Building Trust in Finance: A Controller's View


6-minute read

Patrick Villanova joined BlackLine in November of 2015 after spending 15 years in the Assurance Practice of PricewaterhouseCoopers, where he handled everything from clients’ IPOs and SEC filings to mergers and acquisitions.

With BlackLine, he had the opportunity to do much of the same, but all within the space of his first year. “When I was an outside auditor, visiting a client was like going to a party that had already started and eating the last piece of cake,” he says. “Now, at BlackLine, it’s like I’m baking the whole cake from scratch. Big difference.”

BlackLine Quarterly: PwC says that its Assurance services “help you navigate regulatory complexity and strengthen trust and transparency.”

At BlackLine, trust is seen as a major factor in automating accounting and finance processes. How does a company go about building a trustworthy accounting function?

Patrick Villanova: I think it takes putting the right people and the right processes in place, to start. You strive to have transparency within the organization. You want to maximize communication—about key accounting judgments, future obstacles, and any issues that are pertinent to financial leadership, shareholders, and the Board.

Personal integrity is vital. You want people who stand their ground and do the right thing, or in areas that require significant judgment, who will do the “most right” thing.

And these qualities must be maintained throughout the entire accounting and finance organization, across every member of the team.

BlackLine Quarterly: How do you promote these behaviors?

Patrick Villanova: It’s important to foster a culture where employees won’t be punished for proactively admitting they made a mistake or acknowledging they don’t completely understand something and need more coaching.

In fact, it should be encouraged. In our world, the longer a mistake goes undetected, the greater the cost to the organization—and that cost can be exponentially greater.

BlackLine Quarterly: What aspects of process automation are most important?

Patrick Villanova: There’s a lot you can do with process automation, obviously, but a few things stand out.

First is journal entry. That’s the point of inception for recording a financial transaction, so it’s important that you capture all relevant documentation there. Process automation makes that easy to do because you can establish criteria for recurring or automated journal entries, and the less manual intervention, the better.

Next is the reconciliation process. It should be done religiously. Every account in your general ledger should be reconciled monthly, or depending on your company, at least quarterly.

Manual reconciliations might have been okay 10 or 15 years ago, but they are going the way of the dinosaur. You can’t just print out thousands of reconciliations and put them in a binder and check mark them all.

For one thing, that probably wouldn’t pass muster in today’s controls environment. But also, the old way of doing things is inefficient and ineffective in an increasingly globalized economy. Companies have accounting departments around the world, reconciling accounts in different currencies and in different time zones.

Real-time, cloud-based process automation brings complete transparency to the controller, and that’s critically important. Process integration lets you standardize the functionality of automated reconciliations based on guidelines set by the accounting department. This further enhances efficiency and effectiveness.

But you also need to look at the big picture, and that gets into variance analysis. You may have millions of journal entries being recorded and thousands of reconciliations being performed in your organization, so you should also have the necessary finance and/or accounting managers looking at trends or variances—doing gut checks that everything makes sense in the aggregate.

An automated variance solution compiles and aggregates the results of all of these transactions and highlights unexpected variances based on parameters established by the finance and accounting departments. That’s what can tip you off to some unexpected variance or problem that needs to be investigated further.

BlackLine Quarterly: And what then?

Patrick Villanova: Then you go and fix the problem as part of your close process, prior to it being identified by anyone else. The best accounting departments are like the best umpires in baseball—they go largely unnoticed, and the department runs smoothly.

But it takes a lot under the surface to make that happen.

BlackLine Quarterly: And if it doesn’t run smoothly, I would think the ramifications could be severe. For years, there’s been a kind of precept that’s popular with makers of computer-aided design (CAD) software.

They say that if you can catch a flaw in the design stage of an automobile, for instance, and you can fix it there, it’s a lot less expensive then if that flaw makes its way through to the production assembly line and the manufacturer has to issue an engineering change order.

And if the flaw gets into customers’ hands, then you can suffer even more in terms of reputation. Do you think there’s an analogy here with the workings of an accounting department and company trust?

Patrick Villanova: Certainly. All sorts of things can go wrong if you don’t get the numbers right, and if you don’t report them in a timely manner.

The longer it takes to identify that mistake, the greater the reputational damage can be to that accounting department or to the company in aggregate—and the damage can be catastrophic depending on the magnitude of the error.

If you efficiently and consistently close your books without any significant errors, you have the trust of executive management, your auditors, and your shareholders.

BlackLine Quarterly: So, what happens if you don’t close your books on time?

Patrick Villanova: If you‘re even a few days late due to a correction of an error in the close process, you could lose the trust of some C-level executives, notably the CFO. They need numbers they can rely on as soon as possible to be able to communicate financial results to the market and recalibrate forecasts.

But you’d still have the trust of the auditors and shareholders, assuming you caught the mistake before it got to them.

BlackLine Quarterly: What if the auditors identify the mistake instead of the company? And the error is material?

Patrick Villanova: Well, if it gets to your auditors, then they’ll question the process. Then it can cost you money and time because they’ll ask more questions. Even if the error is corrected before ever being reported to the general public, you might have a reportable internal controls event.

Keep in mind, it doesn’t have to be material to have a publically reportable internal control issue. The error just had to have the potential to be material.

That can cause an erosion of trust and an increase in tension between you and the auditor. It can be damaging to your department’s reputation, and even to your
company’s brand.

The Armageddon scenario is if a material error gets through the accounting department, through finance, through the Board review, and the auditors. Now the global capital markets won’t trust you. You’ll be open to possible lawsuits and you’ll likely pay massive fees to your auditors in order to correct it.

So, there’s no question that trust in Finance will find its way out to the company’s shareholders and stakeholders. That’s why it’s important on many levels—saving
time, managing costs, sustaining a positive reputation and mitigating risk—to establish a well-oiled, highly automated accounting department.

Read this white paper for seven ways to increase trust in your organization from top to bottom.