Risk management has always been a critical function for F&A (finance and accounting) teams. Typically, the Office of Finance has relied on tools such as spreadsheets and manual processes for financial reporting. These manual workflows create fragmented financial close operations and ERP environments that compromise data integrity – providing teams with little visibility and transparency into how these processes affect financial data. F&A teams can’t operate with these tools in a digital world with complicated risk factors.
Financial automation helps streamline your month-end close and increase visibility while simultaneously reducing risk. A risk-based approach to an automated financial close allows teams to see the risk level of items and the impact of that risk on the business. Automation performs low-judgment, repeatable tasks and provides real-time reporting and analysis capabilities while the team focuses on high-judgment activities.
What are the steps in using financial automation to mitigate digital risk? In this blog, we will cover the 4 steps to risk management for finance and accounting teams:
Assess Your Automation Needs
Build Your Risk Strategy
Achieve Standardization and Visibility
Prepare to be Audited
Assess Automation Needs
Before an organization decides to implement an automated process, they do not always have a risk evaluation framework in place, manual or otherwise. If an organization uses manual methods, they may rely heavily on spreadsheets, having limited control over data and analysis. Manual processes also restrict the F&A team from detecting fraud internally or externally. Additionally, data visibility on a day-to-day basis is limited and does not allow resources to be allocated appropriately toward high-risk situations.
“With a touch of a button, our Trintech Solution allows us to analyze the risks and opportunities present in the balance sheet. We had optimized manual processes to the best of our ability, but tracking risks and opportunities in the balance sheet via Excel had become far too time-consuming.”
Financial automation works with F&A teams to help effectively mitigate risk on a consistent and reliable basis. Teams can ensure issues are addressed faster by providing real-time alerts rather than handling problems reactively.
Build A Risk Strategy
Individualized manual methods create inconsistent processes for problem-solving. Attempting to perform the month-end close process is inefficient when the F&A team cannot agree on a single approach. Executing a financial institution’s risk management strategy through automation allows the team’s assessment capabilities to be fully actionable. The ability to set guidelines for tasks and materiality thresholds saves time and ensures a proactive risk management approach. One of the most visible benefits of automation is that reconciliations may now be completed throughout the month. Especially for those in banking and finance, keeping track of multiple transactions and, ultimately, a large sum of money is much easier without a month to forget the situation.
“Due to our previously inconsistent and manual processes, there was always fear around the overall integrity of the numbers we were externally reporting. Now with our Trintech solution, we have full transparency and control over our processes and confidence in the integrity of the numbers we are disclosing each month.
Most importantly, F&A teams need to lead the way in creating a risk management culture. This transformation will allow F&A teams to drive business strategy by providing valuable insights into mitigating risk through automation best. Combating risk involves being ready for risk whenever it arises.
Achieve Standardization and Visibility
After cementing a risk strategy, standardization and visibility will be the following two areas of weakness in the manual processes. One part of that process, variance analysis, is a frequent thorn in an accountant’s side. The controller typically completes the variance analysis at the end of the period close, which consumes a disproportionate amount of time and effort. Only once the analysis is complete can issues be identified and corrected.
Standardization of compliance, controls, and overall risk management represents an organization’s commitment to high-quality work. Implementing automation ensures that data and processes continuously mitigate risk in precise and repeatable methods throughout the Office of Finance. The variance analysis, with automation, can now become a routine process spread throughout the month. Ongoing variance analysis allows teams to have real-time visibility into your organization’s risk and catch things before they become a more significant issue. Also, variance is often deemed “busy work,” and completing the process manually leaves less time for strategic direction developments. Accountants have much to contribute to the growth of an organization; they need to be relieved of tedious tasks.
“The relationship between accounting and operational activities has historically been a “pitch-this-over-the-wall” exercise. There’s never enough transparency. But we’re changing that with Trintech’s solutions. They offer us real-time visibility into these activities that we just didn’t have before.”
As with risk management, audits are a natural counterpart to business, especially in banking and finance. For nearly two decades, institutions have been under increased scrutiny from regulatory authorities, and meeting those frequently changing compliance demands is increasingly difficult with only manual methods. Still, the most significant risk inherent to an audit is the chance that a company misrepresented its financials, did not comply with applicable regulations, and, at the very minimum, forgot to provide proper documentation for discrepancies in their resolutions. The auditor has gone through the books and alerted the Office of Finance to the error at this point. The team must then go back through their manually created documentation to find the mistake and issue a restatement. Now, add in extra internal guidelines, such as adhering to the COSO framework, and watch accountants begin to sweat.
“Our Trintech solution allows us to easily track our journal entries, our reconciliations, who’s responsible for what, and who reviews and approves it along with comments. So, when we go through our audit, it is super easy to track everything.”
Automation does not change the requirements of an audit, but it does ease the burden off of the F&A team. With an automated risk management strategy in place, accountants can be alerted to issues before auditors come to call. And, if something does come up during an audit, the team can retrieve the appropriate historical data more quickly and provide it to the auditors. Automation is essential in meeting growing, and ever-changing compliance demands to keep processes well documented and audit ready. With historical documentation available at a moment’s notice, organizations can prepare for an IPO, acquisition, merger, or other strategic business moves. Even if a company chooses to remain private, regulators will begin holding every business to more stringent standards, according to Accenture. An automated risk management strategy ensures that all documentation is up to regulatory standards and easily accessible with complete visibility. A significant aspect of being compliant is being available, and financial automation makes that happen.
Implementing a comprehensive risk management framework is no minor feat, but the benefits will be visible throughout the organization, not just in the Office of Finance. Improving your risk management capabilities will help meet executive expectations for business growth while passing that knowledge and best practices through the organization.
Finance professionals need to see issues and risks as they arise rather than later when that risk impacts the business. By investing in financial automation, organizations establish a risk management framework that enables finance to work more efficiently and proactively. Automation allows for increased visibility, transparency, standardization, and efficiency for cross-collaboration and real-time insights into potential risks before impacting the business.
4 Steps to Managing Financial Risk
Explore the four major steps to implement a solid risk management strategy for your financial close using automation.
