Abstract: “The Last Mile of Finance” is a term popularized by Gartner and others to describe the finance processes and activi-ties that occur between the financial close and financial reporting and disclosure. Increasing regulatory reporting and compliance requirements, along with recent advances in applications targeted at automating and enhancing these processes make now the most effective time for finance to focus on taking charge of The Last Mile of Finance.

IntroductionToday’s CFO is under a myriad of pressures to control costs, meet expanding reporting and compliance require-ments, and support corporate growth initiatives (capital investment, foreign expansion, M&A etc.). To meet all of

these requirements, CFOs should consider “The Last Mile of Finance” as a target for cost control, process optimiza-tion, and risk reduction that can enable finance to better support the strategic goals of the organization.

What is “The Last Mile of Finance”?The Last Mile of Finance is a term that describes the finance processes and activities that are undertaken between financial consolidation and the filing of external financial statements and other compliance reporting. While much attention has been focused on improving the planning, consolidation and statutory reporting processes, the post-consolidation processes that comprise The Last Mile of Finance (see Table 1) have remained quite manual in most organizations.

Now is the time to take charge of “The Last Mile of Finance”

Process Definition

Account Reconciliation Despite increased regulatory requirements, the process for reconciling accounts is still most often performed in spreadsheets. Reconciliation processes still involve manual effort that results in an inconsistent, cumbersome and resource-intensive reconciliation process that lacks sufficient controls, tracking and transparency.

Internal Management and Financial Reporting

Financial and management reporting are often separate processes. They originate from the same data sources but during the reporting process diverge to the point that financial and management reports must be reconciled at the end of the cycle. This results in discrepancies that require manual intervention and documentation, causing longer reporting cycles that delay access by decision-makers.

Financial Controls and Workflow

The Last Mile process involves many activities performed by many resources in many tools and systems. Financial controls and workflow cross these interrelationships to ensure that document compliance is traceable by finance and external auditors. Finance should be able to monitor and update financial controls as compliance requirements change. “Stale” controls can be worse than no controls at all.

Disclosure Management and Regulatory Reporting

The development of compliant disclosure documents including 10-Ks, 10-Qs and Annual reports, as well as XBRL and IFRS submissions, are often manual processes that combine data from multiple sources into a document that includes text, data, commentary, graphics and footnotes. Finance often manages many documents and versions and uses email to track down details, facilitate reviews, and garner necessary approvals. Automation of the participation, accountability, workflow, review and approvals in the preparation and submis-sion of these documents is an opportunity to decrease development time and reduce risk from manual errors, improper review or rushing to meet looming deadlines.

Table 1: Last Mile of Finance processes

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Applications that help automate and optimize The Last Mile have been around for many years. Many started as niche solutions for Sarbanes-Oxley (SOX) requirements and a recent wave has surfaced around disclosure manage-ment and XBRL (eXtensible Business Reporting Language). The Last Mile presents finance with opportunities to reduce costs, improve efficiency and reduce risk by automating manual processes and creating a more transparent, collab-orative and auditable process from financial close to final reporting and disclosure.

Why now is the time to address The Last Mile of Finance Finance has been performing the processes in The Last Mile of Finance for decades, albeit mostly manually. So why should finance exert the effort to automate and enrich The Last Mile now? Many factors converging on finance are driving this need.

The expanding role of the CFOThe power and influence of the CFO has expanded in recent years. But with that power comes responsibility. The IBM Global CFO Study of more than 1,900 CFOs states that while “the importance of core Finance responsibilities has not diminished in any way, CFOs’ focus on company-wide concerns has increased sharply.” According to the survey, 70% of CFOs are advising or playing a critical decision-making role in areas such as enterprise risk mitiga-tion, business model innovation and the selection of the key metrics linking performance to strategy execution.¹

According to Deloitte’s CFO SignalsTM "What North America’s top finance executives are thinking — and doing", CFOs are now routinely in charge (at least on a dotted-line basis and frequently on a direct-report basis) of a broad range of regulatory, governance, and strategy functions, especially investor/public relations, strategic planning, corporate development, and mergers and acqui-sitions (M&A).² They are also frequently taking stronger leadership roles in risk, transactions, and IT (see Figure 1).

Figure 1: CFO non-finance responsibilities are expandingCFO SignalsTM, What North America’s top finance executives are thinking — and doing, Deloitte 2011

Today’s CFOs should find ways to continue to automate and optimize finance processes so that they have more time and resources to meet the expanding role of the Office of the CFO. The Last Mile of Finance is one area where the CFO can meet fiduciary responsibilities and fulfill several of the expanding responsibilities highlighted in Figure 1.

Current, pending, and unknown regulatory requirementsCFOs should also consider improving The Last Mile of Finance now because of increasing regulatory require-ments. As of June 2011, virtually all U.S. public companies must file reports in XBRL format and the requirements for detailed tagging expand exponentially after the second year of filing. Some companies have found that keeping the process in-house has saved time and reduced cost, while others have found that an in-house process also provides greater auditability and accountability. XBRL and IFRS (International Financial Reporting Standards) get much of the publicity, but CFOs have many other filing require-ments to consider.³

“While CFOs and finance organizations have clearly not ceded responsibility for their traditional functions, they do appear to be taking on broader and deeper roles in the wake of considerable capital-market and economic turmoil.”

—CFO Signals, What North America’s top finance executives are thinking — and doing, Deloitte Q1 2011

Non-reportingDotted lineDirect report

Customer service/support

Marketing/Sales/Pricing

Human resources

Line of business

Legal

Procurment

Real estate

IT/Systems (general/corporate)

Corporate development/M&A

Strategic planning

Internal audit

Risk/Compliance

Investor/Public relations

0 25 50 75 100

Non-core finance responsibilitiesNature of CFO’s non-core responsibilities

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What CFOs can count on is that new reporting standards such as Dodd-Frank, Basel III and others will come to fruition, forcing enterprises to file more documents in more formats than they do today. At the same time that govern-ment regulation is increasing, so too is industry regulation. According to Deloitte, CFOs report industry regulation/legislation as the top industry challenge in 2011 (see Figure 2).

Figure 2: Industry regulation is the top concern for CFOs(CFO SignalsTM, What North America’s top finance executives are thinking — and doing, Deloitte 2011)

Regardless of the expanded filing requirements CFOs face from governments and industry regulators, finance will not have the luxury to “ramp up” the organization with additional resources to meet the expanding require-ments. A focus now on automating The Last Mile of Finance will help CFOs do more with less and help finance organizations meet expanding compliance requirements and narrow filing windows without significant staffing or outsourcing cost increases.

Increasing burden on financeIncreasing compliance reporting requirements and a greater demand for auditability and detailed traceability is creating a greater burden on finance staff but CFOs are under pressure to keep finance costs down. History shows that when Sarbanes-Oxley requirements took hold,

it created the first increase in finance cost as a percent of revenue in 14 years. The current wave of regulation could bump up this ratio again. But most CEOs will insist that finance cost as a percent of revenue remain flat or decrease and CFOs will be under continued pressure to keep costs in line. CFOs should find efficiencies in their finance organization to prevent the increased burden from escalating the cost of finance. Outsourcing regula-tory filings to third parties is one way to avoid adding staff but many organizations are finding this path to be costly as requirements expand (such as detail tagging in XBRL filings).

CFOs should look at their post-consolidation processes for opportunities to improve efficiency. And they should consider consistent processes and automation as a way to control finance costs while satisfying increasing burdens. In many organizations there are opportunities for efficiency in account reconciliation, journal entry processing, inter-company transaction matching, and disclosure reporting. For example, some companies have used their disclosure management solutions to automate previously very manual monthly “blue book” reporting processes.

M&A, expansion, and growthMany CEOs spent the economic downturn “circling the wagons” by focusing on cost control and core markets. But now CEOs are focused on growth.4

One result of the focus on growth is an uptick in M&A activity. According to mergermarket, Q1 2011 was the busiest for M&A since Q1 2007.5 M&A and expansion into new markets puts additional pressure on finance in general but specifically in terms of The Last Mile of Finance. Distributed finance organizations with different practices, procedures, and technologies leads to inefficient, time consuming and redundant processes especially for reconciliation, intercompany balancing, financial reporting, and disclosure. Financial controls, accountability and trace-ability are harder to manage in these environments and the risk of error increases. CFOs whose organizations are in acquisition or expansion mode should build documented processes for The Last Mile of Finance and automated procedures that can quickly be incorporated into acquired companies or distributed finance organizations in new geographies.

Risk and liability of manual processes continues to increaseCost is not the only factor that should be driving the improvement of The Last Mile of Finance. Manual processes lead to insufficient financial controls, inadequate reviews and approvals, and a lack of traceability and

Industry challengesPercent of respondents who placed each option in their top three

1Q114Q103Q102Q10

Other

Product substitutes

*”Market contraction (declining demand/customer base)” is anoption that was not offered inpast surveys

Market contraction (declining demand/customer base)*

Over capacity/excess inventory

Input prices

New market entrants (domestic)

Mergers and acquisitions

Changing cost structures

Foreign competition

Market growth (increasing number of products/services/customers)

Avaliability of people/skill sets

New competitive tactics

Pricing trends

Industry regulation/legislation

0% 10% 20% 30% 40% 50% 60%

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auditability. All of these increase the risk of incomplete or inaccurate financial reporting and disclosure. As filing requirements mature, modified liability provisions for inac-curate submissions expire (e.g., for XBRL, 24 months after first submission) at which point filers will be subject to the anti-fraud provisions of federal securities laws. CFOs should be sure that their Last Mile processes are buttoned up before the temporary grace period ends.

A manual Last Mile process also exposes the enterprise to the risk of inaccurate or delayed 10-K or 10-Q filings, which can have a dramatic impact on valuation. Filing

delays caused by accounting errors have been found to result in an average stock decline of almost 9% and that earnings were down 5% each of the following two years for these late filers.6

Cost, accuracy, risk, and compliance are the factors that are driving CFOs and their finance organizations to improve their Last Mile of Finance process now versus later. This is not intended to be an all-inclusive list and factors will vary by each enterprise and industry. But regardless of company or industry, it is apparent that The Last Mile of Finance should be a focal point for any CFO.

Why IBM and Deloitte for the Last Mile With all the processes and participants involved in The Last Mile of Finance, it’s essential to approach any technology initiative with a deep understanding of just how the processes, people and technologies intersect and how any changes will affect the critical tasks involved. Scott Rosenfelder, a Director in Deloitte’s Finance Transformation practice, observes that finance organizations often focus on the reports them-selves but not on the processes behind them.

“People are in such a hurry to implement new technology that they fail to take a critical look at how they do things and why,” says Rosenfelder. “The result is that they can end up using a lot of great technology to manage a broken business process. By not considering the big picture, these finance organizations can actually limit the value they realize from their technology investments. That’s why Deloitte consistently begins by looking at the existing business process first.”

“By not considering the big picture, these finance organizations may actually limit the value they realize from their technology investments.” —Scott Rosenfelder, Director, Deloitte & Touche LLP

That “big picture” approach is a key reason why finance organizations should look to IBM and Deloitte when it’s time to improve The Last Mile of Finance.

The combination of innovative IBM technology with Deloitte’s deep domain knowledge, technical skills and experience in building relation-ships with CFOs and senior finance executives allows finance organiza-tions to approach a technology initiative with confidence—and extend its benefits beyond the immediate ”pain point.”

Deloitte professionals consider everything from security issues and access rights, to creating an audit trail, tracking status and workflow, and assuring better data quality. “And that’s where reporting tools such as IBM Cognos Financial Statement Reporting (FSR) comes in,” adds Rosenfelder. “Solutions such as Cognos FSR can help the organization to point everyone involved with creating regulatory filings to the same information source and provide users with confidence that they are dealing with the latest data. It also helps to make the process more easily repeatable from one reporting period to the next.”

Yet Deloitte offers much more than just implementation of technology. “We ask, ‘What are the fundamental business needs?’ We look past the pressing 10-Q deadline to see how the information will flow into management reports. We advise across the various aspects of The Last Mile—consolidation, reporting, audit and more. Deloitte helps the finance team gain a broader understanding of a solution’s capabilities and how they could be applied deeper and wider across the organiza-tion. We pride ourselves on our long-term thinking and helping our clients achieve the full value from the technology they invest in.”

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How to gain more control of The Last MileImproving The Last Mile of Finance is something that all finance organizations should be doing right now. CFOs should expect upfront cost and effort on the part of the finance organization but that is outweighed by the potential risks of delay. The effort and time-to-value

can be minimized by focusing on one specific Last Mile process successfully and then addressing others, rather than attempting to revamp all Last Mile processes at once. Finance organizations should take the following steps to get started.

Faster reports, better controls with IBM Cognos Financial Statement Reporting (FSR) IBM Cognos Financial Statement Reporting (FSR) helps reduce the manual, error-prone processes in each step of the Last Mile of financial reporting by providing a single, secure platform for the production of financial reports, narrative disclosures and XBRL tagged reports.

Cognos FSR provides tools that facilitate collaboration and enhance governance over the reporting process with features such as: workflow, task management, embedded compliance checklists, broad audit trail reporting, business rules and automated validation. Cognos FSR can also integrate source data with report data–creating dynamic reports that refresh in near real time when changes occur in source data systems. When it comes time to publish different reports for various consumers, Cognos FSR automatically combines financial data, narrative discussion

and analysis, variance explanations, organizational charts and graphs into highly formatted reports. Users can then publish reports in multiple output formats, including Microsoft Word, Microsoft PowerPoint, Adobe PDF and InDesign.

For statutory filings, the integrated XBRL tagging capabilities of Cognos FSR can confirm proper controls and provide an audit trail over the external reporting process, including XBRL mapping and tagging. Cognos FSR supports many published global GAAP and IFRS taxonomies and can output reports in both XBRL and iXBRL formats. In addition to inte-grated XBRL tagging capabilities, for companies that report to the U. S. Securities and Exchange Commission (SEC), Cognos FSR provides instant EDGAR conversion capability – ensuring a single source of report data across your EDGAR filings and XBRL submissions.

Process Definition

Evaluate current Last Mile processes

Evaluate all Last Mile processes. Identify process flow, participants, approvals, manual steps, redundancies, interdependencies, data sources and tools.

Identify costs and risk Estimate the cost to conclude current processes including technology, finance staff, non-finance staff and third parties. Establish risk points and risk impact of manual tasks, lack of controls, auditability, accuracy etc.

Document compliance requirements

Identify what compliance and disclosure requirements are in place today, how they are being met, and what expanded or new requirements are projected over the next several years.

Prioritize Based on the evaluation of existing processes, cost, risk, and compliance requirements, determine which Last Mile process is the highest priority. Include the need for process change and cultural impact in the prioritization.

Redesign process Based on the process evaluation, identify the necessary changes to process flow, financial controls, participation, accountability, and approval/sign-off. Do this before beginning software selection to prevent tailoring the process to the software rather than vice versa.

Set goals and measures Establish specific goals and measures for process improvement. Examples would be: reduce close cycle by x days; reduce reconciliation cost by x%; produce disclosure documents x days after the close; maintain cost of finance as a % of revenue at x%.

Select and implement technology

Evaluate solutions for the chosen Last Mile process. Include solutions from preferred vendors as well as niche vendors. Consider product roadmaps and future plans to expand Last Mile product offerings as part of the evaluation.

Implement and adapt Work with vendor and service provider to implement solution based on redesign process above. Compliance and disclosure requirements will evolve, so plan to review the process, reporting, and financial controls periodically to ensure these are adapted to changing requirements.

Table 2: Action steps Finance can take

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SummaryThe Last Mile of Finance is an area that is ripe for improve-ment, cost control, and risk reduction. Regulatory and compliance requirements are expanding and more detailed documentation, accountability and traceability is needed. Automation of The Last Mile can enable finance to meet expanding requirements and help reduce risk without significant incremental costs. All finance organizations should investigate the potential to improve their Last Mile of Finance processes before issues arise, not after.

For further information, please contact:

Scott RosenfelderDirector, Enterprise Risk Servicessrosenfelder@deloitte.com+1 312 486 2763

Gayle KalvertBusiness Development Managergkalvert@deloitte.com+1 516 918 7004

Endnotes:¹ IBM Institute for Business Value, The New Value Integrator: Insights from the Global Chief Financial Officer Study, March 2010² CFO Signals, What North America’s top finance execu-tives are thinking — and doing, Deloitte Development LLC, 2011³ Sarah Johnson, A Heightened Demand for Disclosures, CFO.com, August 18, 20104 Joe Light, Most CEOs Prize Growth, But Other Priorities Vary, Wall St. Journal April 18, 20115 mergermarket, League Tables of Legal Advisers to Global M&A, Q1 20116 Tiago Duarte-Silva, Huijing Fu, Christopher F. Noe, & K. Ramesh, Information Content of Earnings Delay Announcements, draft October 2010

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