The 2 Day Close, Phase 6 – Data Integration

The true power of the cloud is delivering enterprise software as a service (SaaS) in manageable and affordable components to companies of all sizes.  Companies have the opportunity to select specialized software tools from multiple vendors to create a solution that best fits their needs. As the business grows and changes, software services can be exchanged to better suit new requirements. The transformation in your accounting department is building momentum, and your staff is now positioned to manage data integrations to effectively utilize the cloud.

Customer retention is key to succeeding as a cloud vendor. Vendors are offering additional services, including standardized integrations in an effort to retain their customers. Integrating data between business systems can deliver significant process improvement and increased efficiencies across your entire company. In this article I will review the advantages and risks of data integration, outline a few beneficial integration examples and provide an overview of how to develop a cost benefit analysis.

Integrating data across disparate systems entails data elements originating in one system and automatically loading into one or more other systems. Data integration tools reduce errors, eliminate manual entry and create a secured chain of custody. Data integration processes are completed by accounting using a secured role-based user interface to assure the date has not been altered. 

Advantages of Data Integration

Data integration can provide an abundance of advantages across your entire organization.  By reducing the process complexity and processing time, errors are eliminated and information is readily available for review. Data is input once, reducing manual entry and data entry errors. Standard integrations do not allow data manipulation; increasing data authenticity and reducing audit risk.  Consider the positive impact payroll integration could have on your entire organization. Accounting will spend less time processing payroll and your staff will not spend time addressing payroll errors. Once this integration is in place you could offer additional employee benefits i.e. medical spending plans.  

Risks of Data Integration

As with any process change, introducing data integration can create risk that must be addressed.  Software upgrades must be managed to reduce software compatibility issues.  Although many SaaS vendors manage upgrades and coordinate with other providers; upgrades should still be properly controlled.  The largest risk to data integration is selecting an incomplete integration that requires additional custom programming. Customized integrations are costly to define, build and maintain. 

Standard Integration Examples

As a professional service based government contractor, a large portion of your monthly accounting transactions are related to HR updates, timesheets, payroll and labor distribution. Below I have outlined three related data integration examples.

The most important integration for a government contractor is properly integrating employee timesheets to the general ledger for project labor distribution.  When appropriately configured, most ERP systems specifically designed for government contractors provide the required functionality, including uncompensated overtime.  

If your current ERP system does not provide compliant web based timesheets, ask the vendor to refer a partner service. Be sure to check references to validate the system will support your requirements.  

  • Confirm they offer a standard integration
  • Understand how software upgrades are managed to avoid compatibility issues
  • Select a system that offers a simple process, managed by accounting.  

The second data integration to consider is timesheets to a third party payroll provider. Timely and accurate employee payroll is crucial to employee morale. Also, payroll processing errors are costly, and require multiple steps to be properly corrected.

A standard payroll integration will include summarizing timesheet hours to be sent to the payroll provider.  As well as accurate payroll calculation including gross to net payroll, tax withholding and managing pre-tax and post-tax deductions. Other payroll services include timely deposit of payroll tax withholdings and periodic payroll tax fillings.

The third example integration is loading employee HR updates for proper labor distribution and payroll processing. For many companies, employee HR data changes almost daily, including pay rates, payroll deductions and direct deposit elections. These updates impact correct labor charges, payroll calculations and payroll tax reporting. Most ERP vendors as well as third party payroll providers offer standard HR data integrations. Ask for references within your industry and region. Verify the success of each company’s transition and confirm any additional costs incurred.

Data Integration Cost Analysis

Developing a cost analysis of data integration includes three components:

  • Accounting labor costs directly associated with the manual task, error corrections and staff refocusing after the resolving the error.
    • Other included services may eliminate additional accounting tasks – I.e. periodic tax deposits and fillings referred to in payroll example.
  • Other staff time spent addressing the error with accounting and confirming the error was properly corrected.  
  • Auditor costs and accounting time to support audit inquiry of payroll errors.     

As discussed in previous articles, your staff documented the payroll process including processing times.  Using that information, adjust the example below to reflect your company. 

Assume a 25 person company with a semi-monthly payroll. Manually payroll processing steps take 30 minutes longer each month than an automated integration. Staff spends 30 minutes on average each month correcting errors, and 15 minutes to refocus on their prior tasks. Burdened labor costs in accounting is $30 per hour.

  • Addition annual costs of the manual process $360
  • Annual costs of corrections $360 
  • Annual costs to develop audit supporting $90
  • Annual costs to refocus staff after corrections $180 

In this example the annual accounting department cost of the manual payroll process is almost one thousand dollars a year.  This example does does not include additional costs incurred by your auditor to review corrections.  Nor does this example include the costs of the project employee to identify the issue, communicate it properly and confirm the accuracy of the correction.  Consider the intangible impact processing errors are having on your company. Employees are spending time addressing errors instead of focusing on your customer. Accounting is spending time correcting payroll instead of expediting customer labor billings. A properly designed data integration will deliver significant process improvements and position your organization for growth.  

Summary 

SaaS providers are offering standard data integrations as a way to distinguish their services and retain customers.  The benefits of automated data integration are significant, none larger than shifting the role of accounting to a strategic partner.  

Need to improve processes and embrace technology but cannot afford a full-time CFO? Jezior Advisors offers a virtual CFO to help develop financial leadership in your organization. Please email me directly with any questions  joejezior@jezadvisors.com

Next post “Audit Preparation – Continually Preparing” outlines a plan to create audit support materials through out the year, instead of waiting until year end.  

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