Financial Risk Mitigation: Take Control Of Your Financial Close

The primary goal of every accounting team is to produce accurate financial statements quickly and efficiently. 

It’s a never-ending struggle to improve efficiency and effectiveness while minimizing cost and risk. It’s also about enhancing the value of your organization so you can focus on strategic activities to drive your business forward. 

Achieving efficiency and accuracy does not come without challenges. To better understand these challenges, we interviewed almost 500 financial professionals across 430 organizations from a wide variety of industries around the world. 

We asked each to tell us their top two biggest challenges in the last 12 months. They were as follows:

• 51% – Meeting deadlines / time pressures. 
• 46% – Remote work environments.
• 27% – Reduced team size.
• 27% – Providing analysis to gain critical business insights.
• 15% – Keeping costs under control. 
• 12% – Visibility over core business KPIs.
• 22% – Other unspecified challenges

Considering the impact COVID-19 had on every market and industry, the results weren’t exactly a surprise, especially meeting deadlines and adjusting to remote work environments. 

However, with this insight, we were able to identify what constitutes a healthy financial close and what you should look for. Read on to learn about the symptoms of an unhealthy close and what you can do to better your financial close process.

4 Signs You Have an Unhealthy Financial Close

In order to resolve challenges that prevent from having an efficient financial close, you must identify signs that may indicate inefficiencies. 

Be on the lookout for:  

1. Manual Financial Close Processes

If most or part of your process is conducted manually through disconnected spreadsheets, you’re probably having a struggle with:

• Inefficiency and decreased productivity
• Lack of scalability
• Elevated risk of human error

While spreadsheets were once the core foundation of finance and accounting, reporting requirements and growing complexities in organizational structure have created a need for a more flexible and robust solution. Traditional account reconciliation processes come with their own set of risks.

2. Bottlenecks

When COVID-19 forced accounting teams to work from home, it quickly exposed the bottlenecks plaguing accounting teams. 

Teams that relied on manual checklist approvals found they didn’t know when to begin certain tasks. This led to month-end close processes taking 15-20 days to complete instead of 10.

In addition, teams working out of spreadsheets faced the issue of rework. When a month-end close task was completed out of order without another team member’s knowledge, it can lead to another team member having to spend time redoing their work based on the most recent revisions.

The lack of true visibility and control prevents management and team members from knowing when tasks are being completed, greatly slowing or worse, bringing the whole process to a complete stop.

3. Long Meeting Times

Month-end close takes time to complete, yet many financial teams get bogged down in long meetings to determine the status of the close. 

There’s certainly some irony to the fact that you would hold a long meeting – taking time away from your team to complete their financial close tasks – to discuss where they are in your process and what’s preventing them from completing their tasks. 

Unfortunately, without true visibility and control into your month-end close process, this is often the only way to keep track of the process.

4. Extremely Long Financial Audits

While audits are usually very time-consuming due to the thorough nature of their review, poor documentation, lack of proper controls and manual mistakes often lead to even longer audit times. 

The time needed to perform the audit combined with a lack of visibility and documented procedures like issue resolution lead to even longer and more costly audits. When issues pop up, is your organization able to resolve them through documented procedures? Auditors want to see whether or not an audited company has these best practices in place.

5 Best Practices for Financial Risk Management

In our previously mentioned study, we asked our collection of financial experts what challenges they were facing that prevented them from having a more efficient financial close process? Again, they were allowed to choose two responses. 

• 45% – Lack of automation
• 43% – Manual work and errors
• 24% – Lack of standardization
• 24% – Volume of work
• 19% – Workflow management
• 15% – Data quality
• 12% – Lack of collaboration
• 11% – People management
• 7% – Other

To best confront and resolve these challenges to your financial close processes there are five best practices you can observe and follow.

1. Avoid Your Own Status Quo

Don’t be satisfied with your standard operating procedures. Looking at your internal processes and identifying the gaps allows you to have a more thorough understanding of what you’re doing right and what you’re doing wrong. This gives you the insight you need to create strategies to protect your company’s reputation and financial risk.

2. Understand Your Risk Profile

A simple truth to embrace is that financial risk is 100% unavoidable. Once you accept this truth, you can begin to understand your risk profile, reducing the impact it has on your business.  One way to do this is by adopting the Three Lines of Defense model. 

The Three Lines of Defense model helps you gain complete control over your financial close process and includes these defenses:

1. Business units within your organization
2. Board risk committee
3. Internal auditor (the internal auditor should be your last line of defense; business units within your organization and your board risk committee should be catching all shaky processes and inconsistencies)

3. Ensure a Solid Financial Risk Mitigation Foundation

To ensure a solid foundation for preventing financial risk, you should adopt an approach that requires the least amount of time and money to implement but enough to where it still accomplishes your objectives and provides a profitable ROI. 

For the record, the Adra Suite by Trintech offers an affordable financial close that allows you to enforce a risk-based approach to reconciliations. Click here to see how our effective software solutions work together to automate and streamline your financial close processes to improve accuracy and reduce risk.

4. Know Where Your Money is Going

Forecasting your budget is oftentimes one of the more difficult tasks in your business operations. The best thing you can do is to have strategies in place to drive your business agenda forward with the strategic support that offers necessary visibility, testing, and control over your finances and processes.

5. Leverage the Right Financial Close Technology

In a study provided by The Hackett Group, companies that invested in their financial close processes and technology completed their month-end close an average of four days faster than those that did not. They also achieved significantly better ROI by reducing their audit fees by 49% and their account-to-report costs by 55%.

By introducing the right intelligent accounting automation, you can reap the following benefits:

• Improved visibility.
• Decreased errors.
• Better work-life balance. 
• Increased control. 

Learn more about reducing financial risk by downloading our eBook: Reduce Risk by Driving Intelligent Automation.

What Does the Future of Financial Risk Mitigation Hold?

Let’s go back to that survey we conducted to get an idea of what the future holds for financial risk. When asked about challenges to financial close in the next five years, 50% of respondents identified getting work done correctly and on time as the biggest challenge. Another 33% said employee recruitment and retention would be their biggest obstacle. 

To prepare for the future and find solutions to these challenges, here are a few steps you can take to reduce the financial risks your company faces. 

1. Assess Your Accounting Automation Needs

It’s not always easy to understand what help you need when you’ve never used automation in your financial close. Adra can help you examine your current processes and identify the best places to inject automation to improve your processes. Mitigate your risks with:

• Automated data entry
• Streamlined processes
• Automation software

2. Build your Risk Strategy

Determine the goals of adopting an accounting automation solution like Adra so you can build a definitive and effective risk strategy. If you’re looking at loosely defined goals, take the time to map out the best way to achieve those goals. 

For example, if you want to achieve a shorter close with better visibility, you can adopt Adra Analytics to thoroughly explore the details of your financial data.

3. Achieve Standardization and Visibility

By assessing your automation needs and building your financial risk strategy, you can begin to adopt effective solutions that will reduce your financial risk. 

While the process takes time, every small improvement leads to better results, building to more and more optimization in your financial close process. This eventually leads to a more efficient and effective financial close process with full visibility and control that’s the norm versus the dream.