Robust financial control enables greater operational speed and efficiency, and is a vital part of regulatory compliance. But having the right technology in place is key.
By Nick Noble, Product Manager
Establishing sound financial controls is an important target for most organisations. It gives numerous benefits including supporting accurate and efficient calculation of the financial close, reduction in the time required for reporting, the provision of correct information for audit and improved operational efficiency.
KPMG summed up the impact of having good financial controls: ‘shortening the record to report cycle can reduce the cost of finance and free-up scarce finance resources to focus on value-added activities. A shorter close cycle can help management in timely analysis of operations and taking corrective actions.’
But come week, month or quarter end, you’ll find a lot of finance personnel, like accountants and those responsible for reporting, disappear from view as they frantically gather the information required for the period end calculation.
Unfortunately, critical information such as statements and cash balances, future trades, exception reports, outstanding items and potentially suspicious transactions are often stored in a multitude of systems and require manipulation into the right format before the books can be closed. It is a process characterised by lots of manual effort, which in itself means operational inefficiencies and higher levels of risk.
What does financial control give you?
A robust financial control framework is a key enabler for a number of organisational processes. It ensures that financial reports are accurate first time, every time, and period end reporting can be completed efficiently.
While accuracy and efficiency (speeding up the close) are undoubtedly the major wins, another area to see benefit from a robust financial control framework is compliance. This is because, inherent to a sound framework, is the fact that data integrity must be maintained.
What challenges do companies face
- Data collection and integrity
Any financial control process starts with data. Where is your data? Is it created by a reliable source? After all, data integrity and quality go right to the heart of robust financial control.
But, given the complex nature of today’s interconnected processes, establishing the true financial position may require numerous data sources to be combined. Financial data within many organisations may reside in different geographies and be supplied in different currencies, each of which represents its own little data silo.
Within this interconnected web, if your reporting relies on data that is manually collated, or sits in a spreadsheet that is emailed across the organisation, and is not available in real-time can you honestly say the data is accurate and can be relied on?
Gartner offers some useful advice: institutions need to ‘look at data as the raw material for any decision and consider that data comes from both within and outside the enterprise.’ This requires institutions to move away from the mindset of just thinking in terms of enterprise reporting and basic analytics.
- Increasing compliance and audit demands
Many financial institutions cope with the ever-increasing compliance burden by investing in more staff. It is often seen as the easiest way to address risk, legal and internal-audit issues.
But with the need to improve financial controls and the regulatory scrutiny institutions now face for reporting, money-laundering (AML) or counter terrorism financing (CFT) compliance failures, costs are rising sharply.
There is therefore a need for a fresh approach. One that uses the latest technology to overcome the limitations of existing processes and ensures both the integrity of the data presented is maintained and provides a clear audit trail.
- Siloed operations
Many organisations are functionally siloed and / or broken up into autonomous divisions. Indeed, many large institutions might have a ‘house of brands’ approach where companies that have been acquired actually operate relatively independently.
Add to this that cost pressures often mean that part, or all, of the finance function is outsourced and you see that breaking down these siloes to get an accurate, timely and single true financial picture is extremely difficult. Systems that can overcome these internal silos and facilitate overarching financial governance can go a long way to combat this challenge.
- Cost pressures
The drive for efficiency and reduction of costs can be a challenge when trying to implement a robust financial control framework. Companies need the foresight and vision to adopt technologies that can standardise and simplify financial processes while reducing the manual intervention required. In this way, cost can be eliminated or reallocated to alleviate pressures within the business.
Breaking down the barriers
The latest cloud-based reconciliation systems eliminate many of the barriers to achieving an efficient financial close. They are capable of speeding up processes which frees up resources for more value adding activities.
Reconciliation systems can act as a centralised mechanism for collating, cleaning and reconciling data from a number of disparate systems. The huge benefit here is that they work alongside other systems and processes. You don’t need to think in terms of rip and replace if you want to make improvements. It’s more ‘obtain and use’.
Given how much of a pain it often is to get two systems to communicate with each other, this is a major advantage.
The role of a great reconciliation system
At the heart of financial control is the need to use data more effectively. It has long been recognised that the value of a good reconciliation system lies not just in what it can match, but in what you do with the results. How quickly can you identify potential exceptions? What automated processes and workflows support efficient investigation and resolution?
But institutions shouldn’t settle for just a good reconciliation system. Aim for a great one and this is where cloud-based reconciliation systems have a major advantage over legacy technology platforms.
With the ability to be deployed and measured in hours and days rather than weeks and months, cloud-based reconciliation systems unlock unparalleled operational efficiency possibilities. They enable you to make better use of the data that is stored in your systems which can even prove to be a source of competitive advantage.
When business users can start creating their own reconciliations in hours, it enables a more active and dynamic process that both taps into the data and leverages it in ways that were not previously possible. Imagine Big Data Analytics empowering your reporting and business decision making. All of a sudden you have a potential game changer for what you need to do, in order to calculate the financial close.
Given the advances in fintech and cloud systems, there really are no more excuses for institutions to struggle with getting the right data from different systems, and then using that data to support robust financial controls. Everyone should be able to benefit from a faster and slicker approach to the period end reporting cycle, and it should be much easier to complete.
Once you eliminate the barriers to a quick and efficient financial close, you can switch attention to more proactive management of any underlying issues: are you over- or under-financed, how to use surplus balances, what to do about hidden risks, inaccuracies or fraud and how to mitigate them.
Institutions that embrace using new technologies such as those built on automation, Big Data, machine learning and AI are typically leaner and more efficient. By embedding more innovative approaches into the financial control framework institutions become empowered to disrupt everything from internal processes to entire markets and industries.
With a cloud-based reconciliation system supporting your financial controls, you might also start to see more of your accounting and reporting colleagues come period end!