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Automating Account Reconciliation to Mitigate Compliance Risk
Marc Ursick, CPA, CMA, CISA
Ernst & Young LLP
Susan Parcells, CPA
BlackLine Systems
Wendy Shapiro, CPA
Atlas Air Worldwide
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Account Reconciliation Point of ViewUtilizing Close Management Technology to Enable a Faster, Higher Quality Close
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Marc Ursick, CPA, CMA, CISAErnst & Young LLP
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AGENDA
FSCP Overview
Account Reconciliation – Example Issues
Value Proposition / Business Case
Process Overview and Implementation Approach
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What is Financial Statement Close (FSCP)?
Budgeting
Long Range Planning
ConsolidatedFinancial
Information
BusinessUnit
Submissions
External Reporting
Internal Reporting Production
feed schedule
Chart of accounts
FSCP is the bridge between critical business processes (e.g. order to cash, purchase to pay, etc.) and the ability to report the financial results.
Data CollectionEntity Close
and Submission Consolidation Reporting
AnalysisDetailed Close
Checklists
Allocate
Eliminate
Perform Acct. Recons
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FSCP process: ERP vs. complementary software to drive efficiency
4.0 Internal/External Reporting
Level 11.0 Data Collection 2.0 Entity Close and
Submission3.0 Consolidation
Level 2
Close all incomplete tasks
1.1
Run end of day General Ledger close
1.3
Reconcile Feeds
1.4
1.2
Reconcile all General Ledger accounts to
Consolidation Software
2.1
Close all open issues related to the close
2.2
Perform variance analysis
2.3
Obtain supporting documentation for
elimination and consolidation entries
3.1
Review and approve the elimination and
consolidation documents/ entries
Reconcile intercompany accounts for accuracy
(Multiple manual systems often demand a compensating
manual control)
Reconcile key accounts and agree on
intercompany balances
3.2
3.3
3.4
Business Unit Reporting
Conduct initial variance analysis and commentary
Analyze variances for actual versus budget
Analyze variances for actual versus prior year
Complete business specialist detailed financial analysis
4.1
4.4
4.5
4.6
4.7
Daily throughout the month Days one and two
Collect Subledger Feeds
Record standard JE’s
- Steps wholly supported by most ERP or consolidation packages
- Steps where Close Management Software can supplement the quality of the process or increase the efficiency
Compile disclosures and external financial
statements
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Acct Recon – Example IssuesResultsProcesses
Inconsistent application
InappropriateSoD
Aged reconciling items
Lack of approvals
Potential unreconciledbalances
Issues
Financial
statement
risk
Compliance (SOX)
risk
Inefficient
processes
Decentralized execution
Not timely
Limited visibility
Manually intensive
Decentralizedtesting
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Value Proposition
What:
Standardize, centralize, automate
Why:
Create efficiency, visibility, reliability, confidence and better manage overall risk
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Account Reconciliation - Why Fix It?Keep Us Out Of Trouble
Drive Sustainable Cost-Effective Compliance
Make The Business BetterDrive Process & Operational
Improvements
Increased Visibility
Quantification of ErrorsConsistent Formats
Completeness Validation
302/404 Certifications
Compliance Financial Misstatements
Auditable Support
Approval Certifications
Workflow Management
Risk Based Priority Approach
Automation of Controls
Process Improvement
Monitoring vs. Transactional
Reduce Audit Fees
Operational Reconciliation and Exception ManagementContinuous Improvement and Quality Assurance
Account
Reconciliati
on Process
Improveme
nt
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Business CaseQuantitative Benefits Qualitative Benefits
Compliance and Operational Benefits
► Completeness Validation► Standardized Policies &
Procedures► Adjustment Rollup► Consistency in Execution
► Vertical vs. Horizontal Control Environment
► Priority Based Risk Assessment and Approach
► Centralized Configuration and Compliance Management
► Centralized Security and Help Desk ActivitiesBusiness
Case
► Process Execution Time Savings
► Process Administration► Paper Savings► Audit Savings► Storage Savings
► Segregation of Duties Assurance► Centralized Repository and
Archiving► Workflow and Assignment
Investing in an account reconciliation tool will not only provide cost savings, but also compliance and operational benefits
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Process Overview
Facility-levelTechnical landscape
Corporate
Review and approve
Monitoringdashboard
Centralizedaudit
Web-basedforms
Preparereconciliationusing onlinetool Technical support
Attach supporting documentation
Workflowengine
Central repository and database
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Implementation Approach
Assessment and fit
analysis
Remediation and
improvement design
Develop, test and train
Rollout and control
Execute and improve
Monitor and control
Develop GL reconciliation improvement
Assess the potential benefits
Project management
Change enablement
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Contact
Marc Ursick (440) 476-0149 (cell)
Do not hesitate to contact if you have any questions after this session.
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Susan Parcells, CPABlackLine Systems
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AGENDA
Current Regulatory Environment/Impact on Finance Organization
Importance of Account Reconciliations/What to look for in an Automated Solution
Client Case Study – Atlas Air Worldwide
Q&A
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Current Regulatory Environment
Accounting standard setters, including the European Financial Reporting Advisory Group (EFRAG), the FASB in the United States and the IASB (its international counterpart), are enforcing multiple standards that companies must adhere to
Accounting rule makers also are mandating international alignment on reporting rules and requirements
Restatement of corporate earnings worldwide are more common than ever due to new and changing rules, tax credits, etc.
Convergence of standards and guidelines causing confusion among CFOs/CEOs about what is required and how to comply
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Accounting-Specific Changes for 2013
Several projects underway to align U.S. and international standards on revenue recognition, leasing, financial instruments and insurance.
SEC setting new policies for how U.S. companies will adopt International Financial Reporting Standards (IFRS).
Updated COSO Framework was issued on May 14, 2013 and added more stringent mandates on internal controls for large corporations
Regulators in the United States and Europe are considering a rule requiring public companies to switch their auditing firms every several years
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CEOs/CFOs have to be more meticulous than ever in enforcing company reporting policies and procedures; more training will be required
Number of reconciliations, tasks, journals, etc., is multiplied for each set of books maintained
Maintaining multiple sets of accounting standards, including IFRS, GAAP, and Statutory accounts, will create significant resource constraints and challenges for companies when closing the books each month
By leveraging technology, a company can automate its reconciliation process and link accounts across different standards to minimize the amount of manual labor required for each financial close
Just as account reconciliation is a key control in producing accurate financial statements, proper IFRS reconciliation will be key, as well – a process must be put in place to ensure this is done effectively
What Does All This Mean For The Corporate Finance Dept?
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Lack of visibility
Little/no standardization of reconciliations
Too many manual processes
Unclear ownership of tasks
Too much room for human error
New Rules Causing Confusion, Weaknesses In The Close Process
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Current Regulatory Environment/Impact on Finance Organization
Importance of Account Reconciliations/What to look for in an Automated Solution
Client Case Study – Atlas Air Worldwide
Q&A
AGENDA
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Doing manually
Excel/spreadsheets
Internally developed tool/system
Automated technology/software tool
Others?
Existing Methods for Handling Account Reconciliations
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POLICIES AND PROCEDURES
World-class Process
STANDARDIZATION
AVAILABILITY
TRAINING
CONTROL
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Standardization• Accommodates complex org & account structures• Standard templates
• Pre-populated• Policy procedures• Supporting docs• Full audit trail
• Accommodates complex org & account structures• Standard templates
• Pre-populated• Policy procedures• Supporting docs• Full audit trail
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VISIBILITY & CONTROL• Role/risk-based• Real-time status• Drill-down links
• Role/risk-based• Real-time status• Drill-down links
Dashboards (quick view of assignments)
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Automated Interfacing between Data Sources and Software Functionality, Modules
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System that can be used for entire balance sheet: pre-paids, accruals, bank, subledger, debt, equity, etc.
Auto-certification of low risk reconciliations
Templates-based process for standardization and quality
Supporting documents – can be saved/accessed from within the system
Approval workflow – multiple levels with flexible scheduling
Automated e-mail alerts for proactive notification/monitoring
Reporting for real-time status updates
Centralized, global access – anywhere, anytime
Multi-currency AND multi-language (available in 15 languages)
Easy integration with existing ERP, GL systems
Specific Functionality to Look for Surrounding Account Recs
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BENEFITS OF GOING WITH A CLOUD/SaaS SERVICE PROVIDER:
No hardware or software to purchase, install, or maintain
Lower upfront costs/minimal capital outlay at onset
Pay as you go, only for the users who need access
Reallocation of internal IT resources to more strategic projects
Quick implementation, even for multiple locations
When using world-class hosting partner (such as Rackspace):
Higher level of uptime guaranteed
Hot disaster recovery built-in
Security is No. 1 priority
24/7 access to superior customer service/support team
Anytime access from anywhere with an Internet connection
Should We Maintain In-house Or Host “In The Cloud”?
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WORRY-FREE SECURE Saas SERVICE
No software to maintain or install
Quick implementation
Hot disaster recovery built-in
Encryption of data in transmission and at rest
Redundant world-class data centres
Only financial close software provider to successfully complete a SOC 2 Type 2 security examination, complementing its SOC 1 Type 2 audit prepared in accordance with Statement on Standards for Attestation Engagements No. 16 (SSAE16)
ISAE 3402 audits – internationally recognised standards developed by the AICPA and IAASB (3rd-party opinions on 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
Return on investmentis one of the most important indicators of value
MeadWestVaco Corporation ROI: 495% Payback: 2 Months
Cox CommunicationsROI: 227% Payback: 6 Months
Education Management CorporationROI: 138% Payback: 10 Months
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Current Regulatory Environment/Impact on Finance Organization
Importance of Account Reconciliations/What to look for in an Automated Solution
Client Case Study – Atlas Air Worldwide
Q&A
AGENDA
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Wendy Shapiro, CPAAtlas Air Worldwide
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Atlas Air Worldwide Overview
Atlas Air Worldwide before Automating
Why Automate?
Implementation
Realized Benefits from Automating
Here is what our Auditors say……….
Q&A
AGENDA
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Atlas Air Worldwide is the leading global provider of outsourced aircraft and aviation operating services.
Our headquarters are located in Purchase, NY
We are the world’s largest operator of Boeing 747 freighter aircraft, as well as Boeing 747 and 767 passenger aircraft and Boeing 767 freighters. We are the only outsource provider that offers Boeing’s new 747-8 freighter. In addition, we dry lease Boeing 777 freighters to leading carriers in the airfreight industry.
Customers include some of the world’s leading airlines and express carriers – British Airways, Etihad Airways, Qantas, and DHL Express; air charter specialist Chapman Freeborn; as well as governments, nongovernment organizations and major freight forwarders – DHL Global Forwarding, Agility,CEVA, Expeditors,Hellmann, Kuehne+Nagel, Nippon Express, Panalpina, among others. CMI customers include Boeing, DHL Express, MLW Air and SonAir-Serviço Aéreo, S.A. (SonAir).
In 2012, we operated more than 22,700 flights, serving over 360 destinations in more than 110 countries.
About Atlas Air Worldwide
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Atlas Air Worldwide Before Automating
Which was the final reconciliation?????
Filing reconciliations, journal entries and sox documents
Excel reconciliations – Are the formulas even right?????
Drowning in papers…….
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Atlas Air Worldwide before Automating
Documents disappearing
Stressed employees……..
Photocopies, photocopies, photocopies
Mailing information from international locations to headquarters
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Better visibility into close process
Automated workflow
Business continuity
Cost savings
Streamline processes
Risk mitigation
Efficiencies between international locations and headquarters
One system for account reconciliations, variance explanations, journal entries and checklists
Efficiencies for internal and external auditors
Employee morale
Why Automate?
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Signed contract in Q4 2008
Phased approach
December 2008 – variance module
February 2009 – task module
March 2009 – account reconciliation module
August 2010 – journal entry module
October 2010 – matching module for bank reconciliations
January 2013 – auto certification
Ongoing – matching module for other account reconciliations, sub ledger match for Accounts Receivable, Accounts Payable and Cash reconciliations
Minimal IT resources required
Approximately 85 users worldwide
Implementation
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Cost savings
Business continuity
Ability to close remotely
Ability to access prior periods
Fewer SOX deficiencies
Documentation for reconciliations that remains unchanged does not need to be reattached each month
Simplified variance analysis
Ability to file faster – Filed 2010 10-K 10 days earlier
Improved employee morale
Happy auditors
Realized Benefits from Automating
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Audit Fees have decreased
PBC list has decreased
Reconciliations given to the auditors are always the final version
Knowing exactly what schedules were given for an audit request in a prior year
Fewer audit questions
Simplified controls to test that appropriate review of reconciliations and journal entries have been completed
SOX testing efficiencies
Fewer critical spreadsheets
Realized Benefits from Automating
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Ability to work remotely
All PBC items are uploaded and readily available
Reduces the number of requests related to SOX controls
No duplicate requests for misplaced workpapers as they are stored online
Multiple accounting periods are stored, therefore you can easily refer to prior period activity
No need to tie reconciliation balances to the ERP system
Easy access to test SOX controls
Here is What Our Auditors Say……….
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Thank You!
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