5 Ways Manual Accounting Processes Multiply Costs

By Cameron John, Regional Vice President EMEA, black line

In the face of inflationary pressures and high interest rates, organizations that want to achieve steady growth must look internally for ways to reduce business costs. One area of ​​business prone to manual processes, and therefore cost inefficiencies, is finance and accounting (F&A). Manual processes in this department tend to be chaotic and time-consuming, and with so many M&A organizations still working remotely, the challenges are even greater.

Today’s volatile business climate means new assumptions about business impacts and new accounting considerations. With more systems, more data, and more reporting and regulatory overhead, it can seem like a losing battle. Throwing people on the problem is no longer tenable, especially as accounting is increasingly being asked to do so much more with the resources it has.

Valuable accounting teams can no longer be buried in transactional accounting. Moving away from labor-intensive processes and improving efficiency is long overdue. With that in mind, here are five ways the cost of manual processes is multiplying in your organization and ways you can start tackling it.

Manual accounting takes time

When an organization’s processes are mostly manual, it takes a lot of time and resources to close the books. Repetitive work, endless spreadsheets and late nights at the end of the month. Data entry, endless copying and pasting still seems to reign in tasks such as journal entries, reconciliations, reports and discrepancies, all of which cause immense frustration for those on the front lines.

Research shows that more than five days typically separate the fastest month-end closes from those that are heavily manual. This translates to an entire work week that accounting could devote to identifying exceptions and discrepancies to eliminate financial statement integrity issues, identify risks, or work on compliance with new regulatory rules. It’s also expensive for financial planning and analysis (FP&A), because they have to wait longer for a set of financial results before they can start planning, forecasting, analyzing, and modeling.

Manual accounting is more expensive

According to the APQC, inefficient accounting organizations are two to three times more expensive to run than their most successful peers performing the same activities. But luckily, there are plenty of fruits at hand to help more manual M&A organizations catch up.

A recent study found that almost 50% of businesses still don’t use any automation for general ledger account reconciliation. And the results of automation can be substantial. For example, one of the world’s largest multinationals reduced the time spent on reconciliations by thousands of hours per month, reassigning the team to activities such as metrics, reporting, IT controls and governance of the change.

It’s also critical to recognize that many CFOs don’t consider efficiencies. They use it to reallocate the financial budget: reinvest those savings in business support for teams and legal entities, analysis, forecasting and planning – essential support for businesses during an economic downturn.

Manual accounting is risky

Manual accounting is strongly correlated to financial statement integrity risk. In BlackLine’s “Mistrust in the Numbers” survey of more than 1,100 senior executives and finance professionals worldwide, nearly 70% said they made an important business decision based on inaccurate financial data. Of those who did not trust the numbers, 41% blamed manual data entry and 56% pointed to problems with a lack of automated checks and checks, labor-intensive data extraction processes -work and the proliferation of spreadsheets.

Beyond the risks of poor data integrity, manual accounting also increases the risk of fraud, with exposure around creating or modifying transactions, updating documents and electronic files, or entering journal entry manual. A study by the American Accounting Association quantified risk, finding an 80-90% higher incidence of fraud in companies with material weaknesses.

Manual accounting hurts auditing and compliance

While the fees themselves have stabilized somewhat, the increasing amount of time spent responding to audit requests has not changed. Lack of tracking of old items, incomplete reconciliations, inability to respond quickly to auditor questions, and overall visibility further strain accounting resources, which in turn can increase the total cost of an audit.

Manual accounting drains talent

Repetitive end-of-period processes strain your staff, causing employee disengagement and reducing individual employee productivity. It also has an impact on talent retention and succession planning.

CFOs surveyed in BlackLine’s “Generation Future Finance” survey say they are more concerned about acquiring talent than long-term organic or acquisitive growth of their business, adapting to working models hybrids or the achievement of environmental, social and governance objectives. This comes as more than a quarter (28%) of respondents point to a lack of opportunities to learn new skills as transactional work is time-consuming. Another 26% say people are bored with the repetitive nature of their work.

Not only does repetitive manual work make existing roles unattractive for good candidates, it also impacts development opportunities. This creates two problems: first, a lack of career opportunities can encourage both new and old talent to look elsewhere; and second, companies will miss opportunities to develop internal talent.

Ways to reduce the costs of manual accounting

Fortunately, there are plenty of ways for an organization to tackle labor-intensive tasks. Reconciliation automation can be used to automatically certify up to 85% of accounts each month, without requiring human intervention. Management of the overall close process itself can be moved online, with workflow solutions that centralize close tasks, manage dependencies, and route tasks for review and approval.

Rather than spinning cycles in response to auditor requests, organizations can move to a self-service model, allowing them to log in and access areas such as reconciliations, additional details, discrepancies, and exceptions, without relying on accounting.

Even high-volume accounts can be automated, using a rules engine to automate very detailed records, such as bank records, credit card matching, intercompany reconciliations, and invoice-to-purchase order matching.

Quantification of benefits

Fortunately, there are solutions on the market to help M&A teams adapt to this new environment by unifying their data and processes, automating repetitive work, and driving accountability through visibility. This approach allows for a virtual close, a collaborative, actionable and ongoing process, regardless of where you are working.

Accounting is already beginning to realize the benefits of automation. From financial services companies to healthcare providers, media broadcasters and industrial manufacturers. For many companies, automating the most repetitive M&A processes is a proven way to free up time and money, which can be spent on tasks that support long-term business goals.

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