The vast majority of organisations, irrespective of their size, industry sector or geographic location, spend significant amounts of time manually checking and matching transactions, preparing and posting journals to complete their bank reconciliations. Depending on the requirements of the business and the associated transaction volumes, these activities will be undertaken on a monthly, weekly or even daily basis.
Many organisations have implemented spreadsheet-based solutions to assist with the transaction matching element of bank reconciliations. Others use built-in functionality and add-on modules available within their GL system to automate certain aspects of the matching process, and in some cases, associated journal creation.
However, very few organisations (if any) could say that they are able to achieve anywhere close to 100% automation of the entire bank reconciliation process. There is always a degree of manual intervention required.
One of the hot topics that appeared in 2016 and is still dominating the headlines in the business and finance press today is Robotic Process Automation (RPA). In summary, RPA refers to the use of computer software that controls and automates rules-based processes without the need for human supervision.
Based on this definition, the suggestion is that a solution that utilizes RPA functionality should be able to automate the complete end-to-end bank reconciliation process without the need for any manual intervention. So is this really a possibility?
Over the years, we at Eclipse have worked with many different organisations, helping them to streamline and improve their business management and associated financial close processes. During this time, we have been unable to identify a single integrated solution that provided the capabilities to fully automate the reconciliation process – until now.
Recently, we have been working with a fast growing international retail organisation to implement the BlackLine Financial Close Management solution. In addition to improving their overall balance sheet reconciliation and controls process, one specific objective was to significantly reduce the amount of time spent completing their daily bank reconciliation processes.
Key information and points to consider when planning how best to automate the bank reconciliation process and eliminate unnecessary manual intervention:
- 400 stores (and growing) across multiple geographic regions in different time zones
- Goods purchased using a combination of cash, check, credit and debit cards
- Stores bank cash up to 3 times a day (directly to bank or via 3rd party collection agency)
- Vendor payments made on a daily basis using various payment methods
- EPOS system feeds GL overnight with summary values by store and payment method
- Bank statements files available for download on daily basis
- Daily bank reconciliations required
- Journals created and posted manually to each entity/account and where required, analyzed to the individual store for items not present in the GL including:
- cash sales variances (mismatches between GL and bank statement)
- miscellaneous bank fees/interest charges
- direct debits/electronic payments
- deposits received
- commissions paid
Using the latest release of BlackLine, we were able to configure the following processes:
- Upload Unreconciled Bank Transactions from GL and Daily Bank Statements into BlackLine
Automating the upload of bank transactions from the GL and bank statements to BlackLine was straightforward, and achieved by using a combination of standard operating system and BlackLine scheduling tools.
- Execute Transaction Matching Process
Using the BlackLine Matching solution, we were able to configure a flexible set of rules which automatically reconciled 90% of transactions that were perfect matches. The remaining 10% comprised a combination of partially matched transactions with variances (E.g. cash sale variances, commissions/charges deducted) and a group of unmatched transactions present in the bank statement, but not in the GL (E.g. bank charges, direct debits, standing orders).
- Generate GL Posting File
Creation of the journal adjustment file for upload to the GL was achieved using BlackLine's Automated Journal Definition (AJD) functionality. The flexible filtering and grouping options available within the AJD enabled specific transactions and groups of transactions to be identified and used as the basis for generating journals for subsequent posting to the relevant entity accounts, and store within the GL.
- Posting of Journal Adjustments to the GL
Once authorised, the Adjustments Journal is automatically moved to an SFTP site and subsequently uploaded to the GL using a combination of standard operating system and BlackLine scheduling tools.
Re-extract and Upload Unreconciled Transactions from GL to BlackLine/Rerun Matching Process
Once all journals generated in the above process are posted to the GL, the unreconciled transactions are re-extracted from the GL and uploaded into BlackLine as per step 1 above, and the Transaction Matching process is re-executed.
The only manual step in this process, to review and authorise the journal generated in step 4, could be removed if required, thereby making the reconciliation process fully automated.
Continuous Improvement: The First Step to Continuous Accounting
Over time, we would expect exceptions that require the creation of additional automatic journal definitions to be identified during the matching process. However, this would be part of the day-to-day system maintenance to ensure continuous process improvement.
Adopting an automated approach to bank reconciliations could be an easy first step to implementing a Continuous Accounting mindset across your organisation.
This blog post first appeared in BlackLine's Magazine on 16/03/2017. For further information on automating reconciliations please get in touch on +44 (0)203 866 8800, or view our webinar recording: