Measuring the Real Cost of Manual Accounting

This article originally appeared in FEI Canada. It’s an 8-minute read.

Manual accounting processes are one of the top frustrations of every accountant—the repetitive work, the endless spreadsheets, and the late nights at month end. Data entry, endless copy-and-paste still seem to rule in tasks like journal entries, reconciliations, reporting, and variances.

Now it got way harder—with Accounting having to do it all, from home.

Downloading manual data extracts takes longer, keeping everyone on the same page with spreadsheet checklists is more painful, and clunky desktop clients that do not play well over the internet are slow.

And with today’s volatile business climate, Accounting is now on the hook to do more, like getting data to executives and department managers so they can make business decisions fast.

Valuable accounting teams can no longer be buried in transactional accounting. Not to mention that manual processes cause an operational risk when workers are responsible for it are absent.

Repetitive, Time-Consuming Accounting Processes

Numerous accounting processes still require pulling data together from an ever-growing list of different applications and sources amid increasing data volumes. New and changing accounting standards compound the problem.

For example, a typical reconciliation or variance analysis often means extracting GL actuals from the ERP and comparing it with relevant data for that account, whether it’s data from banking, credit card, accounts receivable, payables, or anything else.

Reconciling high-volume accounts like invoices, purchases orders, and receipts is invariably even more painful, involving not only several sources but hundreds of thousands of detailed transaction line items. And manually keying journal entries into a rickety ERP screen one at a time is unfortunately still commonplace.

Manual Accounting Is Costly & No Longer Sustainable

With more systems, more data, and more reporting and regulatory overhead, it feels like a losing battle. Throwing people at the problem just is not sustainable anymore, and Accounting is increasingly being asked to do much more with the resources they have—like quarterbacking requests for actuals so business teams can forecast and analyze more effectively.

Here are five ways manual accounting is costing organizations, making this way of working unsustainable.

Manual Accounting Is Time-Consuming

When an organization’s processes are mostly manual, it takes a significant amount of time and resources to close the books. Research shows that more than five days typically separate the fastest month-end closers from those that are heavily manual.

That translates to an entire working week that Accounting could spend identifying exceptions and variances to flush out financial statement integrity issues, identifying risk, or working on meeting new regulatory rules.

It also costs FP&A, because they must wait longer to get a set of financial results before they can begin planning, forecasting, analyzing, and modeling.

Manual Accounting Is Expensive

According to APQC, accounting organizations that are inefficient are two to three times more costly to run than their top-performing peers who are doing the same activities. But there is a lot of low-hanging fruit to help more manual F&A organizations catch up.

A recent study by Robert Half found that nearly 50% of companies still don’t use any automation for GL account reconciliation. And the results of automation can be substantial. One of the world’s biggest multinationals reduced time spent on reconciliations by thousands of hours a month, reallocating the team to activities like metrics, reporting, IT controls, and change governance.

It’s also essential to recognize that many CFOs aren’t taking efficiencies to the bottom line. They’re using it to reallocate from the finance budget: reinvesting those savings to business support for teams and legal entities, analytics, forecasting, and planning.

Manual Accounting Is Risky

Manual accounting is highly correlated to financial statement integrity risk.

In a recent survey of over 1,100 C-level executives and finance professionals worldwide, nearly 70% said they’d made a significant business decision based on inaccurate financials. Of those that didn’t trust the numbers, 41% blamed manual data inputting, and 56% highlighted the issues of no automated controls and checks, labor-intensive data extract processes, and spreadsheet sprawl.

Beyond risks of poor data integrity, manual accounting also raises the risk of fraud, with exposure around creating or altering transactions, updating electronic documents and files, or manually entering journal entries.

One study by the American Accounting Association quantified the risk, discovering an 80-90% higher incidence of fraud in companies with material weaknesses.

Manual Accounting Hurts Audit & Compliance  

While fees themselves have stabilized somewhat, the increasing amount of accounting time spent meeting audit requests has not. Lack of follow up on aged items, incomplete reconciliations, inability to quickly answer auditor questions, and overall visibility all tie up accounting resources further—which in turn can run up the total cost of an audit.

Just how much time can Accounting save? By moving away from manual accounting to a more automated and centralized approach, one of the world’s largest non-profit health systems was able to devote 400 fewer hours to audit and reduce audit fees as a result.

Manual Accounting Burns Out Talent

Repetitive period-end processes take a toll on your people, causing employee disengagement and lowering the productivity of each FTE. According to Gallup/LinkedIn, this amounts to costing the organization $3,400 for every $10,000 of salary.  

It also impacts talent retention and succession planning. Protiviti/NC State Poole College of Management found that the ability to attract and retain top talent hit the number two spot for top risks last year, moving up from the number six spot just a year earlier.

Ways to Reduce the Costs of Manual Accounting

Fortunately, there are numerous ways for an organization to tackle labor-intensive tasks. Reconciliation automation can be used to auto-certify up to 85% of accounts each month, without requiring human intervention. Managing the overall close process itself can be moved online, with workflow solutions that centralize close tasks, manage dependencies, and route tasks for review and approval.  

Rather than spinning cycles responding to auditor requests, organizations can move to a self-service model, enabling them to log in and access areas like reconciliations, supporting detail, variances, and exceptions— without relying on Accounting.

Even high-volume accounts can be automated, using a rules engine to automate detail-heavy recs, such as bank recs, credit card matching, intercompany reconciliations, and invoice-to-PO matching.

Quantifying the Benefits

Accounting is already starting to realize the benefits of automation. A multibillion-dollar financial services company automated certification so accounting personnel didn’t need to touch about 40% of the company’s reconciliations.

A leading broadcaster automated approximately 50% of their journals, and is planning to automate even more going forward.

And a 45,000-employee healthcare diagnostics company reallocated over half a million dollars in resources to automate the close so they could devote more time to work on tasks that support the company’s long-term objectives.

Moving from labor-intensive processes and improving efficiency is long overdue. Read this white paper to learn ten ways to improve your productivity that you can begin implementing today.