Modern Finance Tour London May 2016

1

MODERN FINANCEModernising the way Finance & Accounting work

Tuesday 17th May

London

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AGENDA

The Hackett GroupT&C BreakBlackLine overviewLV case study

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THE HACKETT GROUPGilles Bonelli,

EPMBI & A2R Practice Leader EMEA European Advisory Services

MODERN FINANCEZOOM ON A2R

The Hackett GroupDecember, 2014

Presented to:

Gilles Bonelli - EPMBI & A2R Practice Leader EMEA

5© 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Statement of Confidentiality and Usage Restrictions

This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the priorwritten consent of The Hackett Group.

Copyright © 2015 The Hackett Group, Inc. All rights reserved. World-Class Defined and Enabled.

WORLD-CLASS FINANCE

§ World-Class Finance defined

§ Zoom on A2R

§ The reconciliation headache!

§ Best practices in action


Hackett define World-Class in concrete, measurable terms


Hackett Finance Function Value Grid™World-Class Organizations results compared to Peer Median

Source: 2016 Hackett Finance Benchmark

EFFECTIVENESS§ 39% fewer customer billing errors

§ 70% less Accounts Payable transactions require correction

§ 25% less analyst time spent collecting and compiling data to create a report vs. analysis of data to provide insight

§ 98% more operations managers (as a percent of total) that have online access to management reporting information

§ 33% more likely to use both financial and non-financial performance measures in analyzing the relative success of the business

§ 12% more financial analysts (as a % of total) with the skill set and business acumen to act as business partners

§ 19% greater analytical focus on proactive decision making and planning vs. historical reporting

§ 84% more FTEs focused on Business Analysis

§ Value-Added analysis/Planning: 10% time spent on analysis

§ Tax strategy Effectiveness: 4 time savings from tax strategies

EFFICIENCY§ 42% less expensive and increasing year

over year - representing cost gap of$4.3 million per billion of revenue

§ 57% less expensive to support transactional processes

§ 26% less time (in days) required to process an Accounts Payable invoice for payment

§ 33% less time (in days) after month-end close required to report monthly operating results

§ 42% more reporting volume (as a percent of total) generated from a central data repository

§ 24% fewer days required to complete the annual budget

§ 4.27x more operations managers (as a percent of total utilizing on-line budgeting applications

Hackett Value Grid™


Companies with World Class Finance organizations outperform

their industry average financial performance in several critical

categories:

Revenue Growth +1.3%EBITA Margin +3.3%

Net Income +3.7%Total Shareholder Return

+2.5%

Return on Assets +1.3%

World Class Finance organizations are more effective

& efficient than peer organizations:

Based on Hackett 2014 World Class Finance companies vs. Industry peer performance from

2011 – 2014

World Class Finance organization achieve higher performance levels through operational

excellence:

World-Class Finance is broader than cost reduction, its about value creation

50% More likely to

outperform Industry than Peers

1.02%

0.59%

Peer Group World Class

42%

WORLD-CLASS FINANCE


§ Zoom on A2R

§ The reconciliations headache!



The value grid in A2R is the basis for determining Top Performers and for making company specific assessments

Hackett Value Grid™High

HighEfficiency

Effe

ctiv

enes

s

Low

A2R Study participants

1Q

1Q

Top PerformerEFFECTIVENESS *§ External audit fees per billion in

revenue § Days to close§ Days after month-end that it

takes for report distribution and other key accounting reports

§ Percent of time that external earnings reports are restated after being released to external agencies

EFFICIENCY *§ General Accounting and external

reporting cost as a percent of revenue§ General Accounting & external reporting

FTEs per billion § Percent of automated journal entries§ Use of centrally maintained uniform

chart of accounts§ Secondary applications per billion § Extent to which sub-systems are

interfaced or integrated with the general ledger

* Value grid driver weightings vary (i.e. not evenly weighted)


Days to close and Consolidate

The Top Performer group in A2R closes and consolidates, and reports results 4 days faster than the Peer Group

Days it takes after month-end close (and consolidation) to report month-end operating results and

other key financial/accounting reports

5

3

Peer Group Top Performer

3

1



Process Cost as a % of Revenue FTEs Per Billion($) of Revenue

The Top Performer group in A2R operates with 51% lower cost, and 52% fewer FTEs than the Peer Group

0.068%

0.024%

0.019%

0.018%

0.010%

0.004%

0.008%

0.005%

0.019%

0.008%

0.123%

0.060%


8.4

3.6

1.6

1.2

1.4

0.5

1.1

0.7

2.2

1.0

14.8

7.1


General Accounting External Reporting Fixed Assets Inter-Company Cost Accounting

WORLD-CLASS FINANCE


§ Zoom on A2R

§ The reconciliations headache!



Ultimately fragmented non-standard processes & systems drive unnecessary complexity, cycle time & cost

Predictive Analytics

Profitability and AnalyticalModeling

C-level &BU Mgmt.

VPs & Dept.Mgrs.

BusinessPartners

Financial and People

Management

OperationManagement

MarketBig Data

CustomerRelation

Management

External Market Data

Customer Data

Ledgers , sub-ledger

and modules

Operational Data

EnterpriseData Repository

(ETL, Staging and Facts)

Strategic Planning

Integrated planning & forecasting

Statistical Analysis

Master Data Management

(Measures and Dimensionality)

Consolidation

SupplyChain

Management Supplier / Manufacture

Data

Information support

User types

EnterpriseApplications

Warehouse Data martsDatabaseFarms

Dashboards

Standard Reports

DynamicDrill Down

Self Service Reports

CustomerProfitability

Root CauseAnalysis

Ad-hocExcel

What If

Analysis

Sensitivity Analysis

Reporting and Process AutomationAnalytics and Modeling Tools

In Memory Storage In Memory Calculation


... For instance, reconciliations are everywhere

Predictive Analytics

Profitability and AnalyticalModeling

C-level &BU Mgmt.

VPs & Dept.Mgrs.

BusinessPartners

Financial and People

Management

OperationManagement

MarketBig Data

CustomerRelation

Management

External Market Data

Customer Data

Ledgers , sub-ledger

and modules

Operational Data

EnterpriseData Repository

(ETL, Staging and Facts)

Strategic Planning

Integrated planning & forecasting

Statistical Analysis

Master Data Management

(Measures and Dimensionality)

Consolidation

SupplyChain

Management Supplier / Manufacture

Data

Information support

User types

EnterpriseApplications

Warehouse Data martsDatabaseFarms

Dashboards

Standard Reports

DynamicDrill Down

Self Service Reports

CustomerProfitability

Root CauseAnalysis

Ad-hocExcel

What If

Analysis

Sensitivity Analysis

Reporting and Process AutomationAnalytics and Modeling Tools

In Memory Storage In Memory Calculation

C2COrder Tracking

EcommerceCash applications

SL to GLPOS to GL to Bank

DiscountsCommissions

P2PPurchase ledger recsVendor issue mgmt.

GRNIOrder Tracking

Supplier StatementsInventory / StockSundry Payments

A2RGL Reconciliations

Intra Account nettingInter-Company

Prepayment /AccrualVAT recs with GLBank & Treasury

Suspense accounts

OtherGift / Pre-paid Cards

Credit Card / ATMPayroll

Fixed AssetsSystem to SystemEmployee benefits

Leasing / Loans


21%

39%

29%

14%

56%

75%

25%

32%

11%

36%

22%

21%

21%

29%

11%

15%

25%

32%

7%

32%

39%

7%

Fixed Assets reconciliations

Intercompany reconciliations

Bank reconciliations

Other B/S reconciliations

Cost Allocations

Other

No Limited Amount Medium Amount High Amount

Top Performer

17%

50%

8%

8%

50%

8%

8%

17%

8%

25%

17%

25%

17%

25%

17%

100%

58%

17%

58%

58%

8%

Q: “Have you been able to move the following activities outside of the critical path of the Close?”

Top Performers have moved most reconciliation activities out of the critical path of the close process

Peer


Reconciliation best practices beyond technology

15%

31%

31%

62%

62%

92%

92%

92%

Aging of open items on account reconciliations is performed

All reconciliations are submitted for review; only a subset is selected for review

A materiality limit is established for resolving discrepancies identified in account reconciliations

A time limit is established for resolving discrepancies identified

A time limit is established for resolving discrepancies identified in account reviews

Standard formats are used for account reconciliations

Account reviews are completed within a specified period of time

Account reviews are assigned to specific owners

Process of Review and Approval of Reconciliations

WORLD-CLASS FINANCE


§ Zoom on A2R

§ The reconciliations headache



Participants mini-poll

‘Please stand up’


Reconciliation Automation

Thin Ledger, Standard , Descriptive chart of accounts

Unified datastream for group and segment reporting

Front end data validation

Automatic data feed & validation

IC Reconciliation

Consolidationengine

Closing management tool

W-C cycle time I 3 days I 1 days

Info

rmat

ion

stan

dard

sSy

stem

sO

rgan

izat

ion

Wor

kflo

w

Entity close Validation & upload Consolidation ReportingRecording

Shared Services undertaking an increasing role in both governing and executing the processScope: (General Ledger, Intercompany, Fixed Asset, Cost Accounting, External Reporting)

Standard online reporting

Are all these best practices related to “Information” in place? If not please sit down

Enterprise Process Ownership (well delineated process & team responsibilities to design & execute the process)

Collaborative Working enabled by detailed calendar of activities (often system enabled see below)

Workload guided by materiality Flat consolidation

XBRL filiing







IC Reconciliation

Consolidationengine



Info

rmat

ion

stan

dard

sSy

stem

sO

rgan

izat

ion

Wor

kflo

w




Are all these best practices related to “Workflow management” in place? If not please sit down




XBRL filiing







IC Reconciliation

Consolidationengine



Info

rmat

ion

stan

dard

sSy

stem

sO

rgan

izat

ion

Wor

kflo

w




Are all these best practices related to your “Organization” in place? If not please sit down




XBRL filiing







IC Reconciliation

Consolidationengine



Info

rmat

ion

stan

dard

sSy

stem

sO

rgan

izat

ion

Wor

kflo

w




Are all these best practices related to your “Systems” in place?If not please sit down




XBRL filiing


Participants mini-poll

‘How many of you are still standing?’


Questions Or Comments?


Contact information

Atlanta1117 Perimeter Center WestSuite N500Atlanta, GA 30338Phone: +1 770 225 3600

Miami1001 Brickell Bay DriveSuite 3000Miami, FL 33131Phone: +1 305 375 8005

Philadelphia225 Washington StreetConshohocken, PA 19428Phone: +1 610 234 5500

AmsterdamStrawinskylaan 3051G, 1077 ZXAmsterdam, The NetherlandsPhone: +31 20 301 2210

AustraliaAMP Centre50 Bridge StreetSydney NSW 2000Phone: +61 2 8216 0970

India8-2-120/112/88 & 891st Floor, Aparna CrestRoad 32, Banjara HillsHyderabad 500034Phone: +91 40 23551432

LondonMartin House5 Martin LaneLondon EC4R 0DPPhone: +44 207 398 9100

FrankfurtTorhaus WesthafenSpeicherstrasse 5960327 Frankfurt am Main, GermanyPhone: +49 69 900217 0

Paris8, rue de Port Mahon75002 Paris, FrancePhone: +33 1 53 43 0400

www.thehackettgroup.com

Gilles BonelliEPMBI & A2R Practice Leader EMEA

European Advisory ServicesMobile: + 44 (0) 7879 480 249

[email protected]

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Break

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BLACKLINEJosh May

Solution [email protected]

Andy Young, Head of Finance

LV= Reconciliations

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LV= is the largest UK Friendly SocietyWe sell insurance, investments and pensions We look after £12 billion of investmentsOver 5m members and customers Over 6,000 employeesGI premiums over £1.4 billionLife premiums over £1.6 billion

Background§LV= has been and is growing significantly

§Growth has required a more formalised approach to our control environment

§Balance sheet reconciliations are seen as one of our key controls to verify our balance sheet

§As a PRA/FCA supervised group some of our reconciliations are mandated by the regulations

§A key enabler to help us meet these requirements is Blackline

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Original Reconciliation Challenges

§Highly reliant on excel – too flexible/no control, all recs done in separate spreadsheets (>3000 recs in total)

§Print out and sign off to evidence but it may not be what gets submitted§ALL non moving balance sheet recs must still be reviewed and reconciled each month (share capital, zero accounts etc)

§There is no guarantee queries are resolved when raised on paper recs§The reporting of all recs and their aging is a lengthy and cumbersome process

§Data moved in and out of excel/access runs risk of lost/missing data§Lack of visibility in process from end to end§Audit issues as sign off dates may be before back up§Can’t always find supporting documents

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Original Reconciliation Challenges34

Reconcile in excel

Summarise aging of all recs in excel

Transfer to MS accessfor consolidation

Source data General ledger

Download TBto check accurate/complete

Paper review

Transfer to excel for reporting

Our Solution§Self built system

§Full end to end control of process with visibility of who did what when

§Rejected recs have to be actioned now

§One version of the truth, agrees to GL

§Standard template is used for all recs

§Supporting info is attached via embedding or pasting “pictures”

§Auditors love it (gave them view access) – positive comment in report to Audit Committee

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Our Solution36

Reconcile/auto reconcile in System

Review and Sign Off in System

Report from System

Source data(keyed or via SQL)

General ledger

New System Reconciliation Challenges

§Does not cope with daily reconciliations (all our regulated ones are daily)§ALL non moving balance sheet recs must still be reviewed and reconciled each month (share capital, zero accounts etc)

§Reporting was clunky and time consuming§No drill down to issues§Attachment of supporting documents created large data storage issues§Slow response times (press the button and watch Coronation Street!)

§System fell over in November 2015!

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Action§Weighed up solutions in the marketplace in mid 2015§Plan to implement late in 2016§Selected Blackline as our preferred system§Fast tracked work due to November collapse issue§Signed contract with Blackline at the end of December§Managed to run old system for December§Set up, tested and trained everyone in January§Go live 1 February§January month end recs all done in Blackline

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Benefits of Blackline Reconciliations

We’ve made sure we still have§Full end to end control of process with visibility of who did what when§Rejected recs have to be actioned now§One version of the truth, agrees to GL§Standard template used for all recs (although we have several now that are better suited for different styles)

§Supporting info is attached (but not via embedding or pasting “pictures”)§Auditors can access

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Benefits of Blackline ReconciliationsBut we’ve now also got§The ability to load supporting documents once provided they remain consistent from period to period

§Daily reconciliations (all our regulated ones are daily)§ALL non moving balance sheet recs can be pushed to reconciled saving time (share capital, zero accounts etc)

§Reporting is easier to use with drill down capability§No large data storage issues§Fast response time on the system§Feeds from policy systems to automate more of the process§Autorec of contra items

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Blackline Gives Us§Over 50 people are involved in recs. They used excel and now use excel in FSR – minimal training/issues

§Auditors can self serve recs§Reconciliations that do not move regularly (eg share capital) will be auto reconciled by the system

§Better autoreconciliation (policy and investment systems plus automatchcodes)

§Good reporting of reconciliations§Any rec can now be found easily (all in one place)§More time to spend on issues not the process§A robust and reliable system with good performance

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Questions?

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Thank You

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Modern Finance Tour London May 2016

Economy & Finance