Inaccuracies, inconsistencies, delays, as well as security and distribution issues in the financial reporting process, come at a price, says RHYS ROBINSON
In today’s global economy organisations are highly dependent on technology and thus the IT systems in which they invest can play a significant role in overall business success. It therefore makes business sense to invest in applications that will raise the value that they offer to their organisations.
This is particularly true of financial consolidation and reporting applications which are often implemented as part of an effort to mitigate risk and speed up the company’s financial close and reporting cycle. Here a fast, reliable financial close has both external and internal benefits.
For external stakeholders, swift and high-quality financial reporting is regarded as an accurate gauge of good governance promoting positive sentiments among investors. Internally, management will need to ensure business strategies are producing the expected results as soon as possible. Here a quicker close allows more time for organisations to analyse and review strategies and revise them if necessary.
It is therefore safe to say that any weaknesses in the system controls or IT environment, particularly when it comes to the financial reporting process, hold significant risk. These risks are inextricably intertwined and what impacts internal stakeholders will inevitably have an impact on external stakeholders, ultimately contributing to building or derailing organisational success and reputation.
INACCURATE, INCOMPLETE AND UNTIMELY FINANCIAL INFORMATION
One of the biggest risks financial managers face is reporting inaccurate, incomplete and untimely financial information. This is particularly true of large and/or listed entities with a decentralised structure where the group will more often than not appoint a team to consolidate all of the subsidiaries’ financial information into one standard monthly financial pack.
This was the case with a leading roads construction and materials specialist requiring the monthly financial reporting consolidation of 52 entities within the group. Prior to implementing a financial consolidation solution, their consolidation team of two people were tasked to consolidate all of the financial information captured on spreadsheets across the group into one standard financial pack. Here various weaknesses and their related risks soon became evident.
First and foremost, not only was the consolidation process time consuming but also riddled with inaccuracies. Owing to their very nature spreadsheets are susceptible to human error resulting in an undesirable situation where multiple versions of the truth exist. Today’s competitive global market place requires that large and/or listed entities become increasingly agile and without access to accurate and timely information it is virtually impossible to make informed organisational decisions – a risk I’m sure most organisations wish to mitigate.
DISTRIBUTION AND STANDARDISATION
Closely linked to this is the issue of distribution. In the case of the specialist road construction company discussed above, its decentralised structure meant that nearly all of its subsidiaries were running different ERP or source systems. In today’s business environment where mergers and acquisitions are commonplace, management more often than not adopt an efficiency and cost-saving rationale. Instead of replacing or interfering with the existing ERP or source systems they opt to work with what they have invested in as an organisation.
Once again in this scenario ensuring the right people receive the right information in time, in the right format, to ensure the right decisions, becomes a daily challenge. Here the value of a financial consolidation solution that can supplement the existing ERP or source system can prove invaluable. Certain niche financial consolidation solutions have functionality that allows for the standardisation of reporting information outside of the source system. This can lead to huge productivity, IT and infrastructure, time and cost saving benefits.
SECURITY AND REAL-TIME MONITORING
Another common bug bear for financial managers is that of security. With teams of people having access to and inputting various data into multiple spreadsheets, there is little to no control over what management and staff have access to along the audit trail.
Not only is this a risk from a strategic point of view as leaked company information does not do much to instil investor confidence, but it yet again increases the likelihood of inaccuracies and inconsistencies creeping in. Different staff inputting different information at different times once again increases the likelihood of a “multiple versions of the truth” scenario where under pressure decision-makers will be unnecessarily challenged to determine which version is the latest.
A financial consolidation solution that has a simple to use “lock down” or access control function can ensure that once information has been locked in the system. It is the sole representation of that information on the system and can only be accessed or changed again through a system administrator. This functionality also enhances monitoring as managers are empowered to track which reports are complete or still in progress, thereby increasing overall efficiency and accuracy.
SEEING THE BIGGER PICTURE
The bottom line is that inaccuracies, inconsistencies, delays, as well as security and distribution issues in the financial reporting process, come at a price. Taking time to weigh up the inherent risks associated with a manual, outdated or decentralised financial reporting process may well not only save your organisation time and money from a material and reputational perspective, but may well prevent the risk of your organisation digging itself into an early financial reporting grave. ❐
Author: F R (Rhys) Robinson PhD is Executive Director: Strategic Partnerships and Marketing for Infinitus Reporting Solutions