Switching from a patchwork to an enterprise-wide reconciliation approach
Let's be frank, the topic of reconciling data in a business environment has never been a dinner party conversation. Exciting it may not be, yet every business in every industry has the need to compare different sets of data with a seemingly ever increasing frequency. In fact, while we are being honest, let's admit that we should be doing the very same thing ourselves as individuals. Shouldn't we really be checking to make sure that our bank or credit card statements actually reflect accurately what we have been transacting and are expecting? And, if we fail to this on a timely basis, is it not true that we put ourselves at financial risk? So for corporations it's no different, except that the numbers tend to be larger and other, potentially more serious risks, are introduced when we don't have an effective reconciliation strategy.
The history of reconciliation
Step back several decades. Businesses were manually performing reconciliation activities: matching two sets of data (for instance bank statement to cash transactions in the general ledger): time consuming and expensive in labor terms, and error prone as individuals got blinded by rows and rows of printed numbers that all started looking alike. Then mainframes came along in the 1970s: still expensive but reducing errors and, with this, mitigating risk. The focus, though, was all on transaction matching; the resolution of errors still remained manual, error prone, and subject to human delay and non-responsiveness. The 1980s saw the broadening use of spreadsheets which started to shift reconciliation into the various departments and business functions, allowing for more timely comparisons, but still leaving much of the exception management process in a manual or, at best, only semi-automated state. And the broad introduction of client server technology in the 1990s only helped somewhat in addressing these deficiencies.
Reconciliation for most of us today
So where does that leave us today? The reality is that the vast majority of businesses still have in place a patchwork of reconciliation solutions for both different types of reconciliation activity and different stages of the reconciliation lifecycle: spreadsheets, in-house developed applications, localized databases such as Microsoft Access®, vendor solutions, and still many manual processes at various stages of the process. The result: increased costs, less than optimal operational risk mitigation, lack of visibility across the entire business, potentially compromised compliance.
Shifting attitudes
Waking up to these deficiencies and risks, forward thinking executives are demanding the implementation of an enterprise-wide wide approach to reconciliation. Sometimes this is initiated by a desire to lower costs and boost profits or investments in profit-enhancing core activities. Sometimes it is driven by a wish to reduce operational risk and mitigate exposure to resultant financial and reputational damage. Increasingly over the last decade it has been spearheaded by the need to remain fully compliant with new legislation such as Sarbanes-Oxley in the United States and regulatory requirements in various industries. But in the main it is a combination of all of these that is leading to a shift in the approach to, and execution of, the various reconciliation functions.
So what next?
Two things should be on the table for consideration, and the rewards can be almost immediate. The first is a new centralized/devolved hub-and-spoke approach to reconciliation. This starts with a single center of excellence (CoE) to own and handle all reconciliation activities in terms of data collection and manipulation, the defining of appropriate match rules, the matching of such data, and the identification of errors that present risk to the business. The CoE should be able to resolve many of the exceptions. Then, for those exceptions that cannot be resolved centrally, the distribution of errors to the experts who can help identify what needs to be done at a business level unencumbered by the administrative matching activities. Secondly, the introduction of a single tool that provides a uniform platform and approach across all business units and their reconciliation activities along the entire lifecycle.
And the benefits?
Organizations that have adopted this approach have been able to summarize the benefits into three main groupings whose ranking will differ based upon industry but all of which are invaluable and often necessary in this current economic and regulatory environment: reduced costs, lower operational risk, better guaranteed compliance. In summary, a win-win-win.
Let's be frank, the topic of reconciling data in a business environment has never been a dinner party conversation. Exciting it may not be, yet every business in every industry has the need to compare different sets of data with a seemingly ever increasing frequency. In fact, while we are being honest, let's admit that we should be doing the very same thing ourselves as individuals. Shouldn't we really be checking to make sure that our bank or credit card statements actually reflect accurately what we have been transacting and are expecting? And, if we fail to this on a timely basis, is it not true that we put ourselves at financial risk? So for corporations it's no different, except that the numbers tend to be larger and other, potentially more serious risks, are introduced when we don't have an effective reconciliation strategy.
The history of reconciliation
Step back several decades. Businesses were manually performing reconciliation activities: matching two sets of data (for instance bank statement to cash transactions in the general ledger): time consuming and expensive in labor terms, and error prone as individuals got blinded by rows and rows of printed numbers that all started looking alike. Then mainframes came along in the 1970s: still expensive but reducing errors and, with this, mitigating risk. The focus, though, was all on transaction matching; the resolution of errors still remained manual, error prone, and subject to human delay and non-responsiveness. The 1980s saw the broadening use of spreadsheets which started to shift reconciliation into the various departments and business functions, allowing for more timely comparisons, but still leaving much of the exception management process in a manual or, at best, only semi-automated state. And the broad introduction of client server technology in the 1990s only helped somewhat in addressing these deficiencies.
Reconciliation for most of us today
So where does that leave us today? The reality is that the vast majority of businesses still have in place a patchwork of reconciliation solutions for both different types of reconciliation activity and different stages of the reconciliation lifecycle: spreadsheets, in-house developed applications, localized databases such as Microsoft Access®, vendor solutions, and still many manual processes at various stages of the process. The result: increased costs, less than optimal operational risk mitigation, lack of visibility across the entire business, potentially compromised compliance.
Shifting attitudes
Waking up to these deficiencies and risks, forward thinking executives are demanding the implementation of an enterprise-wide wide approach to reconciliation. Sometimes this is initiated by a desire to lower costs and boost profits or investments in profit-enhancing core activities. Sometimes it is driven by a wish to reduce operational risk and mitigate exposure to resultant financial and reputational damage. Increasingly over the last decade it has been spearheaded by the need to remain fully compliant with new legislation such as Sarbanes-Oxley in the United States and regulatory requirements in various industries. But in the main it is a combination of all of these that is leading to a shift in the approach to, and execution of, the various reconciliation functions.
So what next?
Two things should be on the table for consideration, and the rewards can be almost immediate. The first is a new centralized/devolved hub-and-spoke approach to reconciliation. This starts with a single center of excellence (CoE) to own and handle all reconciliation activities in terms of data collection and manipulation, the defining of appropriate match rules, the matching of such data, and the identification of errors that present risk to the business. The CoE should be able to resolve many of the exceptions. Then, for those exceptions that cannot be resolved centrally, the distribution of errors to the experts who can help identify what needs to be done at a business level unencumbered by the administrative matching activities. Secondly, the introduction of a single tool that provides a uniform platform and approach across all business units and their reconciliation activities along the entire lifecycle.
And the benefits?
Organizations that have adopted this approach have been able to summarize the benefits into three main groupings whose ranking will differ based upon industry but all of which are invaluable and often necessary in this current economic and regulatory environment: reduced costs, lower operational risk, better guaranteed compliance. In summary, a win-win-win.
No comments:
Post a Comment