Process automation: The new Holy Grail for Chief Financial Officers

In the midst of regulations, deadlines, cost reductions, and quality expectations, Chief Financial Officers (CFOs) are under pressure, with a stress often proportional to the size of the company and its international exposure. Anxiety stemming from the acquisition of a multinational is sometimes added to that list.

In this context it is easy to imagine how much anxiety the CFO of a group like Altice must feel when the CEO, Patrick Drahi, announces the acquisition of the seventh biggest cable operator in the US, Suddenlink Communications, for $7bn (£5bn). Beyond the initial financial arrangement, the CFO also has to consider the complexity of the accounting and financial management processes that will need overseeing in order for the balance sheet of the newly formed company to be delivered in record time.

How can the accounting and tax standards for each country be taken into account? How to manage financial operations conducted by subsidiaries on different continents? How do you harmonise operations conducted by different subsidiaries through Enterprise Resource Planning (ERP), local software tools, or manually? In many businesses, hundreds of accountants process tens of thousands of transactions via local software tools or even manually for certain operations such as auditing. Armed with paper and a marker, the employee ensures the consistency between the balance of the bank account provided by the accounting department and statements issued by banks. The process is long, may lead to mistakes and in some cases, fraud.

Data accuracy as a top priority for Finance & Accounting (F&A)

For many financial decision makers, recurrent headlines about accounting scandals create anxiety as well as frustration. We recently spoke to a cross-section of UK financial decision makers about their data concerns; 15 per cent said they worry that the data they are accountable for is not accurate. Three quarters (73 per cent) of financial decision makers contacted were not able to say that they have complete trust in their financial data. Almost a third (29 per cent) felt their teams were under-resourced, making instances of human error more likely, which means many CFOs must feel like there's a ticking time bomb within their organisation.

This comes at a time when senior members of F&A are taking on wider and more strategic corporate responsibilities and have a greater need for core processes to run smoothly. The 'Modern Finance’ approach means using automation solutions for finance and accounting processes, in order to make them more efficient, accurate and secure. The benefits speak for themselves.

Of the 250 financial decision makers we spoke to, 45 per cent said they were making accuracy a top priority for 2016. This is an increase of 38 per cent compared with the previous year – following some high profile accounting scandals, CFOs are gradually realising just how important accuracy within financial reporting really is. Increasing financial automation and improving visibility and access to financial data (both 40 per cent), which pave the way for greater accuracy, were other big priorities for financial decision makers this year.

Manual processing underlying accounting irregularities

Accounting irregularities do exist. The last two to hit the headlines concerned the retailer Tesco and the Japanese manufacturer Toshiba. Tesco was accused of overstating profits by over £263m. According to the group's senior management, the discrepancy was due to the way income from suppliers was recognised. This situation could be due to embezzlement (deliberately deferred costs or inflated revenue) or accounting irregularities, revenue not including customer discounts for example. Embezzlement or accounting error, eight company executives including the Chief Financial Officer had to resign. As for Toshiba, wrong data input in its financial result have recently forced the manufacturer to cancel its profit forecast for the 2014/2015 financial year estimated at €923m (£735m).

In light of the above cases, and perhaps others that have yet to be disclosed, it is clear that companies are not immune to accounting irregularities. And with good reason, depending on its size, a company can process from tens of millions to billions of transactions. A multinational can produce up to 100,000 balance sheet accounts. That volume of data can, without comprehensive computerisation to automate, standardise, and consolidate data, lead to many errors.

Process automation of financial management is needed

Today Enterprise Resource Planning (ERP) and other software solutions for running a number of accounting processes (purchasing process, sales, payroll...) are used in all major businesses. These activities are however often operated in silos and the lack of communication and compatibility of tools generates errors, lengthens processing times, and inflates costs because of work overlap. For this reason, companies have every incentive to automate as much of their accounting and financial processes as possible, by implementing multi-layered software products, allowing for smooth communication between different functions.

Today, cloud services, which allow for this level of compatibility are available on the market. They enable companies to automate, standardise their processes, safely store and archive all the supporting evidence in their accounting processes. With this type of solution, accounting and financial management gain in efficiency, profitability, and transparency without having to invest in costly and lengthy software system deployments.

The exponential increase in workload and complexity of the task for CFOs makes a strong argument for implementing what Gartner refers to as EFCA – Enhanced Finance Controls and Automation – solutions and applications that can automate and control core accounting processes, enabling companies to meet demands of management, ensure accuracy and spend more time on the things that really matter. These solutions bridge the gap between ERP platforms and existing Corporate Performance Management software, allowing F&A strategists to provide controls throughout the accounting period. Automation can help them meet targets, increase the quality of services provided to both internal and external stakeholders (general management, operational departments, government agencies, investors, banks) and gain peace of mind: all things good for business.

While the need to drive efficiency is an ongoing priority for F&A, it can’t be achieved without confidence in the accuracy of one’s own data. With new regulations, such as the converged revenue recognition standard, on the horizon for 2017, early action is vital.

Mario Spanicciati, Chief Strategy Officer, BlackLine