While there are many benefits to implementing integrated software systems and bolt-on technologies, significant performance improvements are often possible from a direct inspection and redesign of underlying work processes. While it’s never a good idea to automate a bad process, it’s always a good idea to formally review process steps on a regular basis to capture quick-wins by eliminating costly work steps and bottlenecks.
The accounting close is a work process that happens frequently (typically every month), requiring significant resources. It is also a work process that is difficult to benchmark because of industry and company-to-company differences. No matter how diligent you are it’s hard not to end up comparing apples with oranges. Rather than completing a complex benchmarking exercise that yields questionable results, at Peeriosity members can explore discrete differences in design using both Peercasts and iPollingTM, which support members efforts to explore specific topics in-depth, allowing them to quickly canvas leading companies to create a clear picture of design alternatives, and make informed decisions for a path forward that is right for them. All without any influence or bias from vendors or consultants who might have a financial interest in the choices that are selected.
One area that often has unnecessary complexity in the accounting close is processes related to the creation of manual journal entries (also known as journal vouchers), where controlling the frequency and use of manual journal entries continues to be a challenge for most companies. However, with a focused initiative to utilize process design and technology to simplify this area, companies can make significant headway in minimizing the number of entries that required.
A PeercastTM discussion in our General Accounting research area featured a large global manufacturing company with over $10B in annual revenue and more than 15,000 employees world-wide, discussing their approach to improving the efficiency and business controls for their manual journal entry process. Their problem statement identified the following issues:
- Inconsistent processes for creating, posting, and approving manual journal entries
- Ad-hoc approaches to storing back-up documentation
- A lack of visibility and poor reporting of manual entries booked during the close period
- Too many entries to correct mistakes that shouldn’t have happened in the first place
To address this problem, they formed a cross-functional global project team that analyzed thousands of manual journal entries, including intercompany transactions. They then benchmarked and compared notes with other Peeriosity members and evaluated a range of workflow and storage solutions.
The results included policy changes to set thresholds and prohibit low-dollar entries, shifting some transactions to quarterly from monthly, and centralizing the process to require one point of global entry. They also implemented a range of automation solutions, including SAP enhancements and best practices, robotics, and Blackline solutions for journal voucher approval and storage. Over a two-year period, they were able to reduce the number of manual journal vouchers by roughly 40%.
iPollingTM Results Review
Peeriosity’s iPollingTM was used to provide supporting data for the Peercast, by asking members to comment on how recently their companies made a formal attempt to reduce manual journal entries, with a follow up question to explore which approach had the greatest impact.
To the question about timing, 42% of member companies indicated they have projects that are currently underway, with an additional 29% who had journal entry reduction projects that took place within the past year. A remarkable 90% have looked at this issue within the past two years. Here are the details:
When considering what has had the most significant impact on reducing the number of manual journal entries, the top pick, at 33%, was to implement technology to automate journal entries. The next most popular selections at 24% each, were to implement a threshold (or increase existing thresholds), or move certain journal entries to a less frequent cycle, for example, from monthly to quarterly.
Here are several of the added comments from members:
- Our challenges have been balancing the direction to be more accurate vs. our forecasts (utilizing more frequently manual accruals) with the requirement to reduce the number of manual journal entries. We still have a long way to go.
- We are continuously looking at ways to reduce JEs and have been on this journey for a couple of years. We have implemented thresholds, looking at process, training, and system changes. It is not one avenue that we are taking.
- Permanent effort trying to centralize more activities in Shared Services and a combination of all root cause/efforts that were proposed in the list.
- We are constantly looking at opportunities to reduce journal entries. We have had success with automation of some and reducing frequency. We have never had success in setting an internal threshold – would love to hear tips from companies that have had success with that approach.
As demonstrated by our feature company, taking a formal project approach to understanding the manual journal entry process can yield significant results to both improve efficiency and increase business controls. Many companies are actively making the effort to reduce the number of manual journal entries, and achieving impressive results from their efforts.
How recently has your company made a formal attempt to reduce the number of manual journal entries? Which approaches have had the greatest impact?
Who are your peers and how are you collaborating with them?
“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion. Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content. Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member. Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers. Membership is for practitioners only, with no consultants or vendors permitted. To learn more about Peeriosity, click here.