Risky business? Closing the books on 20th century accounting.

On my regular travels to talk to finance controllers and CFOs I usually start with a straw poll. The question is: Who has witnessed a workplace accounting fraud? Hands always go up and, whilst not the most scientific gauge of financial impropriety, it is a modest indication that fraud still happens, is always going to happen and companies must ensure they protect themselves from unscrupulous people. (As an aside, after the distractions of crisis-era misconduct – such as the selling of flawed mortgage securities – the Wall Street Journal reports the number of Security and Exchange Commission accounting investigations in 2015 is surging ‘as the agency returns its focus to alleged financial-reporting and disclosure problems.’)

Fraud is the ultimate risk for a business but there are elements of risk everywhere, from the mismatching of global accounting processes when companies acquire other companies, to the overstretched controller whose checks are sometimes compromised by the need for expediency.

Accounting errors have a way of growing from small dollar discrepancies into a big problems, a material misstatement or weakness around control can end in reputation-killing, financial, and possibly punitive disaster. My job is to show companies how to recognise risk. As a CPA there is nothing to beat the feeling that comes with signing off on financial statements I know to be clean and accurate.

One client of mine didn’t need internal auditors to point out the risk around the quick succession of acquisitions it had been making around the globe; they were already feeling the anxiety. Headquarters didn’t understand the accounting practised in all its new locations and had a very narrow window in which to learn. It was all heavy manual labour with reconciliations and journal entries flying across the globe via fax or Federal Express. Timings were all out because of the time differences; there was a lag of anything up to three days for answers, which by then were outdated. The CFO, unable to get on top of where the close was at and so unable to talk preliminary numbers with the board or audit committee felt the bracing wind of exposure, indeed the whole finance and accounting team existed under a cloud of unease.

This went on for six months until the company bit the bullet and looked at BlackLine’s modern finance – they had found their answer. One of the immediate benefits was the dashboards that allowed those at the helm visibility into what had been done, what hadn’t been done, and how things were being done. An air of confidence and control replaced the unease. This is such a typical example of what I see every day. Unfortunately, many of the incremental steps companies take to streamline growth and expansion – collaborative tools, document management – aren’t up to the job. Advancing straight to a purpose-built modern financial solution is easier than you might think.

Financial controllers have limited time to review the output of all the accountants they manage, we all know of times when journal entries or account reconciliations have been reviewed after the deadline, and the sign-off backdated leaving the numbers unverified for short periods of time (we don’t like it but it happens).

Another set up for risk are the timings and frequencies of variance analysis. For example, five days into the close the books are reopened and the balances change, so whoever put the earnings together might not know a subsequent entry has been booked.

With BlackLine the balances are uploaded into the application at a frequency that is right for the business (every ten minutes if necessary) with rules, for instance - all transactions over a certain dollar and/or percentage limit – allowing companies to keep a constant check on the close.

What this one-view world of accounting does is to mitigate exposure to risk, whether intentional (as in fraud), or unintentionally through errors introduced by human-hand. Risk can result from nothing more ominous than poor decision-making, bad practice, and under management of staff by accountants under the cosh, because they simply don’t have time to do any of those things well.

If you need more reasons to transform your finance and accounting here are four more - download our Welcome to Modern Finance now.