With only 53% of companies completing their monthly close within six business days and a mere 40% achieving this quarterly, the urgency for a more efficient approach is clear. In this blog, we will delve into a technology-driven solution that can help companies achieve a close in single-digit days.
Every Bank is Complex, but a Faster Close is Still Possible.
Every financial institution and bank insists its close process is unique, but a commitment to change can speed it up.
An efficient financial close is a reliable way to measure the effectiveness of a finance department's management. Banks that can complete their monthly or quarterly accounting close within a business week without regularly requiring material adjustments and entries after the close demonstrate a world-class level of effectiveness and ambition.
We appreciate that a faster close is primarily a process change initiative, but the technological approach we share here is a proven approach to reshaping the close process.
Challenges to a Faster Month-End Close for Banks
For global banks operating in a complex regulatory environment, achieving a faster month-end close is crucial for timely financial reporting and building investor confidence. We appreciate that this goal is complex for large global banks. Here's a breakdown of six key challenges we have seen slow the process down.
1. Manual and Inconsistent Processes:
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- Reliance on Manual Tasks: Many banks still rely on manual processes for tasks like account reconciliations, journal entries, and data gathering. This increases the risk of human error and slows down the closing process due to its time-consuming nature.
- Lack of Standardisation: Inconsistent closing procedures across different regions or departments within the bank can lead to confusion, delays, and potential errors. The absence of standardised workflows makes tracking progress and identifying bottlenecks difficult.
2. Complex IT Systems and Data Silos:
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- Disparate Systems: Large banks often have complex IT landscapes with various financial data in different systems, typically SAP and Oracle. Consolidating and reconciling data from these disparate sources can be a significant hurdle during the close, requiring additional systems to handle extraction and manipulation.
- Data Integration Challenges: Integrating data from different systems with varying formats and structures is a technical challenge. Inconsistencies in data definitions and integration approaches compound the problems.
3. Regulatory Complexities:
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- Increased Regulatory Scrutiny: Regulatory bodies have imposed stricter reporting requirements, often demanding additional calculations and disclosures that extend the closing process. This necessitates gathering and verifying extensive data to ensure accurate reporting.
- Regulatory bodies like the Basel Committee on Banking Supervision (BCBS) have implemented stricter capital adequacy and liquidity requirements. This translates to more complex calculations and disclosures that need to be incorporated into financial statements, adding time to the closing process.
4. Data Quality and Accuracy Issues:
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- Inaccurate or Incomplete Data: Errors and inconsistencies in underlying financial data can significantly slow the close as reconciliations and corrections become necessary. Incomplete or missing data can further complicate the process and delay the finalisation of financial statements.
- Limited Data Visibility: Lack of real-time visibility into financial data throughout the month makes it challenging to proactively identify and address potential issues. This can lead to last-minute adjustments and delays during the close.
5. Inefficient Collaboration and Communication Gaps:
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- Siloed Teams: Limited communication and collaboration between accounting, risk management, and other departments involved in the close can lead to delays and inefficiencies. Information sharing gaps can hinder the timely identification and resolution of issues.
- Lack of Automation in Communication: Reliance on manual communication methods like emails and phone calls for task assignments, approvals, and updates can be time-consuming and prone to errors.
6. Limited Visibility and Tracking:
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- Manual Tracking and Reporting: Manual tracking of the closing process can be cumbersome and error-prone. The lack of real-time insights into progress and potential roadblocks makes it challenging to identify and address delays proactively.
- Limited Performance Measurement: Without proper metrics to measure the efficiency of the closing process, it's challenging to identify areas for improvement and track progress towards faster close times.
The Thin Ledger Strategy
We believe that a thin ledger strategy is the engine of a faster financial close because it significantly reduces the volume of data that needs to be reconciled and consolidated, streamlining the closing process. We outline this thin ledger approach and explain how Oracle's OFSAA (Oracle Financial Services Analytical Applications) suite can deliver a single-digit day's financial close.
OFSAA facilitates a thin ledger strategy with several important capabilities, including the ability to integrate with existing SAP, AWS or GCP platforms:
- Reduced Data Volume: OFSAA facilitates a thin ledger approach by allowing banks to define a subset of general ledger accounts relevant for financial reporting. This significantly reduces the volume of data that needs to be reconciled and consolidated, streamlining the close process.
- Account Reconciliation Automation: OFSAA automates time-consuming tasks like reconciliations, reducing manual effort and the risk of errors. This frees up valuable time for other critical tasks during the close process.
- Journal Entry Automation: The platform offers pre-configured templates and workflows for recurring journal entries, ensuring accuracy and streamlining the process. Additionally, OFSAA can automate rule-based journal entries based on pre-defined accounting rules, reducing manual work.
- Centralised Data Repository: OFSAA provides a central repository for all financial data, eliminating the need to gather information from disparate systems. This simplifies data consolidation and shortens the time needed to prepare financial statements.
- Data Cleansing and Validation Tools: The platform includes tools to cleanse and validate financial data, ensuring its accuracy and completeness before it's used for reporting purposes. This reduces the risk of errors and delays during the close process.
- Workflow Automation: OFSAA automates critical tasks within the closing process, such as assigning tasks, sending approvals, and providing notifications. This streamlines communication and collaboration between different teams involved in the close, ensuring everyone is on the same page and meeting deadlines.
- Real-time Reporting: The platform offers real-time insights into financial performance, allowing banks to identify and address potential issues early. This proactive approach can prevent delays during the close by resolving problems before they become significant.
Solution Component 1: Oracle Account Foundation Cloud Service
The Oracle Account Foundation Cloud Service (AFCS), a component of the OFSAA suite, plays a crucial role in accelerating the financial close for banks by specifically targeting the challenges associated with the general ledger. Here's how AFCS contributes:
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- Thin Ledger Implementation: AFCS enables banks to streamline the close process by defining a subset of general ledger accounts for financial reporting, reducing the data volume needing reconciliation and consolidation.
- Account Hierarchies and Rollups: AFCS enables the creation of flexible account hierarchies, allowing for automatic rollups of balances from lower-level accounts to higher levels. This simplifies consolidation and reduces the number of accounts requiring manual reconciliation.
- Predefined Account Types: The service offers pre-configured account types aligned with common banking activities. This eliminates the need for manual account setup and ensures consistency in categorising transactions.
Solution Component 2: Oracle Accounting Hub
While not directly focused on the general ledger itself, Oracle Accounting Hub works seamlessly with OFSAA and plays a vital role in accelerating the close process by tackling data preparation and rule-based accounting:
- Data Transformation and Integration: The Accounting Hub acts as a central repository for financial data from various sources within the bank. It transforms data into a format compatible with the general ledger and eliminates manual data extraction and manipulation.
- Rule-Based Accounting and Automation: Accounting Hub automates journal entry creation for recurring transactions based on pre-defined accounting rules. This reduces manual effort and ensures consistent application of accounting policies.
- Automated Matching Engine: The hub leverages advanced algorithms for automated account reconciliations. This significantly reduces manual effort compared to traditional methods and minimises the risk of errors.
- Data Quality Management Tools: The platform offers data cleansing, validation, and standardisation tools. This ensures data accuracy and eliminates the need for time-consuming manual corrections during the close.
- Real-Time Data Visibility: Accounting Hub provides real-time access to financial data for all authorised personnel. This allows teams to proactively identify and address potential issues, preventing delays during the close.
- Workflow Management: The platform facilitates the automation of critical tasks within the closing process. Users can assign tasks, track progress, and receive notifications, ensuring everyone is on the same page and deadlines are met.
Accounting Hub and Account Foundation Cloud Service (AFCS) work together seamlessly within OFSAA to create a powerful combination for accelerating the close process:
- Accounting Hub prepares the data: Accounting Hub transforms data, applies accounting rules, and generates journal entries.
- AFCS optimises the general ledger: AFCS facilitates a thin ledger, manages account hierarchies, and integrates the journal entries from Accounting Hub for efficient processing and analysis.
Integrations with SAP, AWS and GCP
Most, if not all, of our large banking and financial services clients are using some sort of combination of SAP, AWS, and GCP, and we recognise that integrating these platforms isn't straightforward and does add complexity. That said, the benefits of reducing the financial close process warrant exploring what integration options are possible.
Oracle Integration with SAP GL:
Oracle Integration Cloud Service (OIC) bridges the gap between Oracle and SAP, facilitating a smooth flow of financial data essential for the month-end close process. OIC provides pre-built connectors specifically designed for SAP integration. This enables seamless data exchange between Oracle applications like OFSAA and SAP General Ledger (SAP GL). During the close process, OIC can automate extracting relevant financial data from SAP GL, eliminating the need for manual data transfer and reducing the risk of errors. This real-time data exchange empowers OFSAA to leverage SAP GL information for tasks like account reconciliations and financial statement generation, ultimately accelerating the close for global banks.
Oracle Integration with AWS Data Platforms:
For global banks leveraging Amazon Web Services (AWS) for data storage, Oracle Integration Cloud Service (OIC) unlocks the potential of cloud-based data for the financial close process. OIC offers pre-built connectors and functionalities to seamlessly connect with various AWS data platforms, including S3 buckets, Redshift data warehouses, and DynamoDB databases. This integration capability allows OIC to extract relevant financial data securely on these AWS platforms. Once extracted, OIC can transfer this data to OFSAA, which can be incorporated into the closing process. Also, OIC can return data to the AWS platforms as required to support a single data store approach.
Oracle Integration with GCP Data Platforms:
Like AWS, Oracle Integration Cloud Service (OIC) empowers banks that leverage Google Cloud Platform (GCP) to integrate their cloud-based data into the financial close process with OFSAA. OIC offers pre-built connectors for GCP services like BigQuery data warehouses and Cloud Storage buckets. This facilitates the secure extraction of relevant financial data stored within these GCP platforms. Once extracted, OIC can seamlessly transfer this data to OFSAA. By incorporating GCP data into the closing process, OFSAA can generate more comprehensive financial statements. OIC's role in this integration eliminates manual data transfer and manipulation from GCP, saving time and reducing the risk of errors during the close for banks that rely on GCP for data storage.
Oracle Achieved the Fastest Close on the S&P 500
Oracle announced that it closed its books and reported Q2FY22 earnings just 9 calendar days after the period end—faster than any other S&P 500 company. You can read more about Oracle's Playbook for a faster close here.
Oracle's broader finance transformation, outside of their improved financial close, has yielded some excellent results for a multi-billion dollar, complex global business:
- 56% reduction in manual accounting activities to date
- 97% of global bank account transactions automatically reconciled
- 69% of the total purchase order volume is fully automated
- 2000 hours per month eliminated from manual data-gathering activities
- 26% acceleration in financial planning
- 80% faster tie-out of inter-company balances
How can we help?
Revvence can help in several valuable ways:
- Review your existing financial-close approach and compare this against best-in-class.
- Create a proof-of-concept to show you the art of the possible and build your business case.
- The design and delivery of end-to-end financial-close solutions.