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How to Add Automation In a Month-end Closing Process



Add Automation on Month-end Closing ProcessIf consulting firms and software suppliers are to be believed, the only way to achieve a fast period-end close is through the implementation of either packaged or custom software systems, which can automate all kinds of troublesome manual systems associated with the close. However, these systems are expensive (sometimes vastly so) and often require not months but actually years to install. Thus, in the interests of being fiscally prudent, I would suggest to implement the many other simple and less expensive changes I’ve ever recommended before even considering automation.

Nonetheless, there is a place for automation in the closing process, especially for large, multi-division companies that must spend days collecting and consolidating division-level information. Even smaller companies can benefit from automation, but to such a smaller extent that their controllers should spend considerable time evaluating the cost and related benefits of each automation tool noted in this post.


In this post, the principles under which automation tools should be added to the closing process are covered, and then several types of automation are described, generally sorted in order by increasing levels of sophistication and expense. Disclaimer: Any companies I mention in this post is not a recommendation. They are intended as an informational only to provide a richer information that near to get-go-implementation. I and this site have no relation with any of them in whatsoever. Thanks for paying attention. Enjoy!


General Principles of Fast Close Automation

Before considering any investment in automation, one should first be aware of several general principles of automation:

  • Do not automate a flawed process. If an existing manual process already issues a large proportion of transaction errors, it is first necessary to alter the underlying process before even considering automation. Otherwise, any automation implementation will yield the same error filled results, only faster.
  • Automate only if there is a cost – effective improvement in the closing process. The latest software system may appear fabulous, with all of the latest bells and whistles, but what is the trade-off of its   total   cost (including software, implementation, testing, training, and ongoing support fees) against any net gains in performance? In many instances, a prudent controller will be well advised to retain a slightly longer closing interval rather than to make a major system investment.
  • Focus on time reduction. The intent of this book is to advise on how to close the books as fast as possible. With that goal in mind, place particular emphasis on those automation tools that are most likely to strip time out of the closing process. This goal is most easily reached by targeting any closing processes with substantial wait times. In particular, if it is possible to automate an entire task, then both the wait time and processing time associated with having a person tackle the same task will be eliminated.
  • Centralize accounting data. One of the greatest banes of the multi-location company is trying to marshal the flow of accounting data into corporate headquarters in a reasonably efficient manner. This is most difficult if there are a multitude of disparate systems within the company. By focusing on the use of a small number of centralized systems, the closing process can be shortened.



Implement Minor Programming Changes On An Ongoing Basis

The first form of automation that the controller should consider is the use of minor programming changes on an ongoing basis. These changes tend to require minimal programming effort, involve modest procedural changes, and result in immediate and quantifiable reductions in the closing period. This approach compares well to the installation of extremely large systems, where both costs and resulting improvements are difficult to accurately quantify.

As an example: the clients of a consulting company each want different month – end reports describing hours worked. This can be a lengthy reformatting chore in the midst of the closing process, so the IT department designs a set of report formats from which the accounting staff can choose, containing varying levels of report detail. An even greater level of incremental automation would be to allow customers direct access to the various reports through an intranet site, so the accounting department no longer has to print any labor reports at all.

Dozens of such improvements could be made to enhance the closing process, possibly individually saving only a few minutes of time each, but cumulatively resulting in a powerful, streamlined closing process.

The best way to use this approach is to list automation improvements as a task on the monthly closing checklist, to be reviewed by the project team as soon as the core closing tasks have been completed. The controller should discuss each proposed automation project with the IT manager to determine the extent of programming changes required and prioritize the automation request list based on the cost-benefit trade-off of each item.


Automate General Ledger Interfaces

Early versions of accounting software were designed on a modular basis, so that separate accounts payable, billing, inventory, payroll, and fixed asset modules accumulated information separately and required a manually initiated posting process to summarize and move transaction data into the general ledger. Not only did this call for additional processing steps in the midst of the month-end close, but it was also possible that the results of entire modules would not be posted at all or that late entries to a module would not be posted until the following month.

Many accounting software packages are now designed to automatically post sub-ledger information straight into the general ledger without any manual interference by the accounting staff, thereby avoiding the problems just described. If this is not the case, review the software documentation to  see if a trigger can be set in the underlying accounting tables that will automatically post module transactions to the general ledger. If not, consider modifying the software to do so, although this approach will cause problems if the company regularly updates to the most recent version of the accounting software, thereby eliminating any software code changes that may have been made. An alternative is to make a request to the software supplier through a users group, asking that automatic posting be added to the product in a forthcoming software release. Another alternative is to add the posting task to a list of activities in a workflow management software package (I am  going to discuss about this later on this post), with direct links to the posting tasks within the accounting software; this approach will automatically force users to complete the posting task for every module.

For more tips on how to deal with General Ledger in more smart manner, read: Being Smart with General Ledger.



Install a Web-Based Timekeeping System

A major closing problem for those companies employing billable staff who work in the field is getting them to report their hours worked before the core closing period. Collecting time-worked data from those last few dilatory workers can seriously delay the creation of month-end billings and therefore the issuance of financial statements.

An excellent solution—and a rare case where technology can have a profound impact on the speed of the close—is the use of a Web-based timekeeping system. The best solution is a custom-designed system in which employees link hours billed to specific jobs, because the accounting staff can then sort the hours worked by job to rapidly create customer invoices. The author ’  s company has used such a system for several years, even taking the concept to the point where the system prints backup documentation for hours worked that are then attached to invoices as proof of hours worked.
These reports fit into one of three formats from which customers can choose:

  • Total hours worked by employee for the reporting period
  • Hours worked by employee for each day of the reporting period, laid out in a calendar format
  • Total hours worked on specific tasks by all employees during the reporting period

Thus, the use of a customized labor reporting system yields a great deal of reporting granularity. However, in many instances there is less need for such specificity. If so, several reporting systems are available that can either be purchased for sole use by a company or operated under an application service provider (ASP) model where the supplier operates the software and attached database. Some examples are:

  • ADP operates ezLaborManager on the ASP model. This is especially useful for those companies already processing their payroll through ADP ’s Pay eXpert product, because the time records feed directly into the payroll system.
  • iEmployee’s system is also on the ASP model and allows time to be charged to specific jobs. This system is designed to integrate with the payroll offerings of several outsourced payroll providers.
  • Time Clock America sells a version on the ASP model, but it is not linked to any other payroll systems.
  • Kronos’s Central Suite takes the employee data entry concept considerably beyond just time data entry, also allowing employees to go online and alter their personal payroll information, view accrued vacation time and payroll information, submit leave requests, and enroll in various benefit programs.


The four examples noted here are not the only ones available. Most of the full-service payroll providers appear to be developing this application or already have it, so be sure to conduct a thorough review of the latest offerings before making a selection. The key factor to consider when evaluating these systems is the ability to record hours for specific jobs, so the accounting staff can sort the resulting time records by job and use them to create invoices.


Install a Workflow Management System

Consultants like to recommend the installation of an automated workflow management system to increase the speed of the closing process, because it monitors the flow of work through the accounting department, assigns tasks to employees, and ensures that procedures are followed in a specific order. Because the closing process is highly procedure driven, this would seem to be a good approach. However, such systems require a considerable software investment and substantial implementation costs.

Just how good an investment is this system?

To answer the question, consider the reason why workflow management systems were developed: They are intended to allocate work among large numbers of employees handling very large transaction volumes, with work being automatically issued to those employees who are most capable of handling it while ensuring that wait times are minimized. However, the closing team is generally quite small, with each person already assigned to a specific set of tasks for which he or she is solely responsible. Thus, the performance of a small closing team would probably not be improved at all by a workflow management system. It could still be of use in a large corporate environment where the contribution of many people is needed in order to produce financial statements, but the controller would save a great deal of money by concentrating more effort or centralizing closing tasks with fewer people than by investing in a workflow management system.


If the decision is still made to invest in such a system, it is useful to understand some positive characteristics of the product. Why?

  • First, because it routes work to employees in a specific order, it can be designed to enforce the use of specific closing procedures. This can be a considerable benefit if the closing team is inexperienced or prone to making procedural mistakes. It is also useful if the controller is constantly tweaking closing procedures each month and wants the system to reflect the latest changes.
  • Second, a workflow product records processing history, including who was assigned a task, how long the task took to complete, and the results of this action—all excellent information for a postmortem review of the closing process. This yields accurate information about process and wait time durations that can be used to constantly refine the closing process to achieve a faster close. Third, the controller can monitor the progress of each closing task in real time through the system to see who is handling each processing step at any given moment. If many people are using the system in distributed locations, this can be an excellent way to manage the close.
  • Third, finally, the system can usually track which employees are away on vacation, taking training classes, and so on, and can automatically route work tasks to other backup staff to ensure that the closing schedule is not delayed.

In order to make a workflow management product an effective part of the closing process, it is useful to create interfaces to the underlying accounting system, so an employee can click on an assigned task and have the workflow system automatically launch the required program and access the specific document called for by the work step. Also, if closing tasks are being completed throughout a multi-division company, the workflow product must be accessible from all of these locations, which calls for real – time links to a central workflow database.

If there appears to be a use for a workflow management system to improve the closing process, go to the   www[dot]waria[dot]com.   Web site for an overview of many workflow management suppliers. The site contains a supplier data-base, product descriptions, industry news, a bookstore, and a list of events. It is maintained by BPM-Focus. Other sites providing similar information about workflow are  www[dot]e-workflow[dot]org, [dot]bpmi[dot]org , and  www[dot]aiim[dot]org.


Install Consolidation Software

One of the most justifiable automation tools related to the closing process is consolidation software. This standalone software package overlays a company’s existing software and provides the following consolidation features:

  • Consolidate financial data from multiple sources 
  • Combine multiple currency data using a foreign exchange table  
  • Centralize data from a broad array of chart of accounts configurations  
  • Account for the percentage of equity ownership when determining consolidation rules
  • Allow some degree of drill-down inquiries into increasingly detailed levels of data

Clearly, the main features of a consolidation system are oriented toward large, multi-division companies with complex equity holdings, especially those with international operations. Conversely, small or single-location companies have little need for consolidation software. Besides being expensive, the primary difficulty with consolidation software is the need for custom interfaces to other accounting systems within the company, which can be difficult to create and maintain.

Consolidation software is an integral part of the ERP software produced by Oracle, IBM, and SAP [are going to outline about installation of an Enterprise Resources Planning System later in this post. Read on…].


Install a Data Warehouse

If a company is burdened with a large number of financial reporting systems in multiple locations, the closing staff will have a hard time collecting financial data within a reasonable period. A solution that retains the existing medley of systems while still providing the benefits of transaction centralization is to create a data warehouse. This is a database that acts as a central repository of key financial and other information, specifically designed for querying and reporting. The data stored in this warehouse is extracted from the regional accounting systems using either automated or manually triggered interfaces and cleaned with automated error – checking routines.

The querying portion of the data warehouse is enabled through a separate online analytical processing (OLAP) tool sold by several suppliers, such as SAS, Oracle, and IBM. An OLAP tool is intended to provide fast query responses, cope with a broad range of logic questions, and make available a wide range of potential reporting formats. A properly installed OLAP can save some time during the closing process, because it can search through financial transactions for anomalies and bring them to the attention of the accounting staff who then use the data warehouse to drill down through the flagged transactions to see what is wrong, correcting the problems faster than would otherwise be the case.
Once this system is implemented, the closing staff can rely on the data warehouse as its central information source, rather than divisional accounting systems. It can also be used as the central corporate report generator, which many users can access for a variety of reports. Furthermore, it can store data for longer periods than may be practical for the underlying accounting systems. Finally, a data warehouse allows access to users without giving them the ability to alter actual transactions, the primary versions of which are still stored elsewhere at the division level.

However, installing a data warehouse is a major undertaking, involving detailed analysis of data models throughout a company to ensure that the correct transactions are pulled from regional databases and forwarded to the central data repository. It requires numerous custom interfaces, as well as a high degree of ongoing maintenance to ensure that the interfaces still work and that the correct data is being centralized. Also, because the underlying mishmash of accounting systems has not been altered, there is still a high risk that divisional transaction error rates will be unacceptably high. Furthermore, if divisional accounting staffs are allowed to alter their charts of accounts, the system interfaces must constantly be revised to map these changes into the proper accounts in the data warehouse. Finally, the volume of data stored in a data warehouse calls for an industrial-strength database at its core, such as IBM’s DB2, which is an expensive purchase. For more information about data warehousing, access www[dot]tdwi[dot]org which is operated by the Data Warehousing Institute.

Install an Enterprise Resources Planning [ERP] System

The most full-featured accounting system available is one that is both fully integrated with the computer systems running all parts of a company and installed in all company locations—the enterprise resources planning system (ERP). The most popular of these massive systems are sold by SAP and Oracle. These packages contain all of the consolidation functionality already noted for standalone consolidation software. In addition, an ERP system can also fully automate the elimination of intercompany receivables by identifying them in advance and having the software automatically consolidate them for review and elimination. Furthermore, the SAP version also tracks the consolidation status of all divisions using the software.

Note: The most important difference between ERP and consolidation software is that no custom interfaces are needed for an ERP system—all primary software systems in the company involve the same software, which is already fully integrated.


The downside of using ERP software is its massive cost and lengthy installation interval. There are numerous cases involving huge cost over-runs and failed installations resulting in some jeopardy to a company’s ability to run its business. Consequently, justifying an ERP installation solely on the need to improve the speed of the close is a bad idea. There should be several other valid reasons justifying the installation. If the main justification for an ERP purchase is to improve the closing process, then consider buying standalone consolidation software instead.

The specific modules within each ERP system dealing with consolidations are the Oracle Global Consolidation System, and the SAP Consolidation Module. For more information about these systems, access oracle, or SAP on their official site respectively.

The greatest impact of automation was on final closing activities, where a currency conversion step (applicable only to those companies with foreign operations) was forcing the final generation of financial statements into a second day. By using an integrated currency conversion table in an ERP software package or a consolidation module, the conversion step can be eliminated, which brings the entire closing process following month-end to reside within a single day.

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