is a crucial compliance task that can help your team generate financial reports faster, without compromising accuracy. It consists of replacing manual controls with automated processes, so your team can reassess the current internal controls and identify potential risks to the closing process quicker. Automating the internal controls can help identify the following:

• Are there gaps, or areas with clear or stated objectives but no internal control or an inadequate one? This will then allow your team to implement new internal controls or improve these to mitigate risks.
   
• Are there overlaps, or areas where there are multiple internal controls seeking to mitigate the same risk? Here you can reduce duplicate coverage to save your team time at the end of the month and help focus on other key strategic areas instead.
   
• Are there areas where internal controls can be updated or automated to execute a specific control quicker? This can be by replacing manual processes or replacing detective controls with preventive controls.
   
• Are there areas where you can implement anti-fraud controls to noticeably reduce risks at the end of the month process?

Adopt and Analyze Sub-Metrics

Automating processes minimizes manual errors and transforms collected data into a valuable asset. To leverage this data effectively, teams must adopt and analyze key sub-metrics to gain insights into their financial and business health. This enables them to pinpoint and address specific bottlenecks and issues within the process.

The key to operational excellence is knowing what data is pertinent for the financial close process and why. Here are some sub-metrics to complement the days to close calculation:

• The number of days for sub-ledger close: This can sometimes mean reengineering processes since sub-ledgers may require many days to close due to other dependent tasks.
   
• The number of tasks at month-end close: If not tracked, many tasks can be showstoppers in the process, so it's imperative to use a tool and organized method to complete and track critical tasks.
   
• Number of manual journal entries: This is a clear indicator of where potential automation can be applied. Measure your manual entries and automated entries and analyze the ratio to seek efficiency improvements.
   
• Number of error-correcting journal entries: These often represent duplicative work as it requires extra effort and time to remediate errors. Use these as references to improve your processes and potentially eliminate these errors.
   
• Time required to complete reconciliations: This is a time-consuming task, so measuring the time required to complete and meet reconciliation deadlines can allow you and your team to assess if automation is required, without compromising quality.

In the era of increased digitization, companies that lag in adopting new technologies will fall behind their competitors. Similarly, team leaders who overlook the benefits of automation perpetuate error-prone manual processes. Even in accounting and financial reporting, embracing technology can significantly enhance the month-end process. By automating low-value tasks, streamlining internal controls, and analyzing sub-metrics, you can resolve financial close challenges and gain a competitive edge.

Shagun Malhotra is CEO and founder of CUES Supplier member SkyStem.