Throw Out the Manual. Why Auto-Certification Is Key to Faster and More Accurate Balance Sheet Reconciliation

Huge strides have been made in driving inefficiencies out of many financial processes. Yet balance sheet reconciliation is one of the last bastions of reengineering that has seen very little in the way of efficiency gains over the last decade.

Traditionally, businesses have long relied on the accountant’s Swiss Army knife, the Excel spreadsheet, in conjunction with email, workflow systems and shared folders to help with the balance sheet reconciliation process. But it’s an approach that is fraught with problems and often fails to solve underlying issues. Balance sheet reconciliation tools exist in the market. But they have done little to replace the extensive use of spreadsheets, which are the most manual, tedious and error prone part of the process.

The very thing that makes spreadsheets so versatile is also their Achilles heel. They’re easy to operate but this time-consuming and costly approach requires finance teams to correctly configure and manually populate them, often by sourcing data from a variety of different systems, group companies or even third parties. Manual balance sheet reconciliation can easily consume hundreds if not thousands of hours each month.

Perhaps more worryingly, reliance on manual processes means that errors in the form of miscoding or misallocations, broken formulae or hidden worksheets are common. And a combination of familiarity and blind faith lead people to make assumptions about the integrity and accuracy of the systems and data they use. Yet academics estimate that almost nine out of 10 spreadsheets contain errors.

Additionally, some reconciliation tools give the business a false sense of security by providing a basic level of balance sheet analysis. If you are using auto-certification functionality, for example, these tools are only checking or comparing balances. They do nothing to substantiate or analyze the balance detail. And this is where the errors occur. Substantiating the balance by analyzing the detail is highly manual and often results in recreating the GL in Excel to manipulate the data to highlight potential risk.

At the same time, as companies race to close their books as quickly as possible, there’s a distinct danger that they could be compromising quality for speed. Companies that close within a short window often rely more heavily on estimates and accruals, and due to the time pressures at play will leave balance sheet reconciliation until after the close.

Any subsequent issues that come to light must then be passed to Group to make a top line adjustment ahead of correction in the following period. That’s never a pleasant conversation to have with your Group Controller and raises questions about the fundamental integrity of your numbers.

Automation holds the key to shifting away from the non-value add activity of manual balance sheet reconciliation and freeing up finance team members to focus on balance sheet review and validation of the data. Redwood’s cloud-based finance automation software means the time to deploy is minimal. Meanwhile, pre-built ERP and other source system integration ensures real-time access to transactional data from underlying finance systems, the ability to drill down and access supporting documentation.

The key to removing the manual burden of the preparers is auto-certification of the bulk of the effort. Redwood enables auto-certification rules to be applied at the balance level first and then automatically checks the line items to ensure the account should be auto-certified based on the balance. This provides an additional level of auto-certification that point solution reconciliation applications cannot achieve.

At a time when scrutiny of the numbers is at an all-time high, full automation of the preparer role offers peace of mind by reducing your exposure to risk, fraud and malicious attempts to manipulate numbers. The software is pre-configured, and for added peace of mind offers the capability to add finance-driven rules. Comprehensive analytics, exception alerts and audit trails make it easier for preparers to prevent and detect issues and errors. And it avoids the need to download all your finance transactions to an external point solution database to perform the reconciliations, which also creates an additional enormous reconciliation.

But it’s the ability to perform balance sheet reconciliation at the start of the close – rather than the end – that is the real gamechanger here; it puts finance teams in control of the numbers and is pivotal in putting an end to late consolidation adjustments for any issues that may come to light.

Find out how to eliminate the manual burden of balance sheet reconciliation and make your financial close a non-event with Redwood’s Finance Automation