How to Reduce Risk with Financial Close Automation

For every accounting team, there should be one prominent question that guides every daily decision: how do we reduce the risks associated with our month-end close processes?

Risk mitigation should be top of mind every time a new workflow, transaction source, or system is introduced to your reconciliation processes. Without it, there’s no control and no reliability in your financial close process. This is especially true when you are manually performing account reconciliation.

Challenges to a Manual Month-End Close

A manual month-end close is simple for small companies; as you grow, you start to encounter more risks and challenges that hinder your ability to accurately and efficiently complete your monthly reconciliation processes. The biggest challenges come in the form of:

• Data entry
• Software limitations
• Required expertise

Manual data entry is inherently error-prone; typos, data sourced from incorrect bank statements, or wrong months can doom the close process from the start. 

The software you use can also add to the risk if you’re not using the exact version across your entire accounting team. If you’re using different software or even different versions, your data may not be viewed or updated the same way. Plus, the data needs to come from trusted sources and if you’re using different software, the source chain could be broken or the data corrupted. 

Another downside for manual account reconciliations is that everyone involved needs to be an expert in every system you are using. It’s not enough to know how to use the latest version of Microsoft Excel; you need to know how to create formulas and pivot tables regardless of the platform. This can be particularly difficult if your accounting spreadsheet was created years ago by someone who’s already left the company. 

Expertise isn’t limited to knowing how to use a spreadsheet, either. Everyone on your team has to be an expert on the different data sources, workflows, and transaction types. This has all become increasingly more difficult with delivery services like DoorDash and GrubHub, all of which add more accounts and fees to reconcile.

Being able to aggregate all of this different data from a variety of sources and integrate it into one spreadsheet presents unlimited opportunities for mistakes, miscalculations, and errors from start to finish.

When accountants spend their days checking for errors, they do not have the time to provide critical financial insights to leaders at the organization. It is crucial that the accounting department is granted the time to think strategically about the numbers, so they can provide the numbers needed for the CFO to share with the organization’s decision-makers.

Learn how the voice of the CFO is becoming increasingly important in strategic talks at our webinar, Leveraging Financial Close Automation to Support the Evolving Role of the CFO.

There’s Never Enough Time in a Manual Close

The best thing you can do to reduce risk is to take your time when you perform your month-end close. Unfortunately, a manual close process doesn’t give you much opportunity to check for mistakes.

Ideally, you’d have someone monitoring the process from the very beginning. If the process begins with an incorrect balance or data from an incorrect source, the entire close process will be filled with potential accounting errors.

Considering that a manual process takes you more time to collect and verify data than doing actual reconciliations, your team doesn’t have time to investigate the data as you’re under constant pressure to close the current month and move onto the next.

Of course, this leads to cut corners and more frequent write-offs to balance the books before the next financial reporting cycle begins.

This is where you run into the most issues with bank audits as auditors are notoriously good at finding accounting errors made while you’re trying to compete with the reality of the constant close. 

Scaling is Risky Without A Clearly Defined Close Process

Manual close only works when you have the ratio of workload and workforce perfectly balanced. But what happens when you scale up and that ratio is altered?

If your company has five accountants efficiently closing the books each month on your $10 million company, you’re probably going to do okay in the long run. However, if business suddenly booms and your $10 million company jumps to $50 million, how do you think your team is going to handle that?

Chances are your manual processes aren’t designed to handle the influx of new transactions and data. Plus, your team is going to be overwhelmed and fail to get the job done. Statistically, you’d need to increase your accounting staff from five to twenty-five to handle the new workload, but that takes time, resources, budget on salaries, and a lot of effort. 

Another problem you may come across is what happens if you acquire new clients that operate in a different language or currency? You’ll have to hire someone who speaks their language or is very familiar with the constantly fluctuating currency exchange rate.

According to our 2021 Global Benchmark Report, the largest contributing factor to an inefficient financial close is a lack of financial automation. Combine a lack of process standardization and manual month-end close with time pressures and you have an accounting office that is working on just completing their tasks, not optimizing and scaling your organization for the future.

How Adra Reduces Your Financial Risk

At the end of the day, the best way to improve your accounting office is to eliminate as many risks as possible. Through automation, you can spend more time leveraging insight from the numbers to optimize and scale your organization, allowing your financial and accounting offices to provide critical reports to the rest of the organization.

Taking advantage of automation with the Adra Suite is the easiest and most efficient way to mitigate the risks associated with month-end close because:

• Data entry is automated
• Software is universal throughout your company
• Processes are faster and streamlined
• Scaling is easier and more productive

In simple terms, Adra allows you to use your existing processes to create automated workflows that collect transaction data from different sources, match it to your internal records, and correlate them into one location. Along the way, it flags discrepancies for adjustment or reclassification which is easier to do since you have time to focus on them now. 

You can also implement changes to your workflow processes more efficiently by testing them in a controlled environment before adopting them on a wider scale. 

By automating your month-end close process with Adra, you’re able to strengthen your internal controls by establishing processes in place to help you know what to expect from your close. It also allows you to scale without adding a lot of headcount to your accounting team as you can use accounting software to account for an influx of transactions, translate foreign languages, and accurately process currency exchanges.

This provides you with the ability to quickly create reliable financial statements that you can use to make business-critical decisions. Without risk mitigation, you couldn’t do that without uncertainty and doubt clouding the process. 

“Adra helps ensure that our work is accurate and in turn reduces the risk that we previously had with a highly manual process.” – Sr. Treasury Analyst, Torchy’s Tacos.

Ready to see how Adra can help you accelerate your accounting office into the future? Request a demo to see our automation in action.