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ACHIEVING TRUE FINANCIAL CONTROL – CLOSING THE BOOK ON OUTDATED RECONCILIATION PROCESSES

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ACHIEVING TRUE FINANCIAL CONTROL – CLOSING THE BOOK ON OUTDATED RECONCILIATION PROCESSES 1

By Eric Werab, Director of Product Portfolio Management for Financial Control Solutions, Fiserv

Manual processes and fragmented, siloed departments are the enemy when it comes to increasing operational efficiency. Yet many institutions fail to achieve true financial control by continuing to take a fragmented, departmental approach to reconciliation based on multiple systems and manual interventions. Forward thinking organisations are not only automating these processes, but also integrating their reconciliation and attestation processes to provide a single version of the truth based on accurate, real-time, transaction-level data.

Large institutions process and reconcile millions of transactions every day – these can range from accruals, accounting (AR, AP), cash, deposits and banking reconciliations to name just a few. These organisations certify or attest to thousands of GL balances on a month end basis which relies heavily on the detailed transactional reconciliations completed every day as supporting information. Any manual work required to compare and reconcile data in different systems increases administrative costs and the risk of errors as well as slowing down exception management. Fragmented reconciliation systems and processes also make it difficult for the finance department to accurately track and report on accounting information. With no way to standardise the exception management process, there’s a risk of non-compliance with corporate and industry controls which can result in hefty fines.

Eric Werab

Eric Werab

An additional challenge is that the current systems used to perform reconciliation checks often use only balance-level information. This may help organisations identify where exceptions exist, but extensive manual research is still needed to find out exactly which transaction caused the discrepancy and drive the issue through to resolution. The cost of manually researching and solving exceptions can be significant for institutions.

Once transactions have been stored and reconciled, they are typically passed to a stand-alone system that supports both monthly and quarterly certification and ‘attestation’. To import the right data into the attestation system at the right time, organisations typically take snapshots of balance-level data from the reconciliation system and other systems where accounting data is stored. Often, this process relies on completely manual tools, such as spreadsheets, which increases administration workloads and costs and increases the risk of errors.

Even where stand-alone attestation systems are more sophisticated, organisations may be exposed to significant risks. This is particularly the case where institutions use custom developed attestation systems or non-integrated, outsourced services from third-party providers. In these situations, extracts of accounting data are shared at file level or cut and pasted between systems, providing only a static, point-in-time view. In addition, each system may show a slightly different version of the balance sheet, leading to internal discussions about which are accurate, and significantly increasing workloads and costs.

True, End-to-End Reconciliation Explained

To achieve true, end to end reconciliation organisations are deploying technologies that bring reconciliation activities together to present the bigger picture.

These ‘true’ reconciliation solutions bring transaction-level and balance-level data together in a single system, providing detailed information on why exceptions have occurred and how they can be solved. This eliminates the need for manual research or interventions meaning that institutions can achieve major efficiency improvements, lower their operational costs and free staff for more value-added work such as identifying root causes for exceptions and trends in the data.

End-to-end reconciliation also streamlines accounting and reporting processes and improves visibility of business performance. For example, if a payment is made or received late this is captured centrally in real time, ensuring that accounts can be closed more quickly and accurately. At the same time, the risk of error due to re-entering data between systems is dramatically reduced.

Automating the reconciliation process helps CFOs and accounting teams ensure that all their accounting information is accurate, reducing the risk of error during monthly and quarterly financial close periods and streamlining the reporting process.

Choosing the Right Technology for True Reconciliation

True, end to end reconciliation solutions support the full range of transaction types (wires, checks, cards, ACH, Swift, cash) as well as securities, inter-company transactions and trades – all in a single system. The best technology will integrate both balance-level and transaction-level data to increase visibility of what has caused exceptions, eliminate manual interventions and provide rapid, cost-effective resolutions. In addition the solution should support full automation of the reconciliation life cycle from loading and enhancing data to matching, identifying and solving exceptions through to certifying the accuracy of balance sheet. The right technology will standardise reconciliation processes for transparency and visibility across all transaction types and scenarios, strengthening enterprise-wide governance and controls.

ReconciliationLifeCycleCentralise to Optimise – The Value of a Center of Excellence or Shared Services Model

CFOs require a single view of the balance sheet based on accurate, real-time data. Many organisations find that centralising reconciliation based on a COE or shared-services delivery model can help kick start the process of stripping out legacy systems and automating previously manual administration tasks. As a result, institutions can achieve major reductions in ‘per transaction’ costs and free staff for more value-added work. Centralisation of reconciliation processes also provides major benefits in terms of increased visibility, releasing information previously held in siloed systems and giving CFOs and other senior managers a current, accurate view of business performance.

Before embarking on a shared services or COE strategy, it’s important to look at your current reconciliation systems and processes and define exactly what you want to achieve in the future. When organisations reach advanced stages of maturity, the shared-services model begins to deliver quantifiable value. Performance measurements can be used to effect major process improvements and the shared service function is seen as a trusted advisor and partner for all departments and business lines across the company.

Fragmentation is the enemy of solid financial controls – centralising reconciliation processes is the key to implement effective financial controls across the organisation in a consistent, timely and predictable manner.

Finance

From fundamentals to digital evolution: Deutsche Bank and ACT release comprehensive guide for treasurers

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From fundamentals to digital evolution: Deutsche Bank and ACT release comprehensive guide for treasurers 2

The Association for Corporate Treasurers (ACT), in partnership with Deutsche

Bank, has today announced the release of “The Group Treasurer: An ACT guide to the first 100 days”, which provides valuable insights on the role of the treasury function – serving as an in-depth guide to those moving into senior treasury roles for the first time, as well as a valuable refresher on the latest developments for treasury professionals.

Treasury departments are often staffed by people who move across from other finance disciplines and, for them, navigating their first 100 days – with a host of new, often alien, concepts and the need to quickly get up to speed –can be a challenge.

The Guide serves as a complete compendium of the crucial, need-to-know information – starting with the basics, including the role of treasury, how departments are set up and what you need to know about treasury policy, before moving on to a series of deep dives into the critical features of life in treasury, including all you need to know about cash and liquidity management, the innovative technologies that are driving change, as well whether an in-house bank is right for you. Scattered throughout the Guide are useful insights from treasury professionals across a wide range of industries and geographies – providing best practice advice for gaining maximum benefit from your time in treasury.

“We have looked to create a guide that goes back to basics – and the ACT seemed the perfect partner for this” says Ole Matthiessen, Global Head of Cash Management, Deutsche Bank. “While the ACT can provide treasury professionals with training and qualifications necessary for a successful career, Deutsche Bank, in its role as a trusted advisor, can provide up-to-date insight on the options available for treasurers in the market.”

The Guide is also a reaction to the sweeping changes seen in treasury over the last few years. With new processes and technologies moving centre stage, the Guide seeks to provide treasury professionals with a concise “refresh” of the latest developments – especially for perennial challenges, such as the availability of liquidity.

Release 1 | 2  “I hope readers will find the Guide a useful tool” says Caroline Stockmann, Chief Executive, ACT. “And remember: the ACT is here to support you, whether you are a member or not, as our Mission is to embed the highest standards of professionalism and integrity in the treasury world, and act as its leading advocate.”

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Finance

Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds

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Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds 3

Tangerine Bank Ranks Highest in Overall Credit Card Customer Satisfaction for Second Consecutive Year

With 73% of credit card customers in Canada saying COVID-19 has negatively affected them financially and 24% who say they are unable to make monthly credit card payments, overall satisfaction with their primary credit card issuer remains relatively flat year over year at 764 (on a 1,000-point scale), according to the J.D. Power 2020 Canada Credit Card Satisfaction Study,SM released today.

“While credit card issuers in Canada are faring somewhat better than their U.S. counterparts in averting the negative effects of COVID-19 on customer satisfaction, they are not out of the woods,” says John Cabell, director of banking and payments intelligence at J.D. Power. “Credit card companies are falling behind in key areas related to the customer experience, especially in factors linked to financial sensitivity and customer support channels, which are crucial during the pandemic.”

According to the study, despite a one-point increase in overall satisfaction from 2019, credit card issuers have experienced a year-over-year decline in key performance indicators (KPIs) related to interactions with credit card customers, such as showing concern for customer needs; appreciating customer business; problem-free experiences; card activation; and reward redemption. As a result, satisfaction is down 12 points in assisted online experience and down 11 points for call centres.

More than half (55%) of cardholders acknowledge COVID-19 has changed their card usage habits, mainly by spending less. Understanding customers’ needs and addressing their changing priorities can help card issuers to mitigate future decline in satisfaction and elevate loyalty. The study shows that offering free or discounted services in response to COVID-19 are the actions driving a more positive impression of the issuer (39% and 35%, respectively), followed by gestures such as employee support (33%); waiving fees (32%); and community support (32%).

“The pandemic presents an opportunity for issuers to align their card services and benefits with customers’ evolving needs,” Cabell said. “Issuers can increase the perceived value of the card and strengthen loyalty. Offering discounted airline tickets or free airport lounge access is probably not as lucrative these days for cardholders as, for example, it would be to extend the duration of annual fees.”

Following are additional key findings of the 2020 study:

  • Satisfaction declines with household income: With 29% of cardholders earning less during the pandemic, many are looking for relief from their credit card company and are more critical of card issuers. In fact, credit card satisfaction among customers whose household income has declined due to the pandemic is lower than among those whose income remained unchanged. The largest gaps in satisfaction are in rewards (-12 points); benefits and services (-11); communication (-8); and customer interaction (-8).
  • Call centre woes: The pandemic has put a greater strain on call centres, which has negatively affected satisfaction. Caller wait times jumped to more than 12 minutes during the pandemic compared with less than 8 minutes prior to the pandemic. Also, caller satisfaction with the level of courtesy exhibited by call centre representatives declined significantly, which calls out the need for card issuers to restore best practices among their reps and identify better ways to manage customer support.
  • Cardholders are digitally savvy: Nearly two-thirds (64%) of cardholders solely rely on digital channels to manage their primary credit card activities, and those cardholders are more likely to say it is easy to understand information about their account and do business with their issuer than do cardholders who do not rely solely on digital channels. In fact, one of the bright spots in the study is improvements in customer satisfaction with mobile and online interaction of 8 points and 7 points, respectively, from 2019.

Study Rankings

Tangerine Bank ranks highest in overall customer satisfaction with a score of 825, which is 61 points higher than the industry average of 764. American Express (801) ranks second and Canadian Tire (793) ranks third.

The Canada Credit Card Satisfaction Study measures satisfaction of cardholders’ primary credit card issuer. The study measures performance in six factors critical to the customer experience (in alphabetical order): benefits and services; communication; credit card terms; customer interaction; key moments; and rewards. The study includes responses from 6,728 cardholders who used a major credit card in the past three months and was fielded in May-June 2020.

Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds 4

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Finance

The impact of the Accounts Payable risk landscape

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The impact of the Accounts Payable risk landscape 5

By David Thorley, Director of Customer Development, FISCAL Technologies

The current economic climate has never been so uncertain. Not since the 2008 financial crash has there been a period where organisations are mindful about how the markets will play out and the effect this will have on economies around the globe. As a result, organisations have become increasingly conscious about the way they spend money, but they have also become more aware about how they save money.

The Accounts Payable (AP) department aims to reduce the amount of money lost in an organisation, making sure all payments are completed on time and are done so correctly, but this is unfortunately not always the case. For example, half of large organisations have duplicated or misdirected a payment to suppliers. This roughly accounts for £3 million being directed to the wrong supplier and resulting in a long and lengthy process in getting this money reclaimed.[1] On top of this, 33% of organisations experience internal fraud every year, with an average loss of half a million.[2]

Therefore, it is clear that in almost every financial department things slip under the radar, but what are some of the risks in the AP department and how can they impact a company?

Lost opportunities reducing income

The capacity for AP resources to work on higher value activities is reduced due to error and query resolution, this can range from anything from chasing up suppliers to looking for a misplaced document. As a result, those within the department are limited to what they can do due to these mundane, repetitive tasks.

Ultimately, lengthy pre or post audit activity reduces the ability of the business to transact, limiting growth and reducing competitiveness, all of which can be avoided if the correct tools are in place.

Financial penalties

In some geographies and industries, errors and adverse findings in statutory audits can lead to financial penalties. These penalties can be anywhere from a few thousand pound to tens of millions. Just last year a leading consultancy was fined almost £20m for poor auditing. Payment Policy infringements can reduce an organisation’s ability to bid for certain types of contracts; critical infrastructures for example, which can have a significant impact on the way an organisation operates.

Restricted cashflow

Payment errors and fraud directly affects the bottom line, which can result in a major impact in the financial reporting. Often financial reporting is skewed resulting in liquidity and profits being reduced. In public sector organisations, these lost funds reduce the capital available for frontline services, which can not only impact the quality of service provided but could also affect the reputation.

Increased processing costs

Invoice exceptions prevent supplier invoices being processed automatically. AP staff spend an inordinate amount of time checking, correcting and managing invoice exceptions, which significantly increases processing costs and time. Given the current climate, this time and money could be put to better use, helping a company grow and expand.

Audit administration

Organisations making overpayments – paying duplicate or incorrect invoices – and fraud are a common problem. Together, these account for between 0.5% and 1.5% of the number of invoices processed, with the cost running into millions in many cases.[3]

As a result, whenever an audit is conducted, the AP team spends time finding and providing information and documents. The more issues that are found, the more time audits take to identify and recover lost cash.

Wasted time

AP teams will frequently need to check supplier records during their normal transaction processing. Large, unmanaged MSF hold numerous duplicates and no-longer-required records that create more payment errors and hours spent investigating and resolving queries.

Reputational damage

Whether a private or non-profit organisation, fraud, errors, compliance breaches or poor financial results all heighten the risk of reputational damage for the organisation generally and the finance director in particular. The reputational damage caused by a high profile incident of fraud can be significant, affecting the business’ credibility and even the share price.

The shockwave from fraud can be more damaging than the financial loss. After a fraud is discovered, considerable time will be taken up investigating every new potential risk of fraud. Whatever the outcome of the investigation, this is an unwelcome distraction for the managers concerned. But, more importantly, the effect on morale and belief in the leadership’s capabilities throughout the organisation – not just the finance team – will be harmed.

Managing these risks

AP assures the protection of cash within an organisation, identifying risks and resolving them. To do this effectively and efficiently it’s imperative AP departments have the correct tools in place to ensure they follow a simple process that allows them to save time and money, helping their organisation both in the short and long term

[1] (The Hackett Group, Key Issues Study 2020)

[2] Source: https://www.qsoftware.com/fraud-prevention-and-detection/erp-fraud-prevention-key-measures/

[3] https://www.cfo.com/payments/2020/03/metric-of-the-month-detect-and-prevent-duplicate-or-erroneous-payments/

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