Account Reconciliation Transformation

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Category: Transaction Matching

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:

DriverDescription and Inclusion Driver
PurposeDriving 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.
ScopeScope 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.
DefinitionLevel reconciliations should be performed at (e.g., entity / account) by account type.  Clarify level of detail to be included in the account reconciliation.
Reconciliation criteriaOverview 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 ProcedureProcess to resolve any open items discovered during the reconciliation process and related time limits.
TimingTiming 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.
FrequencyLimit 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.
MaterialityThresholds 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 ResponsibilitiesClear 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 AssignmentOverview 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.
CompletenessChecks 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 ControlsControls 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.
TrainingDocument 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 reviewYearly 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.
RetentionWhere and how long reconciliations are being retained.  Align to audit requirements.
Source by account typeWhat 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 auditRole 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 usageOverview 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

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.

ORACLE TM OVERVIEW IMG1

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
  • Account Reconciliation in the Cloud
  • Oracle ARCS: Transaction Matching Overview
  • Best Practices: Oracle Financial Consolidation and Close
  • Dynamic Risk Rating: Features and Benefits
  • Account Reconciliation Tools Comparison
  • Home
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  • Contact

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