Adam Larson: 00:05

Hello to all our listeners, and welcome back to Count Me In. I'm your host, Adam Larson, prepped to bring you another episode pack with insights on finance transformation. Today, we are joined by 2 RGP vice presidents, Ellen Klass and Janice Parthen, who will reveal how streamlining processes can drastically improve your financial close. Ellen will share her successful strategies, including a case where a company shaved their close time for 25 days down to just 6. Janice will contribute her expertise on project execution, leadership, and team management.

Adam Larson: 00:39

Get ready to explore the benefits of efficiency and the importance of combining people, processes, and technology as we dive into this transformative topic. Well, Ellen and Janice, I'm very excited to have you on the Count Me in podcast as we're gonna be talking about finance transformation today. And it's a constant quest for finance teams to transform and become better and do things better. And, you know, where we wanted to start was where do you see the most significant opportunities for boosting things like productivity and efficiency within your department?

Janis Parthun: 01:15

Right. I can first answer this, Adam, and thank you for having me back. It's great to be chatting with you again. In terms of opportunities for productivity, I think process improvements involving the financial close is a clear opportunity to increase productivity. And this means looking at the foundation of the activities or properly structuring how transactions are recorded and handled.

Janis Parthun: 01:38

And this concludes the chart of accounts for 1, the backbone of the general ledger, and it dictates how transactions are recorded and classified. So if it's not standardized or if it's too complex, it can create variability. And for example, with departments with different accounts for similar transactions, it can create confusion and inconsistencies in these, reporting efforts. And then transaction codes are similar to the chart of accounts, dictates how transactions are recorded in the general ledger. So if it's not standardized or if it's not consistently used, it can lead to variations and errors in reporting as well.

Janis Parthun: 02:14

And then the reconciliation process, the comparison of the general ledger balances to external resources, such as banks or vendor statements. You know, if these are not standardized or performed consistently, it can also lead to discrepancies and errors in reporting. And then 2nd, automation and integration. These are important elements to consider for improving productivity.

Adam Larson: 02:39

Mhmm.

Janis Parthun: 02:39

With manual processes, having heavy reliance on manual processes can lead to process variability, and then the increase in manual entries and adjustments can also increase risk. With system integration, if the accounting system is not integrated well with other systems, This causes delays and errors in the recording of the transactions. The third thing I wanna just call out is the finance talent management. This is also a significant priority and that many organizations are focusing on this. And I can see opportunities to engage talent as well and the help, and the effort to increasing productivity.

Janis Parthun: 03:19

And then additionally, strong change management and project execution practices are essential to greater project success around finance transformation. Now a few years back, the APQC, which is an organization which conducts a number of general accounting benchmarks, asked over 2,000 organizations what's their cycle time to monthly close, as well as the number of days to conduct the annual close at the site level. And I thought this was really interesting when I initially looked at this, and looked over the benchmark results. Now there there are other factors to consider such as the industry of your organization and then possibly, you know, the amount of revenue that you're generating. But the I thought the benchmark data really just provides some perspective in terms of possible opportunities to consider as well as what other organizations might be doing to get there.

Janis Parthun: 04:12

And so the data that was provided in terms of from a monthly activity perspective or the days to complete monthly consolidated financial close, So on average was 6 days, but then for the bottom performers were 10 days, and then top performers were at 4 days. So it's it's it's a bit it's pretty significant on these in terms of the the gap. And then annually, in terms of the number of days to perform annual close at the site level, on average is 18 days. And then for the bottom performers, we're at 35 days, and the top performers were at 10 days. So as you think about this, you know, what might your organization achieve with 2 to 6 extra days each month or just even up to 25 days at year end?

Janis Parthun: 05:02

I mean, that's it's pretty significant. And then I also had mentioned about people and talent. It's so important to remember the people element and to be able to attract and retain people with the digital skill set. It was also interesting. I was reading up on a re another APQC study.

Janis Parthun: 05:20

It was one of those APQC days I was reading up on this. But, it indicated that new technologies, capabilities, skills gap, and changing operating models are significantly driving the need to focus on the finance talent management. And the many organizations approach to retaining finance talent includes investing and training and development. So with new technologies as a key driver, it's important to attract and retain people with a digital skill set and to continue on the training and development. In our current workforce, employees tend to gravitate towards companies embracing technology and using technology to provide insight and driving organizational improvements are motivating to them.

Janis Parthun: 06:04

And then the other aspect is to consider operating in just touched upon some of these opportunities, but I also have my colleague here, Ellen Klass, who's gonna, also provide further insights to share as well.

Adam Larson: 06:24

So, Janice, that's a, you know, that's a great overview of everything, and we could go a number of places with the conversation. But one thing that really struck me was the numbers you were giving about the different times for the financial close. And, you know, at IMA, we've done a number of webinars, and people have talked about making better best practices for the financial close. And a lot of the things you were saying is some of the numbers we see from our from IMA members. And maybe you maybe we could share some of the strategies and best practices for accelerating that close, because there's a topic that comes up very often.

Ellen Class: 06:51

Absolutely. So this is Ellen, and I think it's important that we go from the numbers to something that's a little bit more tactical, a little bit more hands on. And I think that's what we're gonna cover in the next few sessions. So the key is to optimizing the close regardless of what you end up doing and which areas you target is really to do a thorough assessment or understanding of what are the existing areas in the close, how is it set up at that for your particular company, looking at the areas, the functions, and the technology. So I know we've touched upon technology, and I do wanna say now that technology isn't the answer to everything as far as the close is concerned.

Ellen Class: 07:33

I don't want people to think about, okay. This is gonna require a large investment on our part. Yes. There are definitely opportunities for technological improvement and efficiencies, but most of this revolves around the people and the process as opposed to the people process and technology. So it's helpful, but it's not the be all and end all.

Ellen Class: 07:51

So some of the things that we can look at, and we should be looking at areas other than pure accounting. Right? So we should also be looking at finance, reporting, and tax. So these are all involved, especially in a public company, in clothes related items. And I think often reporting and tax are sort of the tail end of the dog and are often sort of left out of this analysis and assessment.

Ellen Class: 08:16

So some things that tactically we consider when we're looking at optimizing the close are conducting risk assessment. Right? You don't wanna unilaterally make the decision to shorten this process or to remove this process entirely from the close, what you wanna do is look at risk assessment, both in journal entry themselves, especially manual journal entries, as well as in account reconciliations. And we're gonna touch in a few slides or a few few minutes on the account reconciliation area. I think that's really critical.

Ellen Class: 08:48

But I wanna start with making sure that we're risk assessing the items that we review so that we're not unilaterally deciding not to do something that is actually important. One of the things that I've seen at clients as far as optimizing the close is concerned is also looking at how tax is treated on the general ledger and in the ERP and finance system. So some company some countries have very onerous tax requirements. And you can actually go so far as to set up your chart of accounts with a separate set of book on the same ERP that allows for gathering and optimization of that tax information so that it can be done concurrently with the close or with the standard monthly processes like revenue recognition and manufacturing and things like that. And so that it's not a completely separate process that's divorced from the rest of the accounting processes, but sort of getting 2 birds with 1 stone by including tax in your chart of accounts.

Ellen Class: 09:47

Something else that's helpful, especially towards optimizing the close is operating from a single ERP or ERP platform. So you don't have multiple instances of the same software or worse yet, countries or entities that are outside of the main ERP. That always leads to a slower close process as you're trying to bring those numbers into the main consolidation and reporting tool or the main ERP. So that automatically means it's gonna be less efficient, and I think that should be looked at. That's obviously a technology aspect of things.

Ellen Class: 10:21

But to the extent that some of our giant customers are in multiple countries operating on separate ERPs or even with offshore accounting companies that might be doing it locally, that really hinders an effective close and certainly prohibits or curtails how much time you can actually take out of the close. It's important, and Janice has already mentioned this, to look at change management. The ultimate story to achieving a financial close that's shorter, more optimized, and more value added is making sure that your employees are on board because every employee's concern is what, how is it going to impact them? How is it gonna impact their ability to do their job? Is their job going to change?

Ellen Class: 11:03

And to the extent you don't bring employees along on the journey for the assessment as well as the implementation, that's an opportunity that when missed can really hinder your ability to take days and activities out of the close. So I think it's super important to emphasize again how important change management is in addition to using very tactical things like a closed checklist and maybe a daily closed huddle. Especially important if everyone's working remotely or you have a hybrid work model and a distributed workforce, making sure that everyone knows are there opportunities that they could participate, are there emergencies that have come up. The way I like to look at optimizing the close is the close itself with the routine items should be as both minimal time wise and a standard as process. And what your close should actually allow for is those inevitable accounting crisises that happen, unfortunately, usually in the middle of the close, some larger significant material item that you haven't booked previously or that hasn't come up in prior closes.

Ellen Class: 12:11

What you should be looking at during the close is the exceptions and not the routine task. What we wanna do is get those routine tasks drilled down, compacted, and potentially moved out of the close unless they're really close related so that you can have an optimized financial close. That often starts with questioning why most items are in close. Why are we doing that now? Do we really need to reconcile those accounts now?

Ellen Class: 12:37

Is there a risk if we don't going back to item number 1? So there's lots of questioning involved that can often make accountants uncomfortable. I have found that there's a lot of resistance to change in the accounting community. For example, proposing there's a threshold for manual journal entries. Accountants tend to all their ears go up and they're like, oh my god.

Ellen Class: 12:57

I can't book that 2penny journal entry or that $14.99 journal entry. But you really have to look at what is the risk if you don't do that, and, also, what is the value add? Is it really material to your company? Does it really make sense to have accountants' valuable time during the close consumed with making those essentially valueless transactions?

Announcer: 13:18

Alan, those are some great strategies. And I

Adam Larson: 13:19

think if people start applying those, they could really make a difference in their close process. But there's one thing while you were answering your question, you touched on, you know, different account reconciliation methods. And maybe we can spend all the time elaborating on those.

Ellen Class: 13:32

Absolutely. And I think this is critical. I often when I'm starting these assessment processes at clients or in the real world, when I've done this close optimization for companies where I've worked, I see that there's not a lot of consideration given to risk assessing the account reconciliations. So there are certainly technologies that I think are huge improvement in manual Excel spreadsheets. The adoption is probably not what most companies think it's going to be.

Ellen Class: 14:02

And to this day, I see pushback in you know, we've adopted this particular account reconciliation technology. And it turns out when we do some research and look at it, they're effectively using that as a file folder for their Excel reconciliation. So they're really not optimizing the use of that technology. Almost all ERP systems actually come with a bank account reconciliation module. It's not even an extra.

Ellen Class: 14:28

It's just included. So if you have, you know, Dynamics or SAP or Oracle, one of the larger ERP systems, it actually has bank reconciliations as an embedded feature that just takes getting the file from the bank in electronic format, and But at a minimum, we like to see that reconciled on a weekly basis. But at a minimum, we like to see that reconciled on a weekly basis so that at the end of the month, you're only looking at 2 or 3 days of bank reconciliations that actually need to be reconciled and those entries booked. And even though I said we should be looking at small journal entries in my last answer, I, of course, encourage that all bank accounting related entries do need to be booked. There's no way around that even if it's minimal and has no impact.

Ellen Class: 15:18

So that's certainly an entry that manually may need to be made, or you can rely on the bank reconciliation system to push that entry through or even one of the third party tools. So for risk assessments overall, I think at least annually and potentially more often, what should be gone through is every single account that's on the balance sheet and the p and l from a risk assessment standpoint. What you wanna look at is, what is the volume of transactions in that account? How critical is that account to making sure that your financial statements are correctly stated? What is the velocity of the movement?

Ellen Class: 15:57

There are we can all think of examples of balance sheet accounts that have almost volume of movement. Maybe they're a suspense account or other accounts payable not tied to an accounts payable module or an automated AP process. So there are a whole host of accounts that probably don't need to be reconciled every month that having, after a risk assessment, quarterly or a semiannual reconciliation or even moving the reconciliation out of the close. So maybe if it's a very slow moving account with sort of de minimis infrequent entries, you're only looking that outside of the close. You're looking that after the 1st 6 months of done or after the Q1 is done and not doing that during the close.

Ellen Class: 16:44

That's something that definitely needs to be considered. I don't recommend doing any accounts only on an annual basis because as soon as you make a decision to do that from a risk assessment standpoint, some transaction will occur at an off month that turns out to be material or booked to the wrong account in its entirety. And only finding that out during the annual close or right before the annual close is probably not optimal. So I try to focus in on what needs to be done monthly, what needs to be done quarterly, and semi annually in terms of risk assessments. The what if the company decides to implement a technology other than bank account reconciliations, which I think everyone should effectively implement because it's included in their ERP, There are a number of other technologies and companies, and they do different things.

Ellen Class: 17:32

Some of them are pretty expansive, so they can actually calculate journal entries and give you proposals and things. I think the only thing that we would want companies to think about before they go out for these technologies is making sure that it's effectively and fully implemented, and you're not using it as a file folder to store your Excel reconciliations, which is sort of, you know, a complete waste of time, basically, not to mention money.

Adam Larson: 17:55

Now when you're talking about the financial close, a lot of times you hear the term thrown around there, the one day close.

Announcer: 18:00

And, you know, even when Janice was giving her numbers, she was saying, you know, people go as low as, like, 3

Adam Larson: 18:04

or 4 days. But what factor or what role can technology play in getting yourself toward or targeting that one day close? Because it's a it's a big deal if you can get there.

Ellen Class: 18:13

Absolutely. And that's actually why I've sort of adopted RGP. And that is because I actually achieved the one day close at Sony Electronics, which was at the time a $13,000,000,000 a year company. Even though it's a wholly owned subsidiary of a Japanese firm, they're also traded on the US Stock Exchange. So my sort of claim to fame is actually the one day close.

Ellen Class: 18:42

The close was done in about 4 hours. So on the 1st day of the following month, the books were closed Pacific time at between noon and 1 PM at Sony Electronics, and that included manufacturing, sales, service. So it's a huge diverse, that it can definitely be done for other companies. It does require some of the things that we've talked about. It requires everyone having the same goal, right, so that you don't get pockets of resistance to doing something like that.

Ellen Class: 19:16

It requires effective technologies, but this was a number of years ago, and frankly, technology was not the answer to most of these problems. Right? It was really done with reviewing of the process as an understanding are these processes actually critical to the close. It was also done with things that we've touched on, like implementing a closed schedule and really enforcing that. If there were large material entries based on a materiality threshold on the type of entry that needed to be booked, Those entries were booked at corporate, and there was a decision process for, do we really need to book that entry?

Ellen Class: 19:52

So, obviously, if your company is $13,000,000,000 you have a fairly high materiality threshold. And that means there's a lot of smaller entries that even though they might be important to the plant manager or to the business unit head, they're really not relevant to the financial condition of the company, and they don't materially affect the financial statement. So getting everyone on the sort of same ERP system was very helpful. Having a consolidated reporting system so that the reports are available immediately afterwards, or you can check the reports as needed during the close. Having real time postings, I'm always surprised when I hear that some companies use batch postings because that precludes your ability to see the impact of your journal entry until that batch process is run or that overnight process is run.

Ellen Class: 20:42

So that's sort of a fundamental shift in how you look at that technology to move away from batch and get into real time. The good news is with cloud based systems, having real time postings that you can see the results for is much more immediate. There's much less batch of anything in a cloud based system. So that's good news. Obviously, reconciling your accounting reconciliations, very, very important to keep up on that.

Ellen Class: 21:07

Knowing when you're gonna close out the modules, knowing that fixed assets is gonna close out first, followed by inventory, followed by, you know, accounts payable and accounts receivable, having that all on a schedule. Even if you're a global firm, deciding which time zone those schedules are gonna be in and having everyone adhere to that. Yes. That does mean that some groups might be inconvenienced, and other groups are way ahead of you in in terms of where they are in the day if they're in Asia and you close on a US timetable. But those are all things that need to be taken into consideration.

Ellen Class: 21:40

How many periods in your accounting system are open? I'm always a little personally scared when I go to a client and they say, well, we never close out the periods in the accounting system. And I always well, what are the chances that someone's gonna make an entry into the wrong period when you do that type of thing? Is your current period open and one future period? So there are best practices to that, and I think that's important to look at as part of the technology and systems solutions for the close.

Ellen Class: 22:08

Utilizing basic ERP functionality. If you have an auto reversing JV using that feature in the ERP, I still have some clients that I'm optimizing their close, and and they hadn't considered fully implementing all the journal voucher features that are in their ERP like auto reversing. Enabling ERPs to actually store the backup and have a workflow for journal entry approval. That's very helpful, especially if accountants are married to their very small journal entries. If things need to be approved above a certain amount, and that's controlled in the ERP, it's sending you notifications.

Ellen Class: 22:45

Those are technologically improvements that all large systems have already considered. And it may be just a matter of implementing some of those and getting agreement on them in terms of using technology or system solutions to optimize the close.

Adam Larson: 23:00

So you can't talk about the one day close and the success of it. I mean, I it's great that you you had that success, but I know that you work with clients and help them navigate this. And so are there any, examples or case studies you can share of people who've successfully navigated this and maybe look at the engagement, the scope, and the challenges that they kind of hit along the way?

Ellen Class: 23:17

Absolutely. So we have a number of clients that I do this for as well as other engagement leaders at RGP. The one that comes to mind is actually a company that went from being a private company to a public company. So not only did they need to optimize their close because of just having it more efficient and utilizing resources more effectively and time more effectively, but they actually had to comply with SEC reporting requirements, which is a great driver of process improvement and change. And so this client went public a number of years ago.

Ellen Class: 23:50

Just to give you sort of a little background, they were about $350,000,000 in size when they went from private to public. They're in the electronic vehicle and battery space. That doesn't necessarily mean that there are actual vehicle manufacturers, but that's sort of the arena. So it's a very technologically advanced area. They are in manufacturing, and I think that's really important because that's often perceived as one of the longer processes as far as the close is concerned based in the United States with several different manufacturing locations.

Ellen Class: 24:22

So in terms of people process technology, how we often look at these things, their controller, when they moved from private to public and their accounting team was very comfortable, unfortunately, with extremely complex worksheets. They didn't believe, believe it or not, in this day and age in integrating different systems with each other. So they, for instance, might have had a warranty system, which is important for their product for accounting entries to book during the close, but it was not integrated with their ERP system. In fact, their payroll system was not integrated with their ERP system. So that meant if they had, you know, hundreds of employees, the journal entries that resulted from their payroll system were being manually uploaded into their ERP system.

Ellen Class: 25:11

A huge time waste. Right? I mean, so ineffective that I'm always surprised, but this is only a couple of years ago that controllers and accountants don't believe in system integration. Unfortunately, their processes when when they went public meant that for the first quarter that they were public, they did not meet the SEC deadline. And that's always sort of a red flag for investors.

Ellen Class: 25:32

It's always something that raises folks' eyebrows because you have to file a statement with the SEC that says, I'm not gonna report on time, and that's not a great thing to have to do right out of the gate. Finally, their systems didn't have the latest patches and upgrades, which is always a continuing effort to get those things installed. And the patches and upgrades they did hadn't been tested by accounting and finance before they went live. So there were lots of issues and opportunities in addition to the things that we've talked about later in terms of how do we help them reduce their close, look at processes, you know, do the risk assessments, set materiality thresholds that make sense, you know, obviously optimize their reporting so that reports are more automated, systems are integrated where appropriate, Get people in general out of giant Excel spreadsheets. I think there's some of that that may be needed in some businesses.

Ellen Class: 26:25

But in general, it to the extent that your ERP system should be doing that, especially with the new revenue recognition and things, that's really a disadvantage to be doing things that way. And and to the point that Janice has mentioned earlier, change management and making sure that you had a workforce that was embracing of technology, able to work in a distributed manner, that there was good change management and good project management to implement these extensive changes. And all in all, the close had previously been somewhere between 14 20 5 days, depending on whether it was the end of the quarter or the end of the month. And it was reduced to between 6 8 days. So there are significant savings.

Ellen Class: 27:10

That means your business gets their results earlier. You are comfortable with all the work that needs to be done for the SEC filings. The tax group has an opportunity to look at things from the tax viewpoint, which can be different than the sort of standard accounting and finance viewpoint, and everyone has enough time to do their job. And finally, their employees are not working literally 16, 17, 18 hours a day. Folks are not up at midnight running batch processes and accounting, things like that.

Ellen Class: 27:38

So there's a lot of advantages to optimizing the close and really removing sort of the onerous nature of the close on accountants as well as on reporting.

Janis Parthun: 27:48

Great points, Ellen. And I'm just gonna add that from a project execution perspective, having strong execution practices really would be beneficial in these efforts, for example, with this, you know, with different clients situations and scenarios. And actually, interesting enough, RGP did a study around project execution practices and in terms of having to understand what would lead to great project success and having strong project leadership, which is the ability to also be able to manage hybrid teams and diverse teams, as well as having great collaboration tools really increases the project success as well. So in alignment to kind of what you had mentioned before, you know, some of these strategies may be having to invest in, effective collaboration tools to just reduce some of the administrative burden and to be able to retain knowledge, with team members rolling on and off the project and just be able to provide that real time transparency. So just wanted to mention that this is a research that RGP had conducted back in 2022, and it has a lot of key insights in terms of some of the findings as well as strategies.

Ellen Class: 29:00

I I

Adam Larson: 29:00

mean, that that's some that's an that is an amazing story to tell, you know, going from 25 to 6 days. It's huge because your your teams no longer spends most of the month closing, but they can spend their month doing so many other things. And that's just that's that's huge. That that's the the savings there is just it's it's hard to count those. And this has been just an amazing conversation around, you know, around, you know, how we can reduce that close process and become better, more efficient finance teams.

Adam Larson: 29:25

And as we kind of close with the conversation, just wanted to give you opportunity to are there any additional benefits or, you know, outcomes that you can expect when you're streamlining that financial process?

Ellen Class: 29:33

Absolutely. We've touched on these sort of intermittently throughout our discussion. So fewer work hours for the teams, fewer work hours and days for teams and managers, work spread throughout the month, so better work life balance, reduce risk. I think a risk assessment's really important component of this versus what is the higher volume of activities that you actually need to occur or don't need to occur during the the close. You've mentioned this earlier, and that is having more time for review of the financial information as opposed to just grinding through the numbers or having to process these transactions.

Ellen Class: 30:08

Right? I think that's so important. Focus on items that are actually material and important to the business and to the company versus on immaterial or not value added activities. Reducing manual journal entries. This is a biggie.

Ellen Class: 30:22

Often gets a lot of resistance from accountants, but ultimately, taking those manual journal entries out and looking at the materiality of the of the ones that exist is really, really important. And then finally, something that we touched on very early on, and that is managing your month end close on an exception basis and not via one of the routine tasks so that your accounting management and company management are really focused on what are the unusual large items that we need to look at knowing that the rest of the close activities will just be routine, they'll be smooth, and they'll be processed effectively and not delay the actual financial

Janis Parthun: 31:06

they continue to have the training to allow for development, and growth in that process as well. So

Adam Larson: 31:12

Well, Ellen, Janice, thank you so much for coming on the podcast. I really appreciate you sharing your knowledge, and I really hope hope that this has been as beneficial as it's been for me listening in and these great strategies that you shared today.

Janis Parthun: 31:22

Great. Thank you, Adam, for having us here. It's it's always a pleasure to be speaking with you. Thank you.

Announcer: 31:30

This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.ima net.org.