Every finance employee knows of risk and its management, but what about risk management in the monthly close? Throughout history a qualitative leap must take place, and automation is key. At least if you want to manage the risk of risks in the monthly close.

The threat of risk, if poorly managed can lead to extra scrutiny by the chartered public accountant at audits. Or perhaps expose the company to external audit with financial embarrassment and penalties as a result. Risks may escalate to impact the confidence of investors, customers, vendors and government. The fraud could be minimal, small or huge.

  • How are we to manage the risks connected with the monthly close?

Risks in the monthly close

What about the risks in the monthly close? Simple steps need to be taken to reduce the risks of internal dangers that are seldom written about, nor financial risk, fraud, compliance, GRC, riskperformed in a usual monthly close.

Accounts with risk activity need special treatment in the monthly close. One way combat this is to have adequately trained personnel, who know how to sniff out inadequate activity like Sherlock Holmes would (see previous blog: Sherlock Holmes and the case of the month-end close reconciliation). But then it is difficult for anyone else to step in if the person is ill, creating another risk.

Secondly the reconciliation procedures for these accounts are often inadequate, or simply not formalised. If some follow your supposed in-house processes, others follow the process at their last position and some do their own thing – your monthly financial close results could end up in a real mess. If this is the case then you might find high-risk accounts are still unresolved even after the filing date. All of this exposes you to more risk than is normal or necessary. And the special treatment that risk accounts should have, isn’t given.

What’s more, even the most skilled finance staff may forget a process step, such as how to weight risk on accounts, so it is really important that a formalised process is documented, is accessible and open in front of staff during the monthly close process.

Since it is a high-risk account, a second approver skilled on ensuring the stricter reconciliation checks have been done, is more than necessary. But again we will have the threshold if this person falls ill.

Some account’s activity are riskier than others. All balance accounts need to be reconciled, so it is wise to prioritise the order of reconciliation from a risk perspective too, ensuring the higher risk accounts come first.

Above all else, the formalisation of the monthly close is effectively essential from a governance, risk and compliance (GRC) standpoint. So that all financial staff (both the reconciliation preparer and approver, as for management) follow the same monthly close procedure.

Changing risky financial close habits

If you really want to change the habits of your finance staff so that they use documented procedures for your month-end close, you must also understand that more of the same will not solve the task, but only increase the burden.

As in history, automation in itself is the key again, and as most of us know the usual Swiss knife for every financial department – Excel – won’t do the job. Instead you should look at BALANCER, a purpose built tool for the monthly close.

How does it formalise the monthly close for a smarter process?

  • Before any monthly close begins, each account is categorised from a risk perspective – high, medium, low or none, which is used for prioritising which accounts to be firstly reconciled. Based on the prioritisation you and your colleagues are assigned accounts in the right order.
  • Instead of a reconciliation policy which many times is a general description for all accounts, you will for each risk account be presented with the step by step reconciliation procedures, information on important sources to check, as well as this risk account’s criteria for supporting documentation.
  • As you sign in with a password difficult to crack, your digital identification will be stamped on every sum deducted, document attached, explanatory note created, creating a secure audit trail.
  • The reconciliation preparation becomes a piece of straight forward work, saving you time and giving you and anyone willing to check in on the account a good overview. Lastly as you certify your reconciliation is done according to this accounts reconciliation procedure and criteria for supporting documentation.
  • Everything is filed in a digital archive in the Cloud where it is safe for decades.
  • BALANCER gives an overview, taking the frustrating and annoying mad dash out of the monthly close.

In an instant, you have a monthly close process documented in detail, reconciliation step-by-step procedures for each account or sub account type – instead of an overall reconciliation policy not detailed enough. All of a sudden the risky risks of the monthly closed is managed, making you meet high demands of Governance, Risk and Compliance.

Take a deeper dive into the full range of benefits of BALANCER here: