Optimizing the Close Cycle – Leveraging an Effective Account Reconciliation Policy

By:  Kars Stal, Jay Henson, and Evan Bazinet

A company’s financial close cycle is responsible for providing an accurate performance snapshot of all financial and transactional activities for a given period. The ability to present this information in a consistent and accurate manner is imperative for businesses to drive both strategic and financial decisions. Generally, the more a company is able to understand the data behind finance and accounting activities, the better the company will be able to project future performance. Without accurate representation of underlying data, companies will be faced with misinformation leading to both internal and external consequences.

To mitigate this risk, proper checks and balances must be put in place around an enterprise’s data assets. Account reconciliation is one of these vital controls that enables companies to validate and accurately represent that data.  Acting as a preventative control to detect fraudulent activity at an early stage, account reconciliations ensures both the integrity of financial data and the reliability of financial statements.

An efficient and timely financial close cycle that uses an integrated reconciliation process serves as the foundation for evaluating a business’s performance. This foundation supports organizational decisions, satisfies external reporting requirements and reduces the risk of management surprises. At the same time, a reconciliation policy should enforce standardization for the organization across the reconciliation process to improve the quality and accuracy of financial data. As a result, errors and inaccuracies will reduce, thus allowing accountants to focus more on analysis, risk mitigation, and exception handling.

The remainder of this article aims to lay out The Hackett Group’s recommendations related to drivers of an efficient reconciliation process. The elements described in the table below should be discussed in any policy or procedural document related to this process.  Additionally, these elements should be made readily available to all resources involved in the reconciliation process, including auditors:

Driver	Description and Inclusion Driver
Purpose	Driving forces (next to SOX requirements) to perform reconciliations and quick overview of past findings on the reconciliation process.  Provide sense of urgency on why to perform reconciliations in a complete and timely manner.
Scope	Scope of accounts included in the account reconciliation cycle (at minimum assets, liabilities and equity accounts).  Create encompassing clarity of expectations around what reconciliations are to be confirmed.
Definition	Level reconciliations should be performed at (e.g., entity / account) by account type.  Clarify level of detail to be included in the account reconciliation.
Reconciliation criteria	Overview of criteria that warrant a reconciliation to be considered reconciled:  Description of Account, Independent source of reconciliation, Description of source and how to account for source data equals ending balance, Supporting documentation on reconciliations and any open items, Thresholds / Materiality limits by account type, Frequency by account type.  Provide minimum audit standard and guidelines to perform and review reconciliations.
Open Item Resolution Procedure	Process to resolve any open items discovered during the reconciliation process and related time limits.
Timing	Timing related to the preparer and reviewer timelines on a periodic basis.  Create opportunity to perform reconciliations outside of the close process, while still performing all critical reconciliations within the close process.
Frequency	Limit the frequency with which reconciliations are being performed based on criticality assessment.  Limit the amount of reconciliations performed on monthly basis, while still maintaining critical controls.
Materiality	Thresholds and materiality limits established on which to perform the reconciliation by account type.  Limit time spend on investigating differences deemed to be immaterial, while still maintaining critical controls.
Roles and Responsibilities	Clear description of the preparer and review roles and responsibilities during the reconciliation process.  Define the process to be followed to close the account reconciliation, including timing, acceptance and rejection definitions and levels of review.
Reconciliation Assignment	Overview of how to (re)assign reconciliations to prepares and reviewers, including how to achieve segregation of duties.  Provide timely and clear assignment of reconciliations (new and in case of resource changes) as well as insight into how to ensure segregation of duties between preparers and reviewers.
Completeness	Checks and balances in place to guarantee completeness of data being reconciled and eco-systems being in sync.  Align full set of data, inclusive of new accounts and ensure alignment of data across disparate systems.
Additional Controls	Controls in effect on top of formal reconciliation process, like transaction matching and flux analysis on critical account.  Instigate additional controls beyond the monthly reconciliation process by end users.
Training	Document that lays out minimum training requirements for people involved in reconciliation process, periodic reviews of that training and cross training requirements across account types.  Formalize resource training as reconciliation is entry level job as well as ensure that new policies and procedures are communicated downwards.
Annual review	Yearly review of account reconciliation standards.  Ensure right controls are still in place and nature of accounts hasn’t changed to warrant a change in how reconciliations are performed.
Retention	Where and how long reconciliations are being retained.  Align to audit requirements.
Source by account type	What is considered additional detail required for account reconciliations per account type as well as overview of data sources required for sign-off.  Standardize reconciliation methods and sources used by account type for potential usage of shared service centers.
Internal audit	Role of internal audit and potential improvement areas.  Document how internal audit is involved in the process on a quarterly basis and how they will make recommendations to further automate and standardize the reconciliation process.
Tool usage	Overview of SharePoint or automated reconciliation tool usage.  Make the process more efficient and clearly document how to use any tools available for the resources involved in the reconciliation process.

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June 10, 2020 by accountreconciliation Categories: Account Reconciliation, Transaction Matching Leave a comment

Achieving Financial Close Best Practices using Oracle Financial Consolidation and Close Cloud – Close Manager

By Kars Stal, Soumadeep Guha and Kaushik Sarkar

Overview

Accelerated filing deadlines, along with shifting regulatory requirements, have compelled finance leaders to streamline and enhance the financial close process. Manual tracking of the close process, using excel and e-mail is one of the reasons companies still experience issues in their close process from an accuracy, transparency, complexity and comprehensiveness perspective.

Automated close tracking tools give companies the ability to closely monitor the financial close process, infuse best practices and apply continuous improvement into financial close and drive process automation where possible. Oracle offers, as part of its Financial Consolidation and Close Cloud Services (FCCS) offering, a module called Close Manager (CM). The Close Manager module provides an automated and standardized manner of managing financial close activities. This paper discusses five best practices to achieve close tracking efficiencies using the FCCS-CM module.

The following FCCS – CM features are discussed that help achieve the below best practices and related efficiency and control gains:

• Planning and tracking the financial close process
• Continuous communication
• Standardize and automate
• End-to-end monitoring
• Post-mortem evaluation

1. Planning and tracking the financial close process

In planning the financial close process, and to ensure it runs smoothly, organizations should establish and communicate clearly defined policies, control, roles and responsibilities for team members. Close Manager mandates the assignment of each task within the close tracker template to team members, establishing ownership in the close process. Integrated tracking of these assignments through dashboards provides for improved visibility and real time monitoring.

The financial close process can be divided into segments such as pre-close, close, consolidation and reporting. Each of these segments can represent an interim milestone. Close Manager uses task templates and schedules to plan and manage the close process. Task types can be created in close manager based on the task segments. Task templates and schedules can then be created based on the task types to mark an interim milestone. Close Manager further provides the ability to view these milestones through enterprise dashboards, Gantt charts and integrated calendar views 

2. Continuous communication

Close Manager uses an automated communication and tracking methodology that enables exponential advancements in the communication process.

Automated alerts

Automated email notifications allow users to be notified of assigned tasks in various phases of the close process. Such automated alerts eliminate risk of potential miscommunication, further optimizing the close process. The below alert capabilities are available out-of-the-box in Close Manager.

• Late Notifications – a notification that the task is late
• Status Change Notification – a notification that the task is ready to be worked on
• Due Date Reminder Notification – a notification that the task is “at risk,” meaning it is almost due
• Alerts Notification – a notification of issues user encounters during the close process, such as hardware or software issues. Users create alerts identifying a problem, assign them to be resolved, and email notification will be sent to the assignee

Users can click the links in the email to directly access the tasks. Below is a screenshot of an automated email notification from Close Manager

Integrated Close Calendar

Close Manager provides the capability to view the close progress in real time at any time during the close process through integrated calendar views and Gantt Charts.

The Gantt view displays a timeline for a schedule or template that graphically represents the duration of tasks and the dependencies between them. Bars represent duration, and arrows represent dependencies. Predecessor relationships between tasks can also be viewed.

3. Standardize and automate

Standardization and automation are effective ways to streamline the financial close process.

Standardization

Close Manager helps create efficiencies within the organization and provides a standardized approach for tracking the close process. Close Manager being a web-based tool can be viewed/and or edited at the local, regional and corporate level. This helps to create a standardized approach at global level. For example, organizations can incorporate a control mechanism to approve regional changes at corporate level. Similarly, organization can also utilize the audit history associated with each task to get more visibility at corporate level on any task modifications done at a local or regional level.

Close Manager utilizes the concept of task templates and schedules to manage tasks in the close process. Task templates are a collection of repeatable tasks that make up the financial close process by work day (example WD1, WD2). Task templates are incorporated into monthly/ quarterly schedules converting the work day to calendar date. (Example WD1 = January 2, 2018). Creating standard templates for monthly and quarterly tasks and reusing the same for each calendar period through schedules introduces standardization across the task management process. Further efficiencies can be achieved by reviewing and standardizing the templates across various regions and business. As a part of continuous improvement, the templates should also be reviewed on a quarterly basis using out of box Close Manager reports and dashboards. Such quarterly review will reduce task redundancy and ensure task validity. Users can also make comments in a task to identity improvement opportunities for a schedule.

A standardized workflow approach can be implemented for each schedule and task, limiting confusion and promoting accountability. Every schedule and task is assigned to an owner to provide responsibility. Close Manager provides the option of multi-layered workflow for each task. The below user roles available in Close Manager helps implement a multi-layered workflow approach to achieve process management standardization and encourage ownership

• Assignee – Responsible for completing the task. Assignees have read access to all task information. Assignees can also add comments and answer necessary questions to submit a task for approval.
• Approvers – Approvers review and sign off on tasks ensuring quality and task completion. Approvers have read access to all task information and can add comments/attachments where necessary. Each task in Close Manager can also have multiple approver levels. Close Manager allows for a maximum of ten approver levels.
• Owners- Owners are assigned to every task and automatically have Write access to tasks. Task owners ensure that the tasks are completed, although they may not perform actions on the actual task. Owners receive notifications when the task status changes and can intervene in the task workflow at any time.
• Owners can edit task properties like add or remove instructions, questions. Owners can also reassign assignee or approvers to a task.
• Viewers – Viewers have read access to all task information. The Viewer role can be assigned to teams and individuals.

Automation

Task automation helps organizations recognize significant improvements in time and effort related to close process and reduce repetitive manual work from the close cycle.

Standard automation in close manager includes workflow automation, and automated communication using automated alerts (as discussed earlier in this post). As a part of the workflow automation, an assignee will have the ability to click an email link to gain access to the assigned tasks. The workflow will automatically move the task along its lifecycle based on provisioned responsibilities such as assignee, approvers.

Enhanced task automation can be achieved through an integrated solution with external applications. Close manager provides the capability to achieve enhanced automation through integrations to different cloud applications. Configurable task types can be created in close manager based on the type of integration. Each task can then be associated with the custom task types which will allow seamless integration across or within the application. For example, account reconciliations in ARCS can be integrated with reconciliation tasks in Close Manager. Opening a reconciliation task in Close Manger will redirect a user to the reconciliation in ARCS. Once the reconciliation is completed in ARCS, users can submit the reconciliation task in Close Manager to close the reconciliation. Similarly, close tasks in Close Manager can be integrated to Manage Journal module in the Consolidation application in FCCS. Opening a journal task will redirect a user to the journal entry form in FCCS. Users will then be able to create and post a journal entry. Once a journal entry is posted users can submit the task in Close Manager to indicate completion.

4. End-to-end monitoring

Close Manager gives users the ability to track the close process end-to-end, ensuring compliance with financial close plan. End-to-end monitoring can be achieved through out-of-the box dashboards and reports with multiple views to monitor the close process.

Dashboards

The out of the box dashboards provide simple, efficient views into schedules and task lists, and high-level status overviews which can be drilled down to lowest level of detail. Users can filter the data displayed, customize the dashboard layout, and maximize or minimize dashboard controls.

The Close Overview dashboard provides a count of open, late and on-time tasks by priority. Users can also view the count of open, late, and on-time tasks by task category, schedules or organization units.

The Compliance Overview dashboard provides a count of completed tasks, percentage of tasks prepared on time, percentage of tasks approved on time, count of rejected tasks, and count of alerts issued. This dashboard can be viewed by users as well as organization units. The compliance dashboard further provides break down of each view by compliance metrics as defined in the Close management application.

Reports

Close Manager reports also provide the ability to analyze, monitor the close process and review, print necessary attachments. Close Manager reports contains all the pertinent information involving the close including start/end times, dates, tasks executed during the close and who executed the task etc. The below close management reports are available out of the box to support end -to-end monitoring

• At Risk Tasks
• Close Compliance Analysis
• Early Tasks
• Late Tasks
• Close Performance Analysis by Organization unit
• Rejected Tasks
• Task Audit Trail
• Users with Late tasks

Additionally, report binders enable users to create a history of all activities that occur as a part of the close process. Filters can be used to specify the information to be included in the report binders. Information for all tasks that meet the binder filter criteria can be generated in HTML format to a single, self-contained ZIP file, which enables easy distribution for internal or external review.

5. Post-mortem evaluations

Key close metrics defined in Close manager can be used to perform post-mortem analysis. Close Management reports and dashboards provide a central repository to support continuous process improvement and rapid insight in bottlenecks within the close process. In addition to dashboards and reports, Gantt chars, calendars and task lists can also be used to perform post-mortem evaluations. Below are several key metrics that Close Manager can monitor through dashboards, reports and task views to support post-mortem review process

• The number of tasks that were not completed
• The number of tasks completed on time
• The number of tasks that were complete late
• The length of time associated to completed tasks
• The number of rejected tasks
• The number of error alerts issued during task completion

Best practices around close manager implementations can be combined with these key metrics to analyze close effectiveness and identify process improvements. For example, a rejection reason code can be mandated for tasks that are rejected. Analysis can be performed to identify and rectify the most common rejection reasons. Similarly, implementing the predecessor task property enables users to analyze task interdependencies and identify any bottlenecks for late task completion. The number of error alerts metrics can be used to identify and rectify the most common error alerts that prevent task completion. A thorough monitoring and analysis of the key metrics will help organizations achieve world class close tracking standards.

Conclusion

The financial close process is too important to track progress via emails, Excel, meetings and conference calls. Companies that can automate their financial close tracking through an automated tool should do so.

One of the tools available to automate the financial close tracking is Oracle’s FCCS – Close Manager. Close Manager can reduce close cycle times and increase accuracy of close cycle times, delivering timely results both internally and externally. Close Manager can further drive in-depth analysis of key performance and operational metrics. An automated close tracking tool like close manager reduces compliance cost and delivers a single version of truth to improve internal and external transparency.

August 29, 2018 by accountreconciliation Categories: Uncategorized Leave a comment

Comparison between Oracle ARCS and Oracle EBS

By Kars Stal, Kaushik Sarkar, and Marc Atos

Given the plethora of accounting tools with overlapping functionalities, we have been increasingly getting more questions from current and potential Clients on why should they use Oracle Account Reconciliation Cloud Services (ARCS), when their current Enterprise Resource Planning (ERP) systems already have reconciliation and transaction matching capabilities built-in.

While it is true that various ERP modules provide similar functionalities like ARCS, there are often times major and subtle differences which warrants a comparison on a case by case basis. In this article we have compared ARCS against Oracle EBS with AR, AP, GL and Cash Management modules enabled. We limited the scope of discussion to data control and matching capabilities inherent in the two applications, and excluded other important ERP functionalities. We have also not commented on any future enhancements projected in the products’ roadmap.

The overview of the comparison provided below can also be used as a framework to compare any other ERP based reconciliation solution to ARCS, for an informed decision.

Overview of Comparison:

	ARCS  (with Transaction Matching)	Oracle EBS (with AR, AP, GL and Cash Management)
1	Designed to be a Software as a Service (SAAS) platform; therefore it provides the associated benefits of SAAS like reduced time to market, lower cost of ownership and monthly updates to functionality (versus having to perform software upgrades)	Oracle EBS is an on-premise tool.  Oracle does have Cloud Financials as an offering as well, however this is not part of this comparison
2	Designed to be a purpose built standalone reconciliation and transaction matching tool which can be agnostic to data sources and hence can operate with multiple ERPs and external transaction sources	Designed to be operated within the framework of Oracle EBS modules to maximize the benefits from all the integration features.
3	Provides the ability to organize reconciliations and reduce process risks through a “Dynamic Risk Rating” method which is applicable to the entire Chart of Accounts	Oracle EBS modules (AR, AP, Cash Management etc.) are designed for specific reconciliations and do not view the organization wide reconciliation process holistically as a function
4	Provides the ability to enforce control on the ending balances of each Account through a Flux analysis (variance analysis) process	Designed primarily with the intent to book transactions and does not provide any out-of-the-box framework to perform variance analysis or enforce the associated governance / commentary process
5	Provides a ready framework for implementing the workflow necessary for Accounting Close. Additionally the frequency of reconciliation is customizable; therefore can be used outside of Close cycle	Typically associated with matching and clearing of near real time transactions. Primarily used towards the beginning of Accounting Close process
6	Provides the ability to “transform” data through Attribute (column) calculation for data enrichment or normalization, to facilitate the matching process	Does not support “transforming” a transaction during reconciliation. Transactions are primarily matched based on the associated transaction details
7	Provides the ability to build a ready list of suggested matches	Does not provide any analytical suggestions pertaining to matching
8	Designed primarily to execute and enforce an organization wide governance workflow for reconciliation. By default it does not clear a transaction to invoke an automated accounting entry (although it does have the ability to create a journal and have it flow through the ERP journal posting workflow)	Designed to match and clear transactions to facilitate accounting entries (Note that Payables payment, Receivables receipt, cash management cash flow or open transactions can be matched and cleared. However Payroll payments or GL Journal Entries can be matched but not cleared)
9	Lacks the ability to perform foreign currency translation inside the application, by design. Ideally currency translation should be performed outside ARCS and imported into ARCS	Designed to reconcile foreign currency transactions to the ledger currency

 

Conclusion

The features and differences mentioned above indicates that the reconciliation and transaction matching capabilities of the ERP vis-à-vis ARCS supplements each other, and both can coexist in the enterprise financial data flow. Notably, ARCS becomes especially relevant in certain situations when:

a) Companies want to streamline the enterprise wide financial reconciliation process holistically, across ERP, Payroll, Treasury, Tax and other accounting transaction systems

b) Multiple ERPS exist due to Mergers and Acquisitions (M&A)

c) Companies want to re-engineer the financial accounting close processes

ARCS is not designed to substitute the inherent capabilities of an ERP module to clear and auto-post accounting entries or perform currency translations. However, it is an important tool to utilize, if a Company wants to refocus their workforce’s attention from collecting and matching data from disparate sources, to other activities.

August 22, 2018August 22, 2018 by accountreconciliation Categories: Uncategorized Leave a comment

Account Reconciliation Tools Comparison

By Kars Stal, Caroline Bennett, and Chandan Malhotra

Introduction
World class companies leverage account reconciliation tools to enhance the account
reconciliations process.  These tools provide automation, workflow capabilities, and increase overall compliance within the account reconciliation process.  The reconciliation process, when manual, is extremely time-consuming and can be a major bottleneck in the overall close process.  In addition, manual processes introduce risk within the process through human error.

Though many of the account reconciliation tools on the market today provide similar capabilities, there are key differences, which may make one a better fit for any organization than others. Choosing which tool best fits your organization can be a challenging decision, with factors such as functionality, user experience, ability to customize and cost to take into consideration.

This article will compare the industry leaders of account reconciliation tools including:

• Oracle Account Reconciliation Cloud Services (ARCS)
• Blackline Account Reconciliation
• Trintech ReconNet

This article is written by experienced Oracle ARCS implementers with deep expertise in Account Reconciliations and new functionality is released on a monthly basis for all products being compared. For a detailed comparison of the products, it is recommended to engage with the respective software providers and engage them for demos based on your specific reconciliation and matching requirements.

Overall, Oracle ARCS stands out among its competitors, amongst others due to lower total cost of ownership over 3 – 5 years, ability to fully cover the financial close process across multiple integrated products, and set-up and reporting flexibility to address company specific needs.  In this article, we will discuss each of the functionality that was assessed and reasoning for the overall rating.

Integrated Data Loads
The integration and flexibility with Blackline and Trintech require a specific data set format and file-based data loads. On the other hand, Oracle ARCS allows for flexible file-based data loads and account grouping (beyond functionality available in Blackline and Trintech) to reduce per month reconciliations. Flexible and automated file-based data loads are enabled through a combination of EPM Automate and Data Management, which is the data integration toolset for ARCS. This toolset is very powerful and has the ability to automate and translate data into the required target format from a wide variety of source flat files.

Out of the box automation for administration is an important feature when analyzing Account Reconciliation solutions, due to the minimized configuration and ongoing maintenance required and ability to guarantee data is not influenced during the reconciliation process.  Blackline and Trintech do not provide out of the box automation tools for application administration, while Oracle ARCS provides EPM automate.  EPM automate enables significant automation for mass administration updates and integrated data loads with basic to minimal programming skill required.

Application Utility and Workflow
The number of templates and ability to customize templates provide companies more flexibility in their solution.  Blackline and Trintech provide 8 templates with slight customization, while Oracle ARCS provides more than 20 with the ability to configure to fit business needs. Template configuration ability needs to be reviewed against client requirements. Most clients fit into a certain structure of template usage and functionality in all tools would cover this requirement. If a company has more complex reconciliation requirements, ARCS would be a better fit.

Account reconciliation tools must also provide workflow functionality to track and manage the account reconciliation process.  All software vendors provide standard workflow with multiple levels of review. Oracle ARCS provides functional rules to enforce actionable workflow items that support accounting policies and procedures.  In addition, business rules can prevent a preparer from submitting a reconciliation if an identified adjustment exists without an action plan.

Dynamic Risk Rating
Dynamic risk rating automatically assigns risk levels to each account based on a pre-determined set of criteria, typically based on dollar thresholds, account type, or reconciliation frequency. Based on the risk rating of High, Medium, or Low, clients can assign different due dates and frequencies to complete the reconciliation.

All software vendors provide risk rating categorization for account reconciliations:

• Oracle ARCS provides functional rules that assign a dynamic risk rating to reconciliations based on attributes defined by accounting policies and procedures
• Blackline and Trintech allow setting risk rating once a month and manual process to update reconciliations
• Blackline does not provide notification for reconciliation that require a risk rating change

Transaction Matching
All software vendors provide Transaction Matching solution.  The major difference between the vendors is whether it is a unified or integrated solution.  Blackline and Trintech Transaction Matching feature is housed in separate modules.  Oracle provides an integrated reconciliation solution with access to both Reconciliation Compliance and Transaction Matching modules within the same platform. Clients should also discuss pricing options with the respective vendors. Both Blackline and Trintech incorporate a pricing model based on number of transactions, where Oracle is based on a flat monthly fee, independent of number of transactions.

Variance Analysis
Similar to Transaction Matching, the main difference with variance analysis, is based on the
module integration and licensing.  Blackline’s Variance Analysis is housed in a separate module and charges a separate license fee for Variance Analysis module. Oracle ARCS provides an add-on value from account reconciliation to variance analysis within the same platform without incurring any additional license fee.

Conclusion
When choosing an account reconciliation tool, companies must consider functionality, performance, client satisfaction, and overall cost of ownership.  We do recommend client’s to prepare a full list of requirements related to the account reconciliation solution and include the broader close and consolidation toolsets and capabilities as they review the account reconciliation solutions.  Dependent on these requirements and your overall platform strategy Oracle ARCS is a tool to be considered.

August 8, 2018September 21, 2018 by accountreconciliation Categories: Uncategorized Leave a comment

Dynamic Risk Rating: Features and Benefits

Dynamic Risk Rating: Features and Benefits

By Kars Stal, Chandan Malhotra, Caroline Bennett, and Michael Hurley

Overview

Organizations seeking to drive efficiency in their Account Reconciliation process can automate many steps in the process with Oracle Account Reconciliation Cloud Service (ARCS). One such automation opportunity is dynamic risk rating. The Hackett Group advises our clients to use a risk-based approach for account reconciliation, with enhanced focus and analysis on accounts with the greatest likelihood of material errors. Within the account reconciliation tool, clients can assign a risk rating to each account. The traditional approach to risk rating is a one-time (or maximum once a year) review of your account reconciliations for risk based on activity, materiality, volatility, complexity and risk / exposure of material misstatements. ARCS takes this one step further, by assigning risk rating dynamically.

Dynamic risk rating automatically assigns risk levels to each account based on a pre-determined set of criteria, typically based on dollar thresholds, account type, or reconciliation frequency. Based on the risk rating of High, Medium, or Low, clients can assign different due dates and frequencies to complete the reconciliation, and the tool will reevaluate these after each data load. In this paper, we will discuss in more detail the features and benefits of creating rules to drive dynamic risk rating in ARCS and walk through a case study of a client who Hackett assisted in implementing this functionality.

Risk rating indicates the risk level of each account based on other attributes of the account, for example activity, materiality, volatility, complexity and risk / exposure of material misstatements. As an example of setting a materiality threshold, accounts with balances up to $2M would be rated Low risk, $2-$5M accounts rated Medium, and over $5M rated High. Companies may also assign risk by account type or statement line. Typically, finance leaders want to pay particularly close attention to cash accounts, and choose to assign them higher risk ratings than non-cash accounts with similar balances. In addition, the finance team may designate accounts for reconciliation at different frequencies. Typically, accounts are reconciled on a monthly, quarterly, or annual basis. Higher risk accounts will be designated a higher frequency (e.g., monthly).

Historically, risk ratings needed to be assigned manually for each account. Now, using Oracle ARCS, the criteria of account balance, account type, frequency, and other attributes can be combined to develop sophisticated rules to automatically assign risk ratings. Dollar threshold of the account balance is usually the most important factor and tends to have the greatest weight in determining risk level.

Finance leadership can use the assigned risk level to set different deadlines or frequencies for completing reconciliations. For example, all High risk accounts may be due by Day 5, Medium by Day 7, and Low by Day 10. Focusing on High risk accounts to be performed as part of the close process, where others will be performed less frequently or outside of the close process, can ensure issues are found earlier and reduce the number of journal entries after close, and at same time increase overall compliance.

Case Study – Dynamic Risk Rating Implementation

The Hackett Group is an experienced leader in implementing Oracle ARCS and has helped our clients set business rules within the tool for dynamic risk rating. One of our most recent ARCS implementations including dynamic risk rating was for a $6B Data Communication and Telecommunication Equipment Provider. This client has a global account reconciliation application with a team of 500 users to reconcile and approve over 11,000 accounts within 10 business days each period.

At this client, we established dynamic risk ratings based primarily on account dollar thresholds, with balances less than $2M rated Low, balances from $2M to $10M rated Medium, and those larger than $10M rated High risk. We also used account frequency as a factor in setting risk levels, with all High risk accounts reconciled monthly. Medium and Low risk accounts could be reconciled on either a monthly or quarterly basis.

This client based their account reconciliation timeline on risk levels, with the higher-risk accounts due earlier. The schedule was set as follows for each risk level:

• High Risk – 6 days
• Medium Risk – 8 days
• Low Risk – 10 days

If account balances or other risk factors change, the risk rating for that account and related due dates would automatically update based on the defined rules. Based on assigned due dates, preparers and reviewers receive automatic email notifications when they have tasks due. Overall, this implementation reduced the risk in the organization, provided proper focus during the close cycle on drivers of risk, and developed a more efficient close and reconciliation process through automation.

Conclusion

Dynamic risk rating in an Oracle ARCS application can be a quick win opportunity for improved standardization and automation in the account reconciliation process. Hackett has worked with numerous clients to determine the right attributes, thresholds, and logic to determine risk ratings and automate them using ARCS. Implementing dynamic risk ratings automates a task that otherwise must be performed manually each period by the account reconciliation tool’s administrator (or will not be performed at all or only once a year). The ability to automate facilitates increased focus on more value-add activities and reduces the risk of having to make journal entries late in the close process. Creating the right thresholds and rules to determine risk ratings can improve compliance by standardizing requirements and driving increased focus on the highest risk accounts. Oracle ARCS is the perfect tool to provide this capability.

 

March 6, 2018September 21, 2018 by accountreconciliation Categories: Account Reconciliation, Cloud MigrationTags: Account Reconciliation, Cloud Migration, Oracle, Oracle Account Reconciliation Cloud Service, Oracle ARCS, Oracle ARCS Reconciliation Compliance, Oracle ARCS Transaction Matching, Oracle ARM, Oracle Cloud, Reconciliation Compliance, Transaction Matching Leave a comment

Oracle ARCS: Transaction Matching Overview

Oracle ARCS: Transaction Matching Overview

By Caroline Bennett, Michael Hurley, and Kars Stal

Introduction

Many companies struggle with inefficient, time consuming, manual intensive reconciliation processes due to complex transactions, non-standard data structures in source systems, common book keeping errors, and manual matching processes.

The Oracle Account Reconciliation Cloud Services (ARCS) Transaction Matching module automates the manual matching process, reducing human error and speeding up the process. It has powerful matching rules with ability to match many-to-one, one-to-many, and many-to-many relationships.  This tool can match large numbers of transactions quickly and identify unmatched transactions, allowing accounting staff to focus on matching the most complex transactions and performing analysis.

In this paper, we will provide an overview of how to leverage transaction matching within the overall account reconciliation process and how it can be accelerated using the Transaction Matching module in Oracle ARCS. We will illustrate the benefits of automated transaction matching using ARCS with a case study of a global financial services company that implemented the Transaction Matching module within their account reconciliation tool.

Transaction Matching Overview

Transaction Matching functionality enables balance and transaction matching by:

• Establishing pre-defined rules to compare total values and transaction-level detail between reports from sub-systems to GL-Account Reconciliation Automation (ARA)
• Highlighting values exceeding a defined threshold within a single report based on algorithms which are consistent with company policy
• Reconciling values automatically through integration with sub-systems and other sources of information (including Microsoft Excel templates where needed)

The matching process begins with the import of transactions, followed by the execution of the auto match process, confirmation of suggested matches, and creation of manual matches. Periodically, according to business needs, accounts are “balanced” through generation of reconciliation reports, providing the evidence needed to satisfy reconciliation compliance. Match rules are defined by Administrators for each reconciliation type and can take advantage of calculated attributes optimized for performance. These attributes are created using functions designed to normalize or enrich the original data and provide significant value through higher auto match rates. As an example, the application can calculate an attribute that concatenates more than one field from a data source to normalize it with the format of a field in the data source to be matched.

Case Study

While working with one client to migrate their on-premise Oracle Account Reconciliation Manager (ARM) application to the cloud-based ARCS, we sought opportunities to not only replicate their current functionality but also deliver process enhancements. While prioritizing enhancement opportunities, we identified the client’s current labor intensive process for matching intercompany transactions as a process that could be automated in the ARCS Transaction Matching module.

We conducted working sessions with the client to identify the data sources for each intercompany account and documented the intercompany matching process. With this understanding, we set up an Intercompany Matching reconciliation type to support data loads from source systems and create matching rules for all intercompany accounts. The logic in the intercompany Reconciliation Type generates automatically confirmed matches for exactly corresponding one-to-one matches, while recommending many-to-one matches that appear to contain matching amounts for corresponding entities and trading partners.

After performing matching logic, Oracle ARCS stores confirmed matches and provides suggested matches as well as any unmatched transactions for review by the preparer of the intercompany account reconciliation. Equipped with this information, the preparer is able to focus time and effort on investigating only the most challenging exceptions. In this example, our client found that the automated logic successfully matched over 90% of the intercompany transactions.

The automated matching logic in the Transaction Matching module greatly accelerates matching high volumes of transactions and balances the account transaction. The Reconciliation Compliance module, used to manage the complete reconciliation process, monitor completeness, and generate progress reporting links to the Transaction Matching module to provide evidence that those high volume accounts are matched according to policy.

While the original scope of work only included implementation of Transaction Matching functionality for intercompany accounts, we identified additional opportunities and developed a roadmap for expanded use of this powerful tool. This roadmap included incorporating a large number of cash accounts into this new process. Some clients have ERP systems with full bank statement details that provide native ERP matching functionality. However, clients like ours that match to native bank systems are better off loading bank statements into ARCS Transaction Matching to reconcile with the GL. Key steps in building out additional reconciliation types in Transaction Matching include identifying and sourcing required data, defining matching logic for confirmed and suggested matching, and then building and testing the reconciliation type.

Conclusion

Many companies continue to struggle to reconcile accounts with high transaction volumes. Labor intensive processes can limit time available for investigating matching issues, thereby increasing risk in the account reconciliation process. Reconciliation preparers frequently spend 90% or more of their time on reconciliations that match, leaving very little time for investigating exceptions or value-add business analysis. Best practice companies with automated matching can cut time spent on reconciling transactions that match to 5%, allowing them to increase time spent on more thorough exception investigation while still having time available for more important, rewarding, and value-add activities. With Oracle ARCS, companies can link management of the account reconciliation process with real-time reporting in their Reconciliation Compliance module with detailed matches for evidence automated and accelerated by Transaction Matching.

Companies can save time, improve quality, and reduce risk by automating the reconciliation process, particularly for accounts with large numbers of transactions. The Hackett Group’s experience with clients has proven that the Oracle ARCS Transaction Matching module provides a powerful tool to focus manual effort on reviewing high-risk transactions and performing analysis. The Transaction Matching module can match and reconcile vast number of transactions in seconds, which enable accountants to focus on solving discrepancies and other value-added activities.

February 20, 2018September 21, 2018 by accountreconciliation Categories: Account Reconciliation, Transaction MatchingTags: Account Reconciliation, Oracle, Oracle Account Reconciliation Cloud Service, Oracle ARCS, Oracle ARCS Reconciliation Compliance, Oracle ARCS Transaction Matching, Oracle ARM, Oracle Cloud, Reconciliation Compliance, Transaction Matching Leave a comment

The Transformation to Cloud for Account Reconciliation

By Caroline Bennett and Michael Hurley

Introduction

Account reconciliation is an essential element of control within the finance function required to substantiate GL account balances and support the monthly financial close. As organizations consider adopting cloud technology for various EPM solutions within the finance function to avail themselves of up-to-date functionality and reduce costs, they must consider whether to migrate existing account reconciliation applications to a cloud-based platform. Oracle Account Reconciliation Cloud Services (ARCS) provides an ideal option for those clients already using the on-premise Oracle Account Reconciliation Manager (ARM), as functionality can be migrated quickly and easily, to grasp the benefits of new abilities within the Cloud application.

In this paper, we will provide an overview of the benefits of adopting cloud services for account reconciliation and look at a case study of a global financial services company that migrated their account reconciliation application to the cloud.

Benefits of Cloud Adoption for Account Reconciliation  

Many companies are considering the benefits of moving to the cloud with their EPM/BI technologies, including Account Reconciliation tools. Though less than 35% of companies have adopted cloud technologies thus far, Hackett’s research indicates that cloud adoption will more than double over the next two years.

Current Cloud Adoption

Future Cloud Adoption

To ensure a successful cloud implementation of any EPM/BI tool, it is important to consider the overall vision, cloud readiness, and functionality trade-offs. When determining whether to use a cloud solution, the most important decision criteria are (or should be) functionality and features. While decision makers consider Total Cost of Ownership cost and application management, application functionality is considerably more critical to the end users who adopt and leverage the solution.

Overall, ARCS and ARM have many of the same features and functionality. Both the on-premise and cloud versions of Oracle’s account reconciliation tool are global applications that drive standardization and improve visibility throughout the account reconciliation process. However, as the cloud has become the major focus from a research and development perspective, Oracle is developing additional features unique to the cloud application. Also, because ARCS monthly updates are automatically released to the environment, customers receive the latest functionality without having to perform periodic upgrades to the hardware environment. One exciting example of this was the recent release of the Transaction Matching module for ARCS, which is not available in Oracle ARM. Below are some of the key benefits that can be achieved with Oracle ARCS:
5 Benefits of ARCS

• Automation of (dynamic) risk based reconciliations
• Custom and calculated attributes and more powerful automated rules
• Real time dashboard reporting on compliance and completion
• Automated transaction matching
• Ability to be fully managed by functional resources

Automating risk based reconciliations allows the organization to focus effort on reconciling the highest risk accounts while maintaining visibility of the full chart of accounts. Lower risk accounts can be automatically reconciled in most months, while still monitoring account transactions in the reconciliation tool. Performing reconciliations on a set risk-based schedule (e.g., monthly for high-risk accounts, quarterly or semi-annually for lower-risk accounts) allows for periodic detailed review of all accounts over the course of the year. One of the advantages of implementing ARCS is that dynamic risk based assessment could be introduced. Based on changes in balance, activity and outstanding reconciling items, the tool would automatically update risk level, adding a level of comfort around controls, while at the same time guaranteeing reduction of number of reconciliations to be performed at month end. Reducing the effort spent on lower risk accounts can reduce time and cost of account reconciliation while achieving greater attention to reviewing higher risk areas.

Calculated attributes and automated rules enable increased automation of account reconciliations. These calculations and rules can automate activities such as submitting or approving reconciliations within predefined thresholds, tracking open items in each period until they are closed, governing completion of required fields, or reconciling transactions in different currencies. This rules-based automation not only reduces manual effort, but also improves quality of reconciliations and enforcement of accounting policies through systematically governed standardization.

Dashboards and reports keep track of reconciliation status throughout the organization in real time and help the controllership team monitor aging of reconciliations and transactions. With ARCS, customers get significant dashboards and standardized reports out of the box while retaining the ability to create customized reporting.

One of the most powerful new capabilities with ARCS is the automated Transaction Matching module. Transaction Matching enables creation of rule sets that automatically match transactions from different data sets based on defined conditions. This functionality can reduce manual effort to match items like intercompany transactions or GL to sub-ledger transactions by more than 90% by automatically matching most transactions and identifying those that require manual review.

A final significant benefit of Oracle cloud applications is that Oracle manages all upgrades and infrastructure maintenance. This reduces customers’ needs for in house infrastructure support, provides them with the most recent upgrades with the newest functionality as soon as they are available, and eliminates the need for periodic projects to upgrade versions of the software.

As more companies migrate their EPM and BI tools to cloud applications, The Hackett Group is helping our clients reap these benefits and more by using ARCS for their account reconciliation processes.

Case Study – Migration from ARM to ARCS at a Global Financial Services Organization

Hackett is an experienced leader in migrating clients’ account reconciliations process to cloud-based applications.  Hackett partnered with a global financial services client, who sought to migrate their on-premise ARM application to a cloud-based ARCS application as part of a larger strategic move to the cloud. In addition to integrating more effectively with cloud-based ERP, reporting, consolidation, and planning tools that they recently implemented or planned for implementation, ARCS provided this client significant opportunities to deliver improved efficiency and effectiveness in their account reconciliation process.

ARCS ease of migration from ARM is based on very similar structure and configuration, while also offering additional capabilities that were not available in the on-premise application. The first step in successfully migrating to ARCS was to create a new Development and Test ARCS application. Once the application was created, most of the settings, configurations, and formats from the previous on-premise ARM application could be replicated in ARCS, which accelerated the migration process. Reconciliation profiles were easily downloaded from ARM into a flat file and uploaded in ARCS with minimal modification. The minimal changes were required to account for a few new system attributes that provide additional capabilities within ARCS, including:

• Calendars – created a single standardized calendar for the whole organization
• Holiday Rules – loaded holiday dates for 30+ years to automatically align account reconciliation deadlines with the close calendar
• Organizational Units – created an organizational unit for each Region to support reporting requirements

While performing the application migration, Hackett also conducted workshops to discuss account reconciliation best practices and opportunities to implement enhancements using ARCS functionality not available in ARM. We worked with the client to prioritize enhancements for inclusion in their initial release of ARCS as well as prepare a roadmap for future enhancements. This financial services client leveraged ARCS capabilities to achieve immediate performance gains in several areas:

• Introduced automated Transaction Matching for intercompany accounts
• Used auto-reconcile and auto-approve rules for lower risk reconciliations that do not need to be performed monthly, providing improved visibility to each account every period with no additional manual effort
• Automated amortization of transactions to carry transactions over to subsequent periods without manual input
• Created holiday rules and calendars to automatically align with the organizational close calendar
• Incorporated Action Plans into reconciliation templates to improve documentation and follow-up on tasks to complete reconciliations

Our longer-term roadmap for this client recommended additional ways to leverage ARCS functionality to automate more of the reconciliation process and enhance visibility and control over reconciliations.

• Accelerate reconciliation of additional account types including Cash and various sub-ledger accounts (e.g., Accounts Receivable) through ARCS Transaction Matching module
• Standardize report development to reduce manual effort and dependence on Excel while improving reporting controls with standardized, validated reports
• Reduce manual effort and increase focus on high risk accounts by establishing thresholds for low risk accounts to automate reconciliation and approval of those accounts if they meet defined conditions
• Develop automated rules to reduce manual effort in the reconciliation process or improve controls and standardization of reconciliation performance

This client achieved significant improvements through a quick six-week project to migrate their account reconciliation application to the cloud. Compared to their legacy on-premise application, ARCS delivered stronger accounting policy enforcement through custom rules, visibility to automated lower risk reconciliations, higher quality reconciliations with custom and calculated attributes including action items documented in the system, and upgrades and system maintenance continuously managed by Oracle. Additionally, we worked with the client to identify solutions to several key pain points in their current ARM application to demonstrate clear benefits from the migration.

In this case, our client chose to migrate from ARM to ARCS to align to a broader organizational vision to adopt cloud for the entire EPM suite. Since many users at the client had already adopted cloud applications for other use cases (e.g., Planning), the changes from ARM to ARCS had minimal impact on users. Therefore, this project required minimal change management focused around user training on the new capabilities. With minimal investment and change management, the client achieved significant gains in functionality and efficiency from their account reconciliation tool by moving to the cloud.

Conclusion

As companies adopt cloud technologies for their EPM/BI suite, they should strongly consider Oracle ARCS to support the strategic approach. Whether a company has already adopted cloud or is looking to start migrating to cloud technologies, Oracle ARCS is a great place to start, and for those already using ARM, the move to ARCS will be accelerated. The ARCS tool provides enhanced automation, standardization, and ease of use for its users.  In addition, the quick implementation timeline allows clients to realize benefits much faster with minimal change impact.

February 14, 2018September 21, 2018 by accountreconciliation Categories: Account Reconciliation, Cloud MigrationTags: Account Reconciliation, Cloud Migration, Oracle, Oracle Account Reconciliation Cloud Service, Oracle ARCS, Oracle ARCS Reconciliation Compliance, Oracle ARM, Oracle Cloud, Reconciliation Compliance Leave a comment