There was a time when the reconciliation function was perceived as a functional necessity that reconciled accounts to save revenue leaks. However, several regulatory reforms like the Sarbanes-Oxley Act in the US and European Market Infrastructure Regulation (EMIR) in Europe have drastically changed how reconciliations is now perceived. Today, if there are errors in ledger reconciliation and a company is unable to prove that it is capable of finding such irregularity on its own, the error would be marked as a material misstatement and a material weakness.
With firms being compelled to adhere to changing compliance and risk management regulations, budgets allocated to the reconciliation function have increased. However, the complexity too has increased with more stakeholders being involved in making purchasing decisions while depending on legacy systems and disparate tools and platforms. As we know, this severely impacts reconciliation efficiency. To overcome this, finance organizations have been relying on simplifying business processes to enhance reconciliation efficiency and optimize costs.
Automating reconciliation process saves the day
This General Ledger Reconciliation process requires accountants to go through each account in the general ledger to verify the accuracy of the balance sheet. For this, information across multiple functions, independent systems, and sources of financial data including bank statements will have to be verified and reconciled. Discrepancies are investigated with appropriate action taken to correct them. Such action may involve making journal entries to correct balance errors. In all, the process of research, investigation and corrective action may require manual interventions at several stages that may be both time and labor intensive while being error-prone.
A standard reconciliation software may allow the verification of financial data from multiple sources to the extent to which it has been integrated to all the business applications. What they usually lack is the intelligence to investigate anomalies and data mismatches. In such cases, the accountant has to get into the investigation mode and do the verifications flagged by the system.
As we see, this is just a flagging mechanism which alerts the finance team on discrepancies basis the logic implanted in the software and the accounts being verified. The common tools available off-the-shelf are in the stage of evolution, which is primarily the reason why Financial Controllers have maximum challenges during financial book close. This is where an automated process saves the day.
An automated General Ledger reconciliation process imports data from all sources, including ERP and other General Ledger systems, bank statements, etc. to reconcile account balances and identify any discrepancies that need to be properly investigated by accountants. This saves accountants the trouble of having to verify the balance of every single account and focus only on analysis of discrepancies. The main purpose of automation is to ensure that the computing becomes faster, with minimum human intervention.
Reconciliation As-a-Service - the next stage of evolution
Welcome to the new world of innovative service models combining people, process and technology and providing the levers for creating the competency required to succeed in business. The fast paced growth that is seen in the As-a-Service business models are encouraging with the kind of agility and flexibility it provides, and the scalable options based on business demand. This also means that you would only pay for what you are using and as you scale up the resources can also be scaled.
Business process specialists can be deployed to provide customized solutions and expertise that can go a long way in transforming your General Ledger reconciliation process. Specialized reconciliation team independent of general accounting team and a powerful digital solution is a more appropriate fit for driving better control, efficiency and analytical insight for the Finance Controllers.
Among many advantages of this digital service model are factors such as:
- Independent finance team replicates the role of an auditor, increasing accuracy of reconciliation and reducing expensive audit cost and efforts
- Specialization in accounts reconciliation enables replication of best accounting practices for the client
- Smart automation of reconciliation process by techno finance experts enables availability of real time actionable insights anywhere, anytime.
Since such solutions are built on efficient accounts matching, strong control and collaborative environment, it reduces manual intervention and errors. Further, in-built analytical dashboard with commentaries by finance experts created on a web-based platform provides real-time intelligent insights. These solutions can be implemented by domain specialists in business processes companies in a short span of three to six months and requires minimal involvement from your finance and IT teams.