Gasping Over the Last Mile

CFOs have been trying for years to chop back the time they need to complete the financial closing and reporting cycle, but by and large the results have been disappointing. In a 2007 study, The Hackett Group reported that the average company took nearly six days to close its books, up from 5.2 days in 2003, with another five days spent on reporting.

"That's significant, because by the time you get the results out you may have only one or two weeks to correct any issues that may also go through to the following month," says John E. Van Decker, research vice president with Gartner Inc. "There's definitely a desire to trim down the number of number of days for the close, but it's still a challenge for most companies."

Organizations vary in the amount of automation they've applied to what's often called the "last mile" of finance. "Most have some kind of a consolidation solution, but do a lot of their reporting still in Excel," notes Van Decker. "It's hard to control what people do in Excel, and it's hard to ensure that you have an auditable [process], from both a segregation of duties viewpoint and also in terms of being able to trace back the changes that were made in a financial report."

Surprisingly, business performance management (BPM) systems have been of limited help. Last-mile functionality "should have been part of corporate performance management solutions, but instead the vendors chose to just focus on the reporting rather than all of the financial processes associated with the close," says Van Decker.

And they focused almost exclusively on internal reporting. Best-of-breed solutions for external reporting have only recently started to emerge. Paul Hill is COO of Clarity Systems Ltd., a Toronto-based BPM firm that also offers software for automated external reporting. "A lot of people think of closing the books as the last step in the financial process, but it isn't -- it's the production of the external [reporting] documents," he points out. "The SEC and a lot of regulatory bodies have shortened the amount of time allotted to producing those documents each quarter, so there's a lot more pressure on companies to produce them more quickly. And with Sarbanes-Oxley, there's a lot more pressure on CFOs and CEOs to make sure that the accuracy of those documents is maintained."

Unlike BPM systems, which historically have focused on helping companies deal with spreadsheet overload, external reporting tools must be highly text-oriented. Annual reports, for example, are typically compound documents with multiple contributors from various departments, including marketing and communications and HR as well as finance. "But you have the same fundamental challenges," says Hill. "How do I control that process? How do I reduce errors? Ensure compliance? Those are the same basic principles that were addressed in the earlier days of BPM and are now being addressed specifically for external reporting in the last mile."

Financial consolidation tools can help companies generate their 10Ks and 10Qs, Van Decker points out. But they have their limitations. "It's not so much just producing a report; it's ensuring that the data's accurate, that you have visibility, and you understand all of the changes to all of the inter-entity eliminations, for example. So I'd say that this is an area where companies could use more control."

Organizations that want to speed up their period-end cycles can benefit from the following best practices, according to a recent white paper from Oracle:

• Regularly close feeder systems into general ledgers; don't wait until period end.

• Adopt a common chart of accounts across diverse general ledger systems.

• Implement an integrated financial consolidation and financial data quality solution to speed up data collection and reduce errors.

• Perform continuous intercompany reconciliation and posting of transactions rather than waiting until quarter and end to record balances.

• Make top-line adjustments in a financial consolidation system, as opposed to going back and correcting local general ledgers to speed up the consolidation cycle.

• Perform a monthly soft close and hard close at quarter end to get periodic insight.

• Collect unstructured data related to the financials (variance descriptions and other qualitative information) as you collect the trial balances.

• Perform subcertification of the results along with the trial balances. Survey responses, testing results, and reconciliation documentation submitted with the trial balances can improve confidence.

• Conduct flash reporting on KPIs throughout the reporting period via the financial consolidation system, performance dashboard or scorecarding system.

• Report internal results via the Web.

• Enable electronic submissions to external stakeholders via extensible business reporting language (XBRL).

• Integrate financial reporting with planning, scorecarding, and financial modeling systems for continuous performance management.