This is the second of a series of three short newsletters on how to stay ahead of finance process issues and prevent these challenges from becoming more significant problems.  Each newsletter addresses a different aspect of these challenges: Producing Data, Consuming or Using Data (today’s topic), and Preparing for and Managing the Audit.

As noted in Part 1 of 3, Producing Data, a strong finance team is critical to the success of any company.  In Part 1 we covered challenges and action plans around the process for producing timely reporting of business results and indicators.  There are similar potential pitfalls when it comes to using or consuming the data to make business decisions.

Challenge — Lack of Clarity on Required General Ledger Account Details

Accurate data in the general ledger, and in supporting systems populated by staff outside the finance team, is critical.  Bookkeeping and data entry errors make it difficult to rely on the information in the systems without laborious data cleansing exercises and adjustments.  Also, if inclusion of a few digits in the account code when booking entries makes the difference in how information is processed, they must be used consistently.  If not, this can lead to unmatched debits and credits, inflation of the balance sheet and eventual write-offs that could have been avoided.

Action Plan — Document the Process and Train the Team

• Ensure that requirements for posting entries are well understood by the accounting, finance, and operations teams
• Train the staff that processes entries to supporting systems to eliminate errors.  Perhaps a visual aid with exactly how to book various entries may help
• Enable automated error checking, and reconciliation capabilities to the extent possible
• Have the accounting team review a sampling of entries monthly before the close as an opportunity to reinforce training and to randomly test for errors as part of a quality control process

Challenge — Over-Reliance on Spreadsheet Links for Reports and Analysis

An integrated system, whether finance and accounting or multi-function, is often beyond the resources of many organizations, both in terms of the cost and the time to convert from old process to new. As a result, finance, risk, and other staff often rely on spreadsheets which can proliferate and become very complex.  With a strong foundation of process management and internal controls these tools can still support the needs of many organizations and make an eventual systems conversion far easier when the time comes.

Action Plan – Implement Data Management to Bring New Resilience to the Process

• Produce an inventory of recurring reports and analysis – this is also a great opportunity to eliminate redundant or unused reporting
• Review the data elements comprising the reports, including the source and definition, and to the extent that sources for similar elements vary, identify and agree on the source and definition – in effect, a data source inventory
• Ensure that numbers are consistent across various reports by always using the data source inventory so, if and when spreadsheet links break, the data source inventory takes away the guesswork

Challenge — Financial Reporting Doesn’t Address Needs of Decision Makers   

Financial reports should drive discussion through presentation of trend analysis, period and budget comparisons, and relevant metrics.  If there are no questions or discussion when the CFO presents the financials, perhaps the information presented is no longer relevant.

Action Plan — Design Financial Reporting to Drive Performance  

• Focus reporting on performance by identifying the key indicators that are most critical to driving success
• Include trend graphs to drive clarity on over / under performance and generate discussion on decisions and actions required to get back on track
• Ensure that variance explanations versus prior year, budget and prior month are clear – this is important from a control perspective as well as for the analysis of business performance

 

NEXT –  Part 3 of 3: BUILDING A STRONGER FINANCIAL MANAGEMENT PROCESS – PREPARING FOR AND MANAGING THE AUDIT

A strong finance team is critical to the success of any company.  Sometimes, however, financial results are late, incorrect, or not issued at all due to problems in finance processes.  For a smaller business, with just a few accounting and finance resources, staff turnover can instantly highlight any process weakness.

This is the first of a series of three short newsletters on how to stay ahead of finance process issues and prevent these challenges from becoming more significant problems.  Each newsletter will address a different aspect of these challenges: Producing Data, Consuming Data, and Preparing for and Managing the Audit.

The team can become so shorthanded and/or overtasked that the work becomes overwhelming, resulting in a loss of discipline in the closing process including confusion on roles and responsibilities and inadequate time for a reasonable review of work performed.  In these cases financial reports are sometimes prepared using estimates of revenue, accounts which are “booked to budget” or unreconciled, and other data points from outside of the accounting records.

This problem is directly related to the overall difficulty in closing the books.  For example, an operations team can be responsible for initiating revenue transactions, revising those transactions, and forwarding the transaction information to Finance (via an automated or manual process).  It is easy for this handoff to break down, causing delays and inaccuracies in recording revenue.  This can be particularly hard to fix If the finance function is already experiencing some challenges, with finance and operations teams blaming each other for the problems.  The good news is the recurring pain of dealing with this challenge should make the case for process improvement.

When a senior member of the finance and accounting staff leaves the company, gaps in process management and training quickly become apparent.  The team may not be clear on roles, closing steps, how to prepare board financials and other key analytics, and may have been performing tasks without knowing why.

This planning process will provide an opportunity for development, preparation for assuming greater responsibility, and perhaps greater job satisfaction as the team understands the purpose and critical importance of the various tasks they perform.