The 2 Day Close, Phase 5 – Continually Monitoring Data

Achieving a 2 day month end closing requires a paradigm shift in traditional accounting processes.  A shift in process and approach not only within the accounting department, but throughout your organization. In this post I outline how to introduce, implement and manage this shift in your organization.  

A traditional accounting department spends a large portion of their time reviewing data prior to entry, reviewing prior to posting and again prior to delivering the financial reports.  By the time financial information is provided to management, the information is already out dated.  The paradigm must shift to delivering financial information throughout the period for end user review and corrective action.  This change will increase data integrity and decrease the risk of error. Managers will be provided project and financial information during the period, and the closing tasks will be spread throughout the month.  Final month end closing will be simpler, providing accounting more time for analysis.  

Charging Error Identification and Correction

Financial systems can deliver information almost immediately, and managers expect financial information sooner.  The converse is also true, financial systems accept project charge codes, employee data and labor corrections immediately as well.  In order to build efficiency in accounting processes, your entire organization needs to understand their role and impact on the closing process.  As your accounting department delivers project financial data sooner, even preliminary data, managers need to immediately review and address errors. Charging errors should be identified, addressed and prioritized by the manager directly with their staff. This will reduce timesheet errors and provide a shorter billing process at month end.

  • For example, assuming semi-monthly timesheet periods:
    • Timesheet errors that are identified after the first labor posting require one correcting timesheet.  
    • Errors corrected after month end require two correcting timesheets; one for each timesheet period.  
  • If an employee’s direct manager identifies the error, the employee is more apt to learn from the error.  Errors identified by the accounting department tend to be repeated in later periods and are not prioritized as those errors identified by a direct manager.  
  • Managers will also identify and correct charge code communication across departments.

Managers may resist this change and may not prioritize this step.  Follow up with them throughout the first full month and point out they are getting more accurate and timely project data. 

Most companies do not realize how much time the accounting department spends on timesheet corrections and the delays they cause to the billing process. Time spent emailing staff to make corrections, sending follow up requests for corrections, tracking those requests and finally reconciling the corrections, all require time and focus.  Establish this new timesheet review and correction process outlined above to redirect your accounting staff.  

Check Point – Soft Close

Your next step is to create predetermined check points through out the month, to deliver reports, enter corrections and prepare for month end.  Perform a soft closing after each timesheet period by utilizing the process server automation we discussed in my last post. Initially your accounting department may cringe at the idea of a soft closing.  They do not have enough time now for closing, how could they possibly perform an additional soft close prior to month end?  The answer is to look at the big picture and utilize all of the tools I discussed in prior posts. Follow each of the steps outlined in prior articles to migrate your staff to a soft close. 

Soft Close Example:

Assuming semi-monthly timesheets periods.

After timesheets are entered, approved and posted execute the soft close process job to:

  • Post accounts payable, including recurring vouchers
  • Post all general journal entries including recurring entries and automatic reversing entries
  • Calculate indirect rates and project revenue 
  • Create financial and project cost reports or views, using target or provisional billing rates

The soft close process job can be run on demand, or set to run over night.  Using the semi-monthly timesheet period example from above, the soft close process job is executed on the 16th.

The following day, managers are notified project and financial reports are available for their review and correction.

  • Project managers review:
    • Project labor hours and costs. 
    • Project ODC charges.  
    • Corrections for both labor and ODCs are made at the source and posted
  • Financial managers review:
    • Labor utilization.
    • Indirect cost reports comparing actual to budget, to identify missing expenses and potential expenses for accrual.
    • Project revenue and fee calculations are compared with prior periods. This will point out project set up errors.
    • Corrections are made at the source and posted.

 All corrections are entered on the second day, and the soft close job is run a second time.

This is the third week of your current month and managers are reviewing current month project and financial data.  Corrections made during the soft close should not repeat at month end, and your accounting department will have more time for analysis.

Soft Closing – Impact on Month End

  • Project managers review project costs twice each month.
  • Project costs reports are available immediately after timesheet period end and at the end of the month.
  • Month end timesheet corrections are limited to errors made in the second half of the month. 
    • Corrections should be made and posted one day after month end.
  • Customers billings can begin immediately 
  • Recurring vouchers, reversing entries and accruals were all posted, reviewed and corrected during the soft close.
    • Month end tasks are spread throughout the month
    • Accounting staff can focus on open items.
  • Bank statements are online, thus cash reconciliation can begin.
  • One area that may cause a delay in closing and customer billings is subcontractor charges. 
    • If that is the case, focus your accounting staff on data analysis while waiting for the subcontractor data.
    • My next post, I will address data integration options for subcontractors and other data.  I will also outline how to develop your cost analysis for integrations.

Organizational Transition Has Begun

Your accounting department is no longer simply a gate keeper of financial data and are now beginning to focus on financial analysis. Organizational transformation is beginning to occur and expectations will now begin to shift as financial data is more timely and processes have improved to eliminate errors. However, we have a few more steps to cover, including data integrations and audit preparation.  As your accounting staff develops a culture to continually strive for process improvements, I will discuss how to keep that culture alive. 

Next post “2 Day Close, Phase 6 – Speed of Technology” utilizing data integration including the development of your internal cost analysis and how to manage an integration project.  

Shifting the paradigm in accounting and finance is one role of a CFO.  Jezior Advisors offers a virtual CFO to help you create this shift in your organization. Please email me directly with any questions

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