Automating Account Reconciliation to Mitigate Compliance Risk

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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



Account Reconciliation Point of ViewUtilizing Close Management Technology to Enable a Faster, Higher Quality Close



Marc Ursick, CPA, CMA, CISAErnst & Young LLP



AGENDA

FSCP Overview

Account Reconciliation – Example Issues

Value Proposition / Business Case

Process Overview and Implementation Approach



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



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



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



Value Proposition

What:

Standardize, centralize, automate

Why:

Create efficiency, visibility, reliability, confidence and better manage overall risk



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



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



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



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



Contact

Marc Ursick (440) 476-0149 (cell)

[email protected]

Do not hesitate to contact if you have any questions after this session.

mailto:[email protected]



Susan Parcells, CPABlackLine Systems



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



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



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



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?



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






Q&A

AGENDA



Doing manually

Excel/spreadsheets

Internally developed tool/system

Automated technology/software tool

Others?

Existing Methods for Handling Account Reconciliations



POLICIES AND PROCEDURES

World-class Process

STANDARDIZATION

AVAILABILITY

TRAINING

CONTROL



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



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)



Automated Interfacing between Data Sources and Software Functionality, Modules



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



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”?



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)



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






Q&A

AGENDA



Wendy Shapiro, CPAAtlas Air Worldwide



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



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



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…….



Atlas Air Worldwide before Automating

Documents disappearing

Stressed employees……..

Photocopies, photocopies, photocopies

Mailing information from international locations to headquarters



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?



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



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




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




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……….



Thank You!



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