Four undetected errors that add to close stress – and how to fix them
By Shak Akhtar, SVP Finance Automation/Customer Experience Officer, Redwood Software
Anyone working in finance knows how stressful the monthly financial close can be. Immovable, tight deadlines and the manual nature of much of the process results in long hours that impact staff wellbeing, turnover, and often result in a reliance on temporary staff at this peak time. Frustrated staff have to work within sub-optimal processes that have evolved over years and don’t have the bandwidth to redesign them.
Some of the biggest headaches are the errors that accrue but go undetected during the month and only come to light at the height of the period-end scramble. Whatever is done as an operational process within the business - buying and selling, moving stock about, issuing refunds or discounts - has a financial consequence and an impact on the close.
Here are four of the most common undetected errors that cause these month-end headaches:
1. Production orders
In manufacturing, a production order is typically created to initiate a production run on the shop floor. The problem is that the staff on the manufacturing side often fail to close production orders down properly to say they have been completed. That is, how many items have been created and passed the QA checks. That has huge consequences for the books. Those items will not have been booked into stock and labor. Production time and raw materials used will not have been recorded and booked to that production order.
If it’s a small production order and not material, finance probably won’t even discover the error, meaning your financial results will be inaccurate. If the discrepancy is found, then finance still needs to get the person responsible in manufacturing to close down the order. Or, more typically, they will put a journal in that corrects the impact of that error, which reverses out on the first day of the following month. So that’s yet more manual effort and you still haven’t corrected the error, just adjusted the financial statements.
Finance automation takes away this pain. It checks and flags production orders where there might be an issue. It prompts for the order to be recorded and closed. And that means those errors don’t build up for finance at month-end.
2. Asset register
The asset register is another frequent cause of errors that accumulate during the month. If a company has sold, transferred, scrapped or is building an asset, it is common for that not to be recorded during the month.
But there is no reason why those events can’t be automatically recorded as they occur. If you scrap an asset, that should trigger an event automatically to take it off the asset register so the finance impact is recorded when that decision is made. The reality, however, is that it often still gets left to the end of the month where someone has to find it and adjust for the omission
3. Intercompany balances
One of the challenges of intercompany processing is that material differences often only come to light late in the close process. The adjustment process is time-consuming and prone to human error, particularly if it involves a blizzard of spreadsheets. In these circumstances it is tempting – and sometimes necessary – to simply accept any differences and postpone a full reconciliation until the next period. Some companies spend over 100 people days on intercompany adjustments at each month-end. However, if you automate your intercompany processes during the month then when you get to the end of the month it’s a non-event.
4. Goods Receipt and Invoice Receipt (GR/IR)
Buyers of goods and services should record when they have received the items they have ordered. If not, then the system just sees an order outstanding for those items. It’s not until the invoice arrives from the supplier that finance recognizes a problem as part of the accounts payable invoice entry process, checking prices and quantities by matching the invoice with the purchase order and goods received details. I know of one company that spends over 200 people days per year to identify these differences. To correct them after that, they still have to go back to the person who raised the order or to the supplier if the invoice is wrong .
Let finance automation take the stress away.
Finance automation ensures that most of these things – whether a production order, asset transfer or receipt of goods - are recorded as they happen. Errors and differences are detected and resolved when they happen and not left to build up to the month-end when staff are already under huge pressure.
Find out how to eliminate errors automatically and make your close a non-event with Redwood Finance Automation
Get in touch with Redwood to find out more.