The 2 Day Close, Phase 3 – Initial Process Review

You are ready to meet with your accounting staff to launch a process improvement project. How will you recognize areas for improvement and how will you over come push back from staff, especially if you are not an accountant? This post will cover those questions as well as developing your project plan and creating process documentation. 

The best accounting departments are based upon processes, technology and people; and they are developed in that order. Processes and technology are inanimate, they are consistent and do not change. People are logical, analytical and adapt to deal with changes in their environment.  Develop your processes first, and at the appropriate time invest in technology to support your processes. Engage your staff in process development and technology enhancements and they will adapt and evolve along the way.  

Your goal is to improve accounting processes; however, these processes belong to your accounting staff.  Thus your accounting staff will push back on a comprehensive process review. The staff members that have been with you the longest will push back the most; at least they will be the most honest about it.  Understand their push back is based upon fears which result from a lack of overall process understanding, proper training and individual insecurities. Engaging your staff to review and develop improved processes will help them to embrace these changes, not fear them.  If there was ever a time to motivate your staff and lead them into a better working model, now is that time.  People want the opportunity to succeed and be recognized for helping your company succeed.  

In preparation for this meeting, your staff updated and documented their current closing schedule. For the purposes of process improvement, their document should also include the following: 

  • A description of how each step is performed
  • The sequence when each step can be performed 
  • An explanation of why each step is performed.  

Once the document is updated for the items above, it will become the basis for your project plan as well the financial process documentation for your auditors.  This document must continue to be updated throughout the project including decisions that are made for each task.  

Defining and documenting each closing step will provide:  

  • Month end closing process documentation for staff. 
  • Training materials for promoted or new staff.
  • Documentation to support auditor requests.
    • Auditors require process documentation to perform their testing.  
    • Auditors need to confirm management’s understanding of the accounting processes being performed.  

Utilize the following criteria to evaluate and improve each step in the closing process.  Review the criteria with your accounting staff so they understand what is expected.  

  • Confirm the value associated with performing this step – remember the copier service center example in an earlier article?  
  • What are the interdependencies of this step with other steps in closing?  
    • Clearly defining interdependencies will uncover communication issues with other departments. i.e. timesheet delays and timely contract information.
  • Can this step be simplified? For example, review each accrual to determine if certain expenses should be set up as prepaid items and amortized each month with an automated recurring entry.
  • How much time does this step take?  
    • Most people underestimate the amount of time each step requires. 
    • Test manual steps to get an accurate assessment of time.
    • This analysis will provide a basis for later investments in new software or data integration.  
  • Can this step be performed earlier in the month?
    • Identify, record and post corrections throughout the month to reduce time at closing.  
    • Make corrections at the source of entry to eliminate repeating errors.  

Now that you understand how to review the steps, where do you begin?  Prior to reviewing the entire close process, ask your staff which steps are the most difficult.  Which steps take the longest, create the biggest problems and cause the most stress.  Select one step and ask your staff to explain the details in the process, the problems and how they can be addressed.  For example – assume labor collection is a difficult process. Most labor collection issues are caused by incorrect charge codes or incorrect labor cost. Addressing these issues require accounting to implement changes in other departments.  In most companies without a CFO, it is difficult for the accounting staff to address process improvements with managers in other departments. You may need to talk with your senior managers to explain their impact and responsibility in the closing process.  

At one government contractor I worked with, almost every employee was on direct deposit for payroll.  They were still using paper timesheets at the time.  One division was continually late submitting their timesheets.  Working with the CEO, the payroll manager turned off direct deposit for the senior manager of that division, and generated a paper check.  When the payroll deposit did not post to the manager’s account, they approached the payroll manager demanding someone be reprimanded for this error.  The payroll manager directed them to the CEOs office to pick up their check. Needless to say, that division’s timesheets were never late again. I am not suggesting you use that drastic of a measure to support your accounting close.  However, as you understand the impact other departments have on closing the month, you will need to get involved to improve the process.

Review the other steps that cause your accounting staff the most problems.  You will identify areas of improvement, confirm some areas cannot be changed and define areas that will need technology investment as transaction volumes increase. Participating in the analysis will encourage staff to analyze their processes. Next, have your staff go back and walk you through the entire closing process. As you review each process, keep in mind, most accountants do not fully utilize software functionality and instead rely on manual spreadsheets. Accountants love spreadsheets and they know how spreadsheets work. All manual tasks, including spreadsheets, are prone to errors. Inquire why processes cannot be automated within your current accounting system. Although the current spreadsheet process may only take 15 minutes, as complexity increases so does your risk for error. Build staff confidence in relying on other technologies by finding the proper training or a consultant that will educate staff on processes as well as the software.  

You have documented the processes and defined areas of improvement; now, prioritize implementing changes these processes based upon their impact and the level of effort required.  Identify and perform the simple changes first, to show success build momentum and build staff confidence. Every step you improve will provide staff more time to address other more challenging tasks.

Company priorities will change, new challenges will arise; however, you need to keep your staff focused on improving the processes you have outlined.  Continue to update your project plan and schedule periodic follow up meetings to review progress and reprioritize tasks.  As your staff develops their confidence in their role, encourage them to continually look for improvements.  

In the next post, Simple Changes, I outline some standard items that will help every organization. 

Managing process improvements in accounting is typically performed the CFO. Jezior Advisors offers a virtual CFO service to help manage projects like these in your organization. Please email me directly with any questions

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