Finance and accounting processes are the lifelines of businesses across the board, as they deal with accurate and timely recording and reporting of financial information. Hence, having the right set of processes, controls, and systems for finance and accounting is critical for the success and scalability of any business. Currently, we see a lot of focus on process re-engineering and automation across businesses, as some critical elements of eliminating or minimizing manual tasks were missed during the finance and accounting solution design and setup. Missing these key aspects would mean higher full-time equivalents (FTEs) required for processing, additional automation efforts, missed KPIs, and ultimately, additional cost for the business. Drawing from our experience of setting up the finance and accounting process for one of the leading UK pension providers, we identified that higher levels of efficiency can be achieved by embedding digitalization and automation in the design during the initial setup.
Some of the key areas that will make the finance and accounting process agile and effective from day one, are outlined below.
Understanding the banking system and payment cycle of the geography
Each country has its own set of banking rules, payment types, payment providers, payment intermediaries, and payment cut-offs. Understanding the banking system and payment modes for both money-in and money-out is an important element in solution design. For example, a direct debit payment type is something that can be controlled by the business processes, whereas direct credit has a dependency on the payer and may need manual intervention in reconciliation. Hence, businesses should evaluate payment methods at the design phase and select a payment type that provides faster turnaround time and also ease of identification and reconciliation.
General ledger (GL) setup and bank reconciliation
Businesses must have a highly automated and robust GL and bank reconciliation solution. Automation of reconciliation rules and reports setup depends on the additional information tagged against the accounting entries, and it is important to understand this additional information during the GL setup stage. This should cover requirements from the perspective of reconciliation, reporting, and financial controls.
For example, bank reconciliation primarily needs two main inputs – data from the GL and the money movement feed from the bank. The availability of a unique reference between the GL and bank transactions is key for all types of reconciliation, irrespective of the reconciliation system used by the
business. Most businesses fail to identify this at the setup stage and then spend huge efforts and investments in improving the auto-reconciliation percentage. Based on our experience in automating finance and accounting processes, businesses can achieve more than 95% auto-reconciliation from day one, if the required reference and the automation rules are defined correctly during the setup.
Embedding the right set of preventive and detective operational and automated controls in the end-to-end solution and process design from day one is very important. Some of the standard controls that businesses can implement are explained below:
- Systemic four-eye check control should be implemented for critical processes like payments, reconciliation, and reporting.
- Segregation of duties should be defined clearly between teams. For example, the reconciliation team should be independent of the team making the payments. Irrespective of the size or nature of business, segregation of duties is very important.
- A periodic entitlement review – monthly or quarterly – of systems access, signatories, and limits is a very important control.
- Approval limits and levels should be set up for the payments based on the value, criticality, type of payment, and seniority level of approvers. The limits and levels should be documented, and any change should follow a properly documented and approved change management process.
- Businesses can eliminate the risk of financial crime and fraud by integrating with third-party tools for validating incoming and outgoing payment accounts.
- A combination of AI and anti-money laundering tools can be used to analyze user profile and behavior as well as identify and flag anomalies like payment patterns, IP tracking, and fraud alerts in financial transactions.
- Robotic process automation can eliminate manual controls like trial balance validation, variance analysis, and reporting.
Advantages of the right design at the right time
The key areas discussed in this blog are simple yet critical for any finance ecosystem. Based on our experience, we think that if businesses focus on these key elements during the finance and accounting design and setup, that will make the end-to-end process efficient from the get-go. To reap the benefits of reduced future automation costs, industry best practices, robust end-to-end controls, and minimal FTEs, businesses must think of the right design at the right time.