Account Reconciliation Process

7/27/2019 Account Reconciliation Process

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Challenges & Best Practicesn anag ng e ccounReconciliation Process

Donna Dean, CPA

Experis Finance Director, Finance & Accounting

Susan Parcell s, CPABlackLine Systems Director Finance Transformation

and Product Expert

Title of Presentation Change in Master SlideChallenges and Best Practices in Managing

the Account Reconciliation Process

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Experis | Thursday, September 27, 2012 2


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Earning CPE Credit To receive 1.0 CPE credit for this Webinar, participants must:

Attend the Webinar for at least 50 minutes on individual computers

(one person per computer)

Answer polling questions asked throughout the Webinar




Meet Our Presenters

Donna Dean, CPA - Director Finance & Accounting

Experis Finance

Susan Parcells, CPA - Director Finance Transformation


BlackLine Systems


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Agenda Why perform reconciliations?

Attributes of an effective reconciliation process

Warning signs of reconciliation process issues

Common root causes of reconciliation issues

Account reconciliation process improvement framework

Getting to leading practices


Technology and process automation options

Automation using BlackLine

Recap



Polling Question #1

Which of the follow ing are features of your companys

A. Timely reconciliation on a scheduled basis

B. Clearance of all reconciling items within agreed timeframes

C. Segregation of duties and responsibilities (including authorization)

D. Centralized control, tracking and reporting with


strong management oversight

E. Formalized reconciliation policy and procedures


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Why Perform Account Reconciliations? Assures reliable and accurate financial statements

vo s s gn can wr e-o s managemen surpr ses

Provides accurate management reporting for decision-making

Investors - Vendors

Customers - Regulators

Critical tool for understanding balance sheet and business conditions

Helps to detect fraudulent activity


Regulatory compliance

SOX - FDICIA MAR

Reconcili ations are a critical internal cont rol.



Balance Sheet Account ReconciliationAttributes of an Effective Reconciliation Process

Centralized Control,Tracking and Reporting

Formalized ReconciliationPolicy and Procedures

Prioritizationbased on the risk

profile of account activity

Management oversight /commitment / authorization

Timely Clearing ofReconciling and Aged Items

Segregation of Dutiesand Responsibilities


Improved accuracy/completeness of financial systems

Investor/customer/vendor confidence

Reduced external audit scrutiny/fees

Improved accuracy of information for decision making

Avoids financial information embarrassment/penalties

Improves fraud detection measures

Benefits of an Effective Reconciliation Process


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Balance Sheet Account Reconciliation

Warning Signs of Process IssuesTypical warning signs:

Significant old

unreconciled values

Inconsistent/no supporting

documentation for

reconciliations

No detailed follow-up

action plans

-

Prepare

DocumentApproval

Copies of

su ortin

An asses sment

of the validity,

correctness andappropriateness

of an accountbalance

Documented by

relevant calculations,

clear and complete

explanations

Prepared at

a specific

point in time


prioritization

Manually intensive process,low automation

Account knowledge retained

by specific individuals

Reconcile

Balances &ResolveAged Items

Review &Challenge

documentation

In compliance

with company policy and relevant

accounting standards



Balance Sheet Account ReconciliationCommon Root Causes of Process Issues

Analys is of the issues identi fies the underlying root causes:

Prioritizationnotbased

ontheriskprofileof

accountactivity

Inadequatemanagement

oversight/commitment

Lackofformalized

reconciliationpolicy

Inadequatereconciliation

procedures

Poorsegregationofduties

andunclearresponsibilities

Lackofcentralized

control

Insufficienttracking

andreporting

Lackofadequately

trainedpersonnel

Significant old

unreconciledvalues

IssuesRootCauses


No detailed follow-up

action plans No (risk-based)

account prioritization Manually intensive

process, low automation Account knowledge retained by

specific individuals


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Polling Question #2Benefits of an effective account reconciliation process include all

A. More efficient external audit process

B. Avoidance of financial misstatements

C. Prevention of fraud

D. Improved accuracy of data for decision making




Balance Sheet Account ReconciliationProcess Improvement Framework



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Remediation Methodology

UnderstandTransaction

Flow

DetailOutstandingTransactions

ResearchOutstanding

Items

PrepareCorrecting

Entries

DocumentControl

Weaknesses


Timely preparation

Clear comments, explanations and documents

Record required adjustments

Improve processes that create recurring problems



Balance Sheet Account ReconciliationRisk-Based Account Prioritization

Focus on accounts that could contain a significant or material misstatement

Quantitative

characteristics:

Volume of transactions

Dollar balance of account

Normal account balance

Use a rating system, e.g.:

Qualitative characteristics:

Complexity of transactions

Complexity and subjectivity of

accounting rules

Degree of regulatory oversight

Internal controls over

transaction rocessin

Key target

areas:

Payroll

Inventory

Bank accounts

Receivables

Payables


1 = High Risk 2 = Medium Risk

3 = Low Risk

or Key / Non-Key Accounts

Level of automation/manual

intervention

Taxes


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Process Improvement InitiativesACCOUNT RATIONALIZATIONRationalize the number of accounts by identifying and

eliminatin accounts no lon er re uired

PROCESS OWNERSHIPEnsure the process is centrally coordinated. Ensure clear ownership

of each account and implement quality control reviews by a central

team

SEGREGATIONEnsure reconciliations are prepared

for each relevant account, avoiding

TRAININGTrain staff in policy and procedure.Rotate reconciliations between staff

to ensure knowledge base is

PROCESS MONITORINGImprove information management and workflow(standard forms, formal approvals, supporting

documentation, action plan documentation,regular MI reporting)

STANDARDIZATIONEstablish and apply standard definition of reconciled

and the methodology to be used to attain it and where feasible deploy a standard

reconciliation template

An assess ment

of the validity,

correctness and

appropriateness

Prepare

DocumentAppr oval


,

where this would involve netting

PRIORITIZATIONPrioritized timing of reconciliations on riskcriteria and reconcile high-risk, priority accountsearly (before period close, if possible)

driven. Introduce peer reviews

AUTOMATIONAutomate processes wherever possible. Technologyintroduces system controls leading to efficiencies in

the close process and improved audit transparency

balance

Review

and

Challenge

Reconcile

Balancesand Resolve

Aged Item s



Polling Question #3

Which of the follow ing is NOT an indicator of a high ri sk account?

A. Complexity and subjectivity of accounting rules applicable to the

account

B. Inexperienced preparer responsible for reconciling the account

C. High degree of regulatory oversight affecting the account

D. High volume of transactions posted to the account each month



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Technology and Process Automation ConsiderationsTechnology can shorten the reconciliation cycle and improve controls

MS Excel MS AccessIn-house

Processes

SpecializedReconciliation

Software

Deploy specialized

reconciliation software

Use Access database

queries for large /

complex reconciliations

Develop in-house

processes supported

by IT programming

and operations

Frequently used software

in accounting and

finance groups

Requires consistent

Functions with consistently

formatted data fields

(i.e., numeric to numeric,text to text)

Address manual

reconciliations that are too

large or complex to beperformed efficiently

Database design using

predefined templates

Easily accessiblesupporting documents

Use Excel worksheets

for smaller

reconciliations


formatting of data fields tobe analyzed (i.e., numeric

to numeric, or text to text)

File size is limited

Number of fields used

for efficient analyzing or

matching of transactiondata are limited

File size is almost unlimited

Number of fields used

for efficient analyzing ormatching of transaction

data are unlimited

Results can be displayed as a

MS Access report or exportedback to MS Excel for reporting

or inclusion in other files

Provide a high degree ofautonomy and flexibility

for the user

and company policiesand procedures

Readily available reportsto see the status of all

reconciliations



MS Excel MS AccessIn-house

Specialist

Reconciliation

Balance Sheet Account ReconciliationTechnology Options and Features

Software

DataSecurity and Integrity

Locking input cells, data validation

Input/Output Controls

Cross checks, balancing, conditional formatting

Segregation of Duties

Defines duties, roles and responsibilities

Backup and Archival

Regular backup on securedserver

Development Controls

Control, development, testing and approval


Documentation ControlsDocumentation of use and application

Access Contr ols

Define and restrict user access, rights and privileges

Change Controls

Defined process for system changes

Version Controls

Use of naming conventions


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BlackLine Process



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Account Task Transact ion

Ideal Automated Platform

Variance

Analysis

Journal

Entry

Consolidation

Integrity Manager


Real-time monitoring and reporting

Controlled process

Data integrity and integration



SSAE 16 + ISAE 3402

Internationally recognized auditingstandards developed by the AICPAand IAASB Third-party opinionson control effectiveness



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ROI & Cutting Costs Auto-certification

Increased staff productivity

Reduced paper, printing,

storage, overhead, auditor fees

Improved process management

Faster close

ROI: 495% Payback: 2 Months

Cox Communications

ROI: 227% Payback: 6 Months

Education Management Corpor ation


Return on investment

is one of the most important

indicators of value





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Balance Sheet IntegrityAccount Reconciliation Recap

Today we have:

Reviewed the basics of account reconciliation and why differences arise

Considered your individual account reconciliation processes and

compared them to effective processes

Considered the warning signs of a poor reconciliation process and the

areas of weakness they may indicate

Started to consider steps toward leading practices


Taken a high-speed tour through the process improvement stepsthat will lead to account reconciliation process optimization

appropriate for any business

Learned about the BlackLine automation technology


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Questions?For more information:

Donna Dean, CPADirector Finance & Accounting

Experis Finance

[email protected]

Susan Parcells, CPA


Director Finance Transformation and Product Expert

BlackLine [email protected]



Experis Finance is a leader in innovative professional

services that help companies create competitive

advantage, custom tailoring our project solutions and

professional resourcing services to fit our clients needs

in risk advisory, tax and finance & accounting.



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www.experis.us


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Account Reconciliation Process