3 Reasons Why Month-end Reconciliation Automation Is Key for Businesses
Shagun Malhotra, founder of SkyStem LLC explores three main reasons why automated month-end reconciliations are a must for businesses that seek productivity, efficiency, transparency, and prosperity.
Reconciliation is an accounting process that compares two sets of records to ensure the balances are correct and are supported by valid documentation and/or entries. It also confirms that accounts in the general ledger are consistent, accurate, and complete. When done manually, it becomes an inefficient and time-consuming process and the source of nightmares for most accountants, who usually work extra hours trying to ensure the financial statements are accurate.
The numbers speak for themselves: it is reported that 30% of a company’s finance team’s time is spent on manual reconciliation, and according to a survey by EY, up to 59% of a financial department’s resources are spent on managing transaction-intensive processes. Because the process is manual, the team has to parse over all the accounts and easy recurring activities in detail as there is automation to help with that.
Let’s explore how technology can simplify the balance sheet reconciliation process.
What is an automated reconciliation?
An automated reconciliation is when a machine helps perform certain portions of the reconciliation where possible and eliminates the logistical and administrative tasks to ensure adequate transparency and real-time data. It leverages robotic process automation (RPA), machine learning, and AI technology to replace the manual task of monitoring and comparing a company’s sheet account balances to its accounting records.
Best practices say accounts should be reconciled every month to ensure the validity of their transactions and the accuracy of company balances. There are several types of reconciliations, such as bank reconciliations, prepaid, deferred revenue, AP, AR, and so on. But they all have something in common: when done manually, they become a tedious and inefficient process.
Automating the month-end reconciliation process helps companies keep water-tight control over their financial statements, streamline and eliminate manual tasks, and strengthen internal controls and company governance. I know you might wonder: “but what about the investment?” If you think your good old manual reconciliation process is just what you need at no additional cost, you should think twice: month-end close automation software often pays for itself within six to 18 months.
See More: Nine Non-Tech Skills IT Workers Should Master to Thrive in the Automation Era
There are many ways automation can improve business practices, but here are the top three ways automated financial reconciliation is key for business:
1. Help increase productivity
The level of a business’ productivity is determined by how much output it can produce compared to how many resources it must dedicate to the task. Productivity is essential for all businesses but not always achievable due to their limited budget and resources.
Automating the month-end reconciliation process allows businesses to analyze the data and compile reports, rather than maintaining binders, excel versions, shared drives, and such. This reduces companies’ time and resources for this task, as it is a much quicker process than manual reconciliation.
If month-end automation is implemented, employees will be less burdened with administrative and repetitive tasks. This will also increase their motivation. Instead, they can focus on other matters that need more “human” input, such as making effective business decisions based on automated reports or planning strategies to optimize their company’s performance.
2. Provides predictability and real-time insight
Manual reconciliations are prone to human error: it’s easy to enter a formula erroneously, place an extra decimal, or forget to add a special character. There can also be duplicated information, date format discrepancies, date/time differences, and other incongruencies. According to “The Top Tax & Accounting Mistakes” from Bloomberg BNA, the first cause of poor data quality is manually inputting incorrect data in an enterprise system, cited by 27.5% of financial and accounting professionals.
This can cause inaccuracies that could take hours of research to solve (not to mention going through many folders and documents). Even skilled accountants will waste significant time with manual reconciliation as it demands tedious administration.
Auto-reconciliation detects patterns and prepares the reconciliation even before a user logs in. It has built-in internal controls, reporting, and dashboarding that allow leadership to have more oversight, bringing attention to potential write-offs, stale open items, and poorly done work before anomalies occur in real-time. This limits human mistakes, resulting in more efficient use of resources and information and more accurate business decisions.
3. Minimize fraud
Fraud is a serious problem that can lead a business to bankruptcy, reputation risk, and governmental fines and sanctions. According to the PwC’s Global Economic Crime and Fraud Survey 2022, 46% of organizations reported experiencing fraud, corruption, or other economic crimes in the last 24 months.
Automating the month-end reconciliation process helps increase accuracy and make the process faster: any irregularities can be quickly detected and investigated. With automation, companies can leverage real-time reporting, risk alerts, and automated internal controls, making it harder to commit fraud or irregular behavior.
Automation also allows accountants to assess the general accuracy of the trial balance. Accuracy is fundamental for fraud detection and especially for an effective decision-making process. When performing the flux and variance analysis, account balances can be compared against prior period(s) or against the budget to assess whether significant changes have occurred and if those changes make sense.
The times of going through piles of paper and working extra hours are over. Binders, shared drives, and Excel version control issues no longer have to be a setback for the month-end close.
It’s time to embrace the future: automated month-end reconciliations have become a must-have for any business that wants to be productive, efficient, transparent, and prosperous.
Have you used automation to simplify the reconciliations? Let us know on LinkedIn, Twitter, or Facebook. We would love to hear from you!
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