MITIGATING OPERATIONAL RISK THROUGH CENTRALISING RECONCILIATION

Published On : 02/01/2016

By Eric Werab, Director, Product Portfolio Management, Financial Control Solutions, Fiserv

When it comes to increasing operational efficiency, manual processes can be both inefficient and error-prone. Many companies still fail to achieve true financial control by continuing to accept a fragmented, departmental approach to reconciliation, based on multiple systems and frequent manual interventions.

Recent studies show that two-thirds of top-tier financial institutions have now begun to establish scalable reconciliation Centres of Excellence (CoE) and are embracing shared services models. This can lower staffing and operating costs, increase efficiency, improve the ability to demonstrate regulatory compliance and quantify returns on investments to stakeholders. The same dynamic can also be seen in the corporate sector too.

When taking steps to centralise their reconciliation process, it is more important than ever for organisations relying on outdated reconciliation tools to consider the risk that can be minimised. It is essential that they consolidate their existing model into a single, fluid process.

The shared services model: What’s the value?

Recent high profile balance sheet misstatement has again put the spotlight on the need for robust financial controls across institutions. There is no doubting the damage to reputation and the bottom line when controls fail or are not in place.

CFOs need a single view of the balance sheet based on accurate, real-time data. With multiple systems and teams managing different elements of the reconciliation process, this is a task that can be extremely difficult, if not impossible, to achieve. The cost of manually researching and solving exceptions is also a major issue within the corporate sector, as is the risk of non-compliance with key regulatory controls.

As a result, companies implementing enterprise-wide, automated reconciliation solutions based on a shared services delivery model can achieve major reductions in costs and free staff for more value-added work. At the same time, exceptions can be dealt with more quickly and can be approved by the right people at the right time. This also provides major benefits in terms of increased visibility, releasing information previously held in siloed systems and giving CFOs and other senior managers a current, more accurate view of business performance and faster period-end close.

The building blocks of a shared services strategy

The shift to a centralised model means bringing multiple reconciliation teams and resources into a single unified function. This requires significant re-organisation, as well as investment in infrastructure and training.

It is essential that the benefits of an automated system are presented in such a way that they demonstrate the efficiency gains to the business, due to automation and economies of scale, as well as the obvious cost-saving potential and risk reduction of the model.

Choosing the right technology

Often, specific steps in the reconciliation process are handled by individual systems, such as the general ledger system or trading system. To support a centralised approach, organisations should look to implement a solution that can bring all of these elements together and provide a single version of the truth for senior management.

Another important factor when incorporating a holistic reconciliation system is scalability. A CoE model must be able to accommodate vast increases in transaction volumes, ensuring that the technology underpinning shared services is never a barrier to business growth. In turn, it’s important that integrating new acquisitions or business lines into the system to support growth objectives can be completed with ease. By bringing all of these activities into one system, companies can increase efficiency, accuracy and standardisation and streamline regulatory compliance.

With these core foundations established, it is crucial to consider how ongoing reconciliation management will be implemented. Reconciliation specialists from across the business should work together to establish consistent rules, and define them using comprehensive process templates. The same team responsible for standardising the reconciliation process also needs to decide which elements of the reconciliation process should be included in the shared service. Decisions should be based on a detailed assessment of each element of the process and its value for the business.

What’s next?

Before embarking on a shared services strategy, it’s important to look at current reconciliation systems and processes to define exactly what they would like to achieve in the future. When organisations reach an optimised stage of maturity, the shared services model begins to deliver quantifiable value.

While the increased adoption of the CoE model among major organisations highlights clear momentum from the financial services industry to consolidate reconciliation, there is still room for further progress. Ensuring balance sheet misstatements are a thing of the past is about more than simply minimising costs; companies with true reconciliation CoEs have a clear strategic advantage. By building bridges with all departments, and keeping the lines of communication open, it’s possible to identify new opportunities for process improvements, and collectively agree upon changes that add value for customers.

Finance Digest