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Be scandal proof: the accounting controls you need to have

3rd Dec 2014
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In 2013, BlackLine observed several instances of companies waiting until they befell a scandal – usually caused by an accounting error – to review how they managed and controlled their financial close. Over twelve months later and it appears that many organisations are still experiencing the same problems.

The Securities and Exchange Commission (SEC) in the USA recently forced several public companies to revisit their financial statements, unveiling a concerning amount of common trends: namely, lack of control over financial statements, lack of documentation, plus a worrying amount of errors which were overlooked or ignored.

It is likely that a large proportion of UK corporates have the same challenges within their processes; many financial close processes are simply not adequately designed to support the time sensitive nature of financial reporting, and many still rely on spreadsheets and manual efforts.

When Tesco reported a profit overstatement of £250m earlier this autumn, many were surprised about the magnitude. However, as the SEC investigation has shown, this is by no means the first time that a large organisation has struggled with its numbers. It is perhaps more surprising that errors like this haven’t been exposed more often.

The discrepancies should serve as a stark warning for others. If it can happen to an organisation like Tesco, what is stopping it from happening in your business? Do you have processes and controls in place to validate your financial data? How confident are you that every close is correct? It’s time to make sure that adequate controls and automation are in place to guard against error while supporting the speed at which modern finance organisations desire to complete their financial reporting.

The SEC highlighted that many businesses do not have internal controls in place to provide reasonable assurance that accounts have been completed accurately. Basic reporting into the CFO’s team and basic controls should be there as a matter of common sense, reducing the risk for a material mistake, whether it’s a deliberate one or not.

One issue seems to be that organisations are not taking advantage of specialist financial software and are relying on old, time intensive processes, which are both highly susceptible to error and don’t leave enough time for analysis of results. Accounting processes are still heavily reliant on preparing spreadsheets, which is tedious, time-consuming and in times of stress, very easy to get wrong.

Another issue – when companies are using technology – seems to be that ERP providers offer great functionality for recording debits and credits but are not focused on delivering what modern finance organisations need to for effective management and control. This is why accountants are still using spreadsheets to track and monitor these processes and their ERP systems are not well positioned to manage and automate the financial close.

Using specialist technology for balance sheet account reconciliations provides benefits which far outweigh the costs, including centralised visibility and control, monitoring and increased efficiency. It could be the difference between a correct financial statement and one in which an error causes company-wide repercussions.

Increased visibility is an essential safeguard against error – if management and executives are given access to real-time dashboards and reports, they can rely on improved accountability from their accounting teams.  This visibility and transparency reduces risk and delivers confidence to executives responsible for the reporting the results of the organisation.

Finally, the best software and processes in the world will not be effective unless staff are trained properly and regularly and operate in an environment which encourages transparency, openness and diligence. It’s human to make mistakes, but technology is available to help us avoid them.

For more information, visit: www.blackline.com

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By tom123
05th Dec 2014 08:08

The bigger the system the more opaque

When I worked in a larger company, I have to say the general ledger postings were just complete rubbish and impossible to understand. The system felt the need to aggregate and post group totals, with nothing useful as a reference.

Keeping track of what was actually in the balance sheet items thus required downloading the data and plotting sensible descriptions by the side of each line. And then summarising. Obviously this only worked for the BS accounts with fewer entries - such as payroll control.

This was an expensive global system (multi £m), so I really don't see a time when we won't need to append spreadsheets any time soon.

 

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