Apr 30th 2013
By Jason Bramwell
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If you think automation is primarily being used to reconcile the general ledger accounts of public and private companies in the United States and Canada, think again.
Nearly two-thirds of finance departments in US companies and one-half in Canadian companies are still using a manual accounting system, according to Benchmarking the Finance Function 2013: The Inner Workings of Accounting and Finance, the fourth annual report from the Financial Executives Research Foundation (FERF) and Robert Half, which provides insight into professional standards across the finance function.
"The level of manual reconciliation reported in our survey is surprising; however, we've seen this same consistent response in the four years we have conducted the study," Paul McDonald, senior executive director for Robert Half, told AccountingWEB. "The most progressive companies are moving toward automating the process through in-house systems or Cloud and software-as-a-service solutions."
Rising Number of General Ledger Accounts
Finance departments at companies of all sizes are grappling with growing numbers of general ledger accounts. Of the nearly 200 American and Canadian companies surveyed, more than half say they have 500-plus general ledger accounts. Ten percent of US companies and 20 percent of Canadian companies report they have upward of 3,000 general ledger accounts.
As business grows more complex, so does the number of accounts that need to be reconciled on at least a quarterly basis. Twenty-three percent of US-based companies and 19 percent of Canadian businesses surveyed indicate they reconcile anywhere from 500 accounts to more than 10,000 accounts.
While many of the company executives interviewed for the study advocate automating the closing of the books, 65 percent of US companies and 50 percent of Canadian companies are still manually reconciling accounts. Only 12 percent of US companies and 23 percent of Canadian companies surveyed use third-party software for account reconciliation, while 23 percent of American businesses and 27 percent of Canadian firms have implemented internally developed systems.
Streamlining the Close
According to the report, some executives at smaller companies are not convinced that available technology for automating the close is sufficiently tailored to their needs. They expressed concerns that their teams could end up expending more time and resources setting up a custom software package than it would take to continue with a manual process.
However, organizations like Sonetics Corporation, a Portland, Oregon–based wireless communications manufacturer, and Northern Contours Inc., a manufacturing firm in St. Paul, Minnesota, report that using an automated system gives them a competitive advantage over companies that are bogged down in the process, allowing their finance departments to utilize resources in higher-value activities.
"It currently takes fifteen days for us to produce the year-end statement, and I'd like to get that down to eleven days," Mike Williams, vice president of finance for Sonetics, says in the report. "I'm looking to maximize our opportunities and add value to our forward-looking activities."
Angela Riley, CFO of Northern Contours, states the company has placed a greater emphasis on the reporting process and is increasingly turning to automation tools.
"We've reduced the time it takes to produce our monthly, quarterly, and annual financial statements by nearly 50 percent," she says in the report.
Account reconciliation is still a manual process at Employee Benefits Corporation, a third-party administrator of financial services in Middleton, Wisconsin. However, according to Don Tuscany, vice president of finance and CFO, the company has started to incorporate more automated processes in its financial reporting.
"We're getting closer to the amount of automation I'd like to see us have," he says in the report.
Using technology may not be the only answer for streamlining the close. Process design and execution play key roles, as well. When Canadian Western Bank Group in Edmonton, Alberta, instituted its new general ledger system, it implemented a more effective process to create and post entries. This process has helped reduce the number of reconciliations.
"We don't have as many intracompany reconciliations because we are able to get the entries right the first time," Carolyn Graham, senior vice president and chief accountant, says in the report.
About the survey:
In November 2012, FERF and Robert Half conducted their fourth annual benchmarking survey of finance departments at 192 public and private companies in the United States and Canada. The data contained within this report were compiled from responses to a forty-eight-question online survey. More than half (58 percent) of the respondents identified themselves as CFOs, and the majority (81 percent) were located in the United States, while 19 percent were located in Canada.