Lights out finance becomes a reality

The period-close. An unenviable task that sets accounting staff in a spin as they scramble for information, updates and postings. As any finance executive will testify the many interactions between people and systems, people and people, and even between systems are often poorly documented, hard to follow and almost impossible to audit. Overtime is the norm and a deterioration in the work/life balance, albeit temporary, inevitable.

For many senior finance professionals such harsh realities are simply accepted. The machine may not be well oiled, but at least it’s in working order.

It would be wrong to say that manual processes don’t have their place in business systems but they have notable limitations. Often accompanied by paper documents and physical flows of information they are typically labor intensive. Furthermore every new transaction introduced to the process is a fresh event, which relies on the internal controls environment operating effectively. But momentary lapses of control (otherwise known as human error) are inevitable in even the best-run organizations and depending on the process, even a single failure in control can have dire consequences. Repairing processing errors after the event can be time consuming, but thanks to an increasingly complex and regulated financial reporting environment such errors can also result in hefty penalties.

There’s also a cost implication. Finance departments today are expected to do more with less. Staff numbers may have been cut and IT budgets restrained, but the back office is increasingly the engine room and the driver of value. Changes in compliance regimes such as Sarbanes-Oxley, International Financial Reporting Standards (IFRS) and others have also exerted considerable upward pressure on the cost of the finance function.

Process control gets easier

But there is light at the end of the tunnel. New technologies have emerged in recent years that offer light, flexible approaches to integration and automation. Web services for example, offer integration for the Internet age and makes linking systems very quick, easy to achieve and to maintain. This means that process control technology can easily link to and interact with ERP and other core transactional applications, retrieving or even posting data or simply reporting on findings.

Web browser technology and links with email mean that applications can be used to drive actions through an organization, automatically prompting individuals or delivering pertinent data to all those involved in the process. Forms technology and XML (eXtensible Mark-up Language) means applications can collect data from users or other systems, and deliver it to the appropriate location or system as required.

Although the challenges of automation should not be underestimated, achieving “lights-out finance” can help significantly cut costs, substantially increase assurance, improve speed and efficiency, as well as free up staff to do more interesting - and valuable - tasks such as data analysis.

“The increased focus on process control over the last five years combined with new lighter technology in the finance function have enabled finance professionals to dramatically improve efficiency,” says Steve Pugh, CEO of CODA Financials, Inc.

“Those that have not realized the benefits of automation are finding themselves sinking under a sea of ever increasing transactions, data, controls and reports.

“As the regulatory environment continues to grow more complex organizations need to ensure processes are repeatable, auditable and transparent. They need to eliminate any margin of error.”

The path to automation

For some finance professionals, process automation is the new way. These pioneers have wasted no time in removing manual processes cutting both costs and head count. Many admit that the process is a difficult one – and one that can be politically fraught especially if job losses are in the cards.

Thanks to implementing CODA’s process automation tools and web services-based approach to financial accounting, leading US TV and broadcasting corporation LIN TV has now cut virtually all manual elements of its transaction processing and keeps its spreadsheets in real time, delivering massive cost savings and helping to halve the time taken for period close. Although it was driven to do this through a need to comply with Sarbanes-Oxley (SOX), the benefits LIN TV have achieved could apply to any organization.

William Cunningham’s reaction to SOX is unsurprisingly familiar.

“It was an incredibly difficult process, which cost us a lot of money. Complying not only took resources away from our core business but created an extremely stressful environment,” he recalls.

But the Vice President Controller of LIN TV Corp. also believes that the process of complying with the controversial regulation, particularly Section 404, had a positive effect on the organization.

“It made us realize we had a very decentralized accounting operation that was labor intensive and that our controls and processes were in need of updating” he says.

“So we set about looking for technology that could help us automate our processes and be more efficient.”

Three years later and Rhode Island-based LIN TV is blazing a trail in financial reporting. Not only has the organization made tangible cost-savings of up to $700,000 with more predicted, it has successfully automated 85% of its processes with the intention of achieving 100% by the end of 2007.

The number of staff keying in journal entries has dropped from around 40 to just one and the company has also been able to significantly reduce staff numbers at each of its 29 TV stations across the US.

However, it was a chance conversation with the company’s financial software vendor CODA that has enabled Cunningham to achieve his ambitious restructuring.

“I happened to mention my dilemma with Section 404 during a meeting with CODA, and they in turn told me about a new product they had just launched call CODA Control Manager (CCM),” explains Cunningham.

“I instantly saw how it could benefit the organization acting as an electronic book keeper. People would still interface with CCM but in a very controlled environment. It would also give us assurance of reliability of data which we didn’t have before and centralize our accounting function.”

According to Steve Pugh, CEO CODA Financials, Inc., what LIN TV has achieved is pioneering.

“CCM was originally designed to help companies close their books in a faster more controlled manner, but we saw its potential immediately for SOX,” he says.

“LIN TV has really committed itself to achieving true automation and efficiency – and the results speak for themselves.”

The software tool enables companies to control business processes making them repeatable, visible and auditable. It can be used to automate any repetitive tasks and to collect data from systems and people around the organization and beyond.

However, Cunningham admits that achieving his objectives was by no means easy.

“You have to look at your existing processes at a granular level,” he warns.

“There are also change management issues. I had to let go of people who had worked for the organization for many years, and that is never an easy thing to do.

“But thanks to support from my staff, the changes made have helped make their jobs easier and more fulfilling. They have quality of life now and there’s no overtime for year end.

“There’s also a lot less re-keying of data, which allows finance staff to spend more time on analysis. Their job is much more interesting now.”

More than just month end

Of course to achieve the level of automation implied by the term ‘lights out finance’, finance professionals need to look further than purely month end. Key areas of intensive manual processing may vary from company to company but generally activities like procurement, invoice matching, and other elements of the purchase-to-pay process involve many staff carrying out laborious manual tasks. Other activities like expense claims handling and timesheet processing may also see many hours of manual work each month.

Such activities are clearly targets for automation and streamlining. This can be achieved through the use of collaborative tools that allow individual staff and even external suppliers and partners to complete the manual elements of the process – raising purchase requisition requests, filling in expense claims, inputting pricing and contractual information and so on. Combine this with sophisticated workflow systems that can route documents through the appropriate approvals process and automatically apply for internal company or external taxation rules to the documents, and you’re well on the way to eliminating huge areas of manual processing.

Invoice matching is an example of a process that for many companies represents a significant overhead – particularly for retailers. The vast range of products, suppliers, deliveries and stores creates a complexity that until recently has only been addressable by ‘throwing people at it’ to perform the labor-intensive task of cross-checking and matching invoices, orders and goods receipts.

Today however, the same lighter web-based technologies that have seen month-end processes speeded up are helping to address this area, with automatic invoice matching now achieving ever higher accuracy and therefore reducing the need for human intervention.

A further area of focus is the seemingly elusive ‘paperless office’ that companies have strived to achieve for several decades. This has been hyped for many years and is important not just for environmental reasons – cutting out unnecessary paper production, courier miles and waste disposal. If documents are received electronically through the use of electronic billing, data transfer standards using EDI and more recently XML, the data can be routed through the company’s systems automatically with minimal or even zero need for people to get involved.

Where physical documents are still received, there is good news too. Document imaging technology has come on in leaps and bounds, so that even small organizations can afford good quality scanners and computer storage facilities. Even more importantly, optical character recognition technology has also advanced considerably, so that converting the captured document image into an electronic data stream that is meaningful for the processing systems is ever more straightforward, with little or no need for manual checking.

The new accounting revolution

Much like the Industrial Revolution led to machine based processes replacing much of the back-breaking and often dangerous manual work of the day, so we are now experiencing a new wave of revolution in accounting led by early adopters such as LIN TV. Computers and spreadsheets undoubtedly cut a huge workload from accountants used to adding up columns of figures; now workflow and process automation tools, combined with other collaborative and web-based technologies are freeing them up from hours of manual inputting, intervention and checking.

The result should be that accountants can finally spend their time doing what they generally claim they enjoy most – reporting and analyzing their company’s data to identify trends, inform strategic decisions and add value to managers and departments across their organization.

“Whenever we talk to accountants, they tell us they wish they could spend more time analyzing the data, not just struggling to get it to the board on time,” says Steve Pugh.

“Now we are finally seeing this become a reality. It’s an exciting time to be an accountant in business – and to be a software developer, too!”

Back at LIN TV, Cunningham knows that his achievements may be considered leading edge, but he firmly believes that the automation of as many processes as possible is the future.

“I think this is the way things will be done by most organizations by 2010,” he predicts.

“It is a revolution just as the introduction of PCs was in the early 1980s when we started using electronic spreadsheets.”

As ever, there will be finance professionals who will continue to do their job the old fashioned way. But their comfort zone will soon be tested. Accounting organizations are quickly acknowledging the advancements and changes that technology is enabling – and are amending their own training and advice accordingly.

Junior as well as senior accounting professionals will need to have these new skill sets to progress their careers. As with all revolutions the challenges are huge but none-the-less exciting for all.