Why automating journal entry upload is just the tip of the period close iceberg

By Shak Akhtar, SVP Finance Automation/Customer Experience Officer, Redwood Software

Journal entries are a necessary but manually intensive and time-consuming part of the financial close. For large multinational organizations, some companies within the group might easily process more than a thousand journals each month. We’ve dealt with organizations that do a million manual journals a year.

Some level of automation is clearly required to handle that volume of journals, but most organizations are missing the big prize. Think of it like the tip of an iceberg. A lot of existing automation solutions simply tackle the smaller visible bit above the water—the journal upload process to the ERP or finance system. But that only eliminates 10% or less of the manual effort across the journal entry process. Lurking under the surface is the much larger undertaking—the preparation of the numbers that go into the journal. That’s where the majority of the manual effort—and pain—lies.

If you really want to achieve a faster close and make it a non-event, you must automate the end-to-end journal entry process. There are three key stages before posting a journal that are ripe for automation:

  • Preparation

This accounts for up to 80% of the total manual effort. It includes the collection of data (paper and electronic) and the calculation of entries to create the manual journal. It also includes the completion of spreadsheets and forms needed to process the journal, along with supporting documentation and other evidence.

  • Review and approval

The proposed journal will usually need to be reviewed and approved by a designated responsible official before being posted to the finance system. While this involves a relatively small amount of manual effort in and of itself, extra work and delays in the hand-off occur if the journal is rejected or needs to be reworked and resubmitted.

  • Validation

This check of the journal data, performed at the upload stage, ensures that codes such as account numbers and cost centers are valid. But it can result in extra work and delays if validation errors result in the journal being rejected and sent back to the preparer for correction, reapproval and resubmission.

Failing to automate these pre-upload journal entry tasks has other consequences for the timeliness and accuracy of your close. The manual effort creates a peak workload in the period end closing cycle which includes an increased risk of fraud due to the manual nature of the activities and lack of controls. There are also issues around the necessary segregation of manual duties, causing delays, as well as the lack of a strong, clear audit trail.

Existing ERP investments don’t provide the answer because they only support the input of journals and not the preparation stages. This means finance usually resorts to its Band-Aid of choice: the Excel spreadsheet.

Finance automation enables you to get below the waterline and take on that 80% of manual effort by automating journal preparation and posting. It enables effective governance and controls. It means journals can be automated on a daily and weekly basis to eliminate the period end workload crush. For example, you can perform intercompany postings when the business event occurs instead of waiting until month’s end. It helps make your close a non-event.

Redwood’s journal entry automation solution eliminates delays and bottlenecks by managing the relationships between journals and other parts of the close as well as all the handovers and hand-offs in those processes. It also provides exception alerts and triggers to help identify and prevent errors. It can even flag potentially fraudulent journal activities.

Don’t just take our word for it. With Redwood, global automotive parts manufacturer Faurecia successfully automated 32,000 journal entries per month across 35 countries. The implementation took less than six months to design, build and integrate. The results: 80% of the organization’s journal entry processes are now fully automated and it has significantly reduced the controllers’ workloads, allowing them to accelerate financial closing.

Find out how to make your financial close a non-event with Redwood’s Journal Entry finance automation solution

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