10 BEST PRACTICES TO IMPROVE

YOUR FISCAL CLOSING PROCESSChris Doxey, CAPP, CCSA, CICA,CPC

President, Doxey, Inc.

chris@chrisdoxey.com

Agenda

• Defining the Fiscal Closing Process Flow

• Determining the Bottlenecks within Your Fiscal Close Process

• Identifying KPIs for the Closing Process

• Developing a Fiscal Close Scorecard

• Defining a Benchmarking Approach

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Defining the Fiscal Closing

Process Flow

Key Components of the Fiscal Closing

Process

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A.

Transaction

Accumulation,

Reconciliation,

and Sub-

Ledger Close

B.

Corporate

Close and

Consolidation

C.

Analysis and

Reporting

Close and Consolidation Final Mile

A. The Record to Report (R2R) process starts with Transaction Accumulation,

Reconciliation, and Sub-ledger Close.

B. The Corporate Close and Consolidation process includes the close of business

units and the completion of the adjusted trial balance, and the first pass of

consolidated financial statements.

C. The “Final Mile” is the Analysis and Reporting Cycle.

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Determining the Bottlenecks

within Your Fiscal Close

Process

1. Are you satisfied with the quality of your

fiscal closing process?

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Polling Question

Common Pain Points

• Close process exceeding 5 day benchmark

• Finance resembles a fire-drill during the monthly close process

• All other finance activity shuts down during month-end close

• Reports are too late, too difficult to understand, overly complex,

suspect or often revised

• Differences between internal and external financial reports;

conflicting internal reports

• Critical reports are usually created in spreadsheets

• Limited capacity or ability to report operational metrics or KPIs

• Disparate and disconnected business and financial systems

• Multiple, nonstandard or overly complex charts of accounts (the

basic ‘bones’ of the accounting system)

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Common Pain Points (Continued)

• Multiple general ledgers and disparate transactional systems with inconsistent

data structures that must be mapped to a consistent reporting format;

• A lack of visibility to the status and execution of the closing process, and the

related tasks and evidence gathering performed by finance, with the

knowledge of these processes in the heads of just a few employees;

• Limited reporting capabilities that have propagated spreadsheet-based reports

that house critical financial results which are the company’s “corporate

records.”

• Spreadsheets are used to support multiple manipulations of the same data

over and over to meet various reporting requirements.

• A lack of focus on the process “basics” such as closing process checklists,

reporting templates, standard operating procedures, and business continuity

plans.

• An absence of staffing and training plans creating a resource gap during each

closing cycle

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What are the bottlenecks?

Financial documents (including spreadsheets) created and stored on

individual computers within and outside of finance which can result in:

➢Too many surprises

➢Lack of timely reporting

➢Period-end cut-off errors

➢Lack of supporting documentation

➢Lack of consistent processes

➢Excessive post close adjustments

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Six Signs the Fiscal Close Process Needs

Additional Focus

1. The close is completed later than four days after the period end.

2. No formal management review of the financials is done after every close.

3. The driving force behind completing the financial reports is an external

reason; bank covenant reporting, tax payments, government reporting, etc.;

rather than a sincere belief it is a key management tool.

4. The current financials are not integral to the company’s forecasting system.

5. The accounting and finance team is focused on past shortcomings, not

getting the most out of the company’s future potential.

6. Executives are not “pushing” to get the financials as soon as possible each

month.

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Fiscal Closing Process Challenges Reported in the

IOFM Fiscal Closing Best Practices Survey

ChallengesResponse

Percent

Systems Limitations 49.6%

Intercompany Issues 41.7%

Non-standard Procedures 30.9%

Number of Spreadsheets 29.5%

Limited Number of FTEs 28.8%

Too Many Allocations 25.9%

Number of Systems 25.2%

Too Many Accruals 23.0%

Unclear Roles and Responsibilities 16.5%

Non-standard Templates 13.7%

Too Many Review Points 10.1%

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Single Fiscal Closing Process Priorities Reported in the

IOFM Fiscal Closing Best Practices Survey

Prio ritiesResponse

Pe rcent

Implement a Closing Schedule and Checklist 37.7%

Invest in Robust IT Solutions 36.8%

Reduce the Usage of Spreadsheets 36.0%

Implement KPIs 34.2%

Develop Benchmarks 26.3%

Implement a Financial Closing Shared Service Center or Center of Excellence 12.3%

Develop a Common Chart of Accounts 10.5%

Consolide the Number of Solutions 7.9%

Reduce the Number of General Ledgers 7.0%

Reduce the Number of Consolidation Points 4.4%

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10 Fiscal Close Best

Practices

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Polling Question

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2. What is the biggest challenge that

you face within your current closing

process?

1) Document the Closing Process

• Document all steps of the closing process and ensure all

those impacted by the close are trained.

• Communicate the importance of the close and the critical

nature of financial reporting.

• Hold review meetings during the close to discuss

potential disclosure items.

• Hold a post close review and continuously improve your

process!

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2) Move Routine Work Out of the Closing Crunch and

Complete Standard Allocations in Advance of the Close

• Move recurring allocations and accruals back from the

close. As a result, this can shorten the number of days

used for posting journal entries during the close.

• Use a standard allocation system with a true up when

something goes out of tolerance.

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3) Create Templates for Recurring

Reports

• Implement standardized closing packages. Use a

standardized management reporting process, which can

result in greater efficiencies in reporting.

• Streamline the use of recurring journal entries through the

use of templates.

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4) Use Accruals and Estimates

to Shorten the Close

• Use a "not invoiced and not received" report, allows the

ability to accrue for all received product.

• Make extensive use of standard entries when applicable.

• Enhance your understanding of the business so that you

can use estimated numbers appropriately during the

month-end process.

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5) Cross – Train Accounting Personnel

• Cross-training and documentation of the close processes

have proven very beneficial, especially when there is an

unexpected absence of a critical associate.

• This approach allows the validation of existing procedures,

checklists, and controls.

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6) Minimize Journal Entries During Closing

and Reduce Investigation Levels

• Automate where possible!

• Make greater use of importing tools to upload information

into the accounting package.

• Upload entries as opposed to manual entries.

• Minimize duplicate data entry.

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7) Move Routine Inter-Company

Accounting Issues Out of the Close

• Reduce the length of the close by moving inter-company

charges of less than $10,000 (example) out of the close

period or an amount established by your company.

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8) Establish Clear Accountability for Closing

Tasks in Closing Schedules

• Implement a closing checklist indicating + or – days from the period

end to complete tasks.

• Establish clear accountability for closing tasks and a closing schedule

and have frequent communication throughout the closing process.

• Checklists Include:

➢Fiscal Close Checklist by Process

➢Executive Level Checklist

➢Disclosure Checklist

➢General Ledger (GL) Journal Entry Checklist

➢ Fiscal Close Consolidation Checklist

➢ Quarter-End Closing Checklist

➢Year-End Closing Checklist

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Example Fiscal Closing Schedule

Example Fiscal Closing Schedule1. Changes to company organization structure are due to corporate financial reporting. Workday Minus 7

2. Vendor invoices and employee expense reports due to the Accounts Payable

department by 5:00 pmWorkday Minus 6

3. Intercompany charge cutoff (Except charges calculated as a percent of revenue) Workday Minus 5

4. Foreign exchange rates loaded into the accounting system Workday Minus 1

5. Preliminary operating expense reports available Workday 1

6. Expense accruals and re-classes due to general ledger by 12:00 PM Workday 2

7. Revenue and commissions entered and closed Workday 3

8. Division controllers sign off on expenses by 12:00 PM Workday 4

9. Final operating expense reports distributed Workday 4

10. Revenue and expense accounts closed by 12:00 PM Workday 4

11. Balance sheet reconciliations due to the general ledger reporting group Workday 10

12. Unaudited financials released (except at each quarter-end, when financials are

available after the earnings press release)Workday 10

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9) Assign Responsibility for Resolving

Discrepancies

• Establish a materiality level for a discrepancy so the closing

process is not delayed.

• Train new staff on how to research and resolve discrepancies.

• Ensure there is timely identification of transactional issues

that may impact the closing process.

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10) Develop Partnerships across Departments to Resolve

Recurring Cross-Functional Issues and Monitor Metrics

• Following each close, implement “Obstacles to Close”

report which is distributed across the organization.

• Establish partnerships across departments, to enable

earlier deadlines for information coming from other

departments.

• Build partnerships across departments help to solve

issues and alert the controller to problems.

• Monitor closing process metrics!

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Identifying KPIs for the Closing

Process

3. Are you currently tracking any metrics for

your closing process?

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Polling Question

10 Fiscal Closing Metrics to Watch

1. Gross number of adjusting entries: Transaction errors must be corrected, and their

correction delays the closing process. Thus, investigating the gross number of adjusting

entries can be used to track down issues that are delaying the close.

2. Review errors: Note the types of errors found during the initial review of the financial

statements. This information can be used to track down and correct underlying problems

that can be prevented during future closing processes.

3. Completion times: Further refine the duration of the closing process to focus on each

category of activities that must be completed, to understand not only how long they take,

but also how they are impacted by other steps in the closing process.

4. Time to consolidate all general ledgers

5. Time to close the processing of period-end cash

6. Time to finish processing accounts payable

7. Time to issue billings to customers

8. Time to close payroll and record accrued wages

9. Time to count and value ending inventory

10. Time to issue related management reports

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Developing a Fiscal

Close Scorecard

Me tricRe sp o nse

Pe rce nt

DSO – Average Collection Period for Accounts Receivable 70.0%

Number of Days to Close 53.6%

Annual Company Revenue 52.7%

DPO – Average Payment Period for Accounts Payable 44.5%

Total Managed Annual Cash Flows 25.5%

Achievement of Working Capital Goals 23.6%

Number of Finance and Accounting FTEs 21.8%

Number of Days to Collect Financial Data Needed for the Closing

Process20.9%

Total Annual Banking Fees 20.0%

Achievement of Financial Compliance Goals 17.3%

Average Consolidated Cash Positions 17.3%

Accuracy of Global Forecasting 15.5%

Internal Control Weaknesses 13.6%

Average Return on Short-Term Investments 8.2%

Avg. No. of Error Transactions Per Mo. By: General Ledger 7.3%

Number of Days to Report Global Cash Position 7.3%

Average Cost of Short-Term Borrowed Capital 6.4%

Avg. No. of Error Transactions Per Mo. By: Accounts Receivable 5.5%

Avg. No. of Error Transactions Per Mo. By: Payroll 4.5%

Avg. No. of Error Transactions Per Mo. By: Accounts Payable 3.6%

Avg. No. of Error Transactions Per Mo. By: Treasury 3.6%

Total Treasury Cost Divided by Revenue 3.6%

Avg. No. of Error Transactions Per Mo. By: T&E 2.7%

Fiscal Closing Process Metrics Reported in the IOFM

Fiscal Closing Best Practices Survey

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Specific Fiscal Close Process Metrics

1. General Ledger Closing Time

2. Number of Reclass/Correcting Entries

3. % Improvement in Reclass/Correcting Entries from Prior Period

4. Number of Automatic Journal Entries vs. Manual

5. % Improvement in Automated Journal Entries from Prior Period

6. Number of Account Manual Reconciliations

7. % Improvement in Manual Reconciliations from Prior Period

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Another Example – KPIs by Business

Processes

Accounting:

• Time to close the books

• Time to issue management reports

• Prior period adjustments

• One-off items

• How DSO and DPO are trending against

each other

• Personnel costs of AR and AP as % of net

revenue (since these teams are part of the

sales cycle)

Receivables:

• DSO

• % balance over 90 days (by AR person and

sales region)

• # of invoices + credit memos processed

• # of revised invoices processed by reason

• % of invoices produced and sent on time (by

person)

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Payables:

• % of balance over 90 days

• % of unbilled payables

• % of unapplied payables

• # of manual adjustments applied

• # of tickets received and closed (vendor

inquiries)

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Defining a

Benchmarking

Approach

A. Transaction Processing, Reconciliation,

and Sub-Ledger Close

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Gross number of adjusting entries: Transaction errors must be corrected, and their correction

delays the closing process. Thus, investigating the gross number of adjusting entries can be used to

track down issues that are delaying the close.

Reconciliation errors/variances: Types and frequencies of errors found during the reconciliation

process.

Completion times: Further refine the duration of the closing process to focus on each category of

activities that must be completed, to understand not only how long they take, but also how they are

impacted by other steps in the closing process.

Some of these measurements by process type are:

• Time to close the processing of period-end cash

• Time to finish processing accounts payable

• Time to issue billings to customers

• Time to close payroll and record accrued wages

• Time to count and value ending inventory

A. Transaction Processing, Reconciliation, and

Sub-Ledger Close (Continued)

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Volume of entries processed

• Number of journal entries processed per close end

• Number of journal entries per FTE

• Number of miscellaneous journal entries processed per close end

Cost per Miscellaneous Journal Entry

• Average cost incurred per miscellaneous journal entry input

Incorrect Information

• Yes/No metric indicating whether the company internally tracks wrong information

Submission of Incorrect Information

• Actual number of incorrect information from departments in a given period of time

Submission of Untimely Information

• Actual number of untimely information submitted in a given period of time

Number of Discrepancies

• Number of discrepancies between the accounting system and the general ledger at month-end

for book value, interest/dividend income, amortization of premium or accrual of discount, gain or

loss

B. Corporate Close and Consolidation

Volume of Submissions

• Number of areas/departments that gather, submit and route information that is used in the

fiscal closing process (includes submission of information and gathering of financial data -

not including finance department).

a) Cost Accounting

b) Tax

c) Investment Accounting

d) Investment Reporting

e) Actuarial

f) Other (Specify)

Frequency to Close the Books

a) Monthly close

b) Quarterly close

c) Other (Specify)

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B. Corporate Close and Consolidation

(Continued)

Cycle Time

• Average number of business days from the Business Unit modules to close to the G/L to

actually produce the final reviewed financial statement.

a) 0-10

b) 11-20

c) 21-30

d) 31 or more

Closing Ratio

• Average time spent closing the books vs. average time spent on analysis.

Closing Headcount

• Number of FTEs needed to close the books within the close- end period.

a) 1-3

b) 4-7

c) 8-10

d) 11 or more

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C. The “Final Mile” – Analysis and Reporting

Fiscal Close Teams

• Number of employees who are involved in reporting and analysis during the fiscal close.

Peak Season Scheduling

• Yes/No metric indicating whether the organization provides peak hours scheduling to

balance workload during fiscal close.

Outsourcing/Insourcing

• Yes/No metric indicating whether the areas participating in the closing process outsource

work to third-party resource (including finance department).

Temporary Hires

• Percentage of current workforce within the areas involved in the closing process who are

considered “temps”.

Manual Updates

• Average number of times information is updated during the closing process.

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C. The “Final Mile” – Analysis and

Reporting (Continued)

Late Findings

• Percentage of errors found late in the closing process.

Electronic Submission

• Yes/No metric indicating whether the submission of information is electronic- no

spreadsheets.

Submission Ratio

• Ratio of information submitted electronically to manual submission of information.

Real Time Data

• Number of business days required to process reports at the end of each fiscal close period.

a) 1-5

b) 6-10

c) 11-20

d) 21 or more

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C. The “Final Mile” – Analysis and Reporting

(Continued)

Closing Types

• Closing types used by:

a) Company Code

b) Ledger Amount

c) Account Code

d) Accruals

e) General Accepted Accounting Principles (GAAP)

f) Statistics

g) Other

Effectiveness

• Status of results submitted:

a) Complete

b) Accurate

c) On schedule

d) Within turnaround target

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C. The “Final Mile” – Analysis and Reporting

(Continued)

Types of Reports (Examples)

• Types reports used at company:

a) Treasury department budgets

b) Treasury financial plan

c) Financial contingent liabilities report

d) Analysis of revenues

e) Treasury yearly activity report

f) Debt and investment report

g) Other (Specify)

Number of Late Report Submissions

• Number of late report submissions:

a) Quarterly financial package

b) Premium & loss exhibit

c) Interoffice trial balance

d) Other (Specify)

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C. The “Final Mile” – Analysis and Reporting

(Continued)

Error Corrections

• Number of error corrections per report:

a) Quarterly financial package

b) Profit & loss exhibit

c) Interoffice trial balance

d) Other (Specify)

Benchmarks

• Yes/No metric indicating whether company internally benchmarks report content

and reports results on a regular basis.

Reporting

• Average number of ad hoc reports generated within the close-end period.

Late Reports

• Number of late report submissions

a) Quarterly financial package

b) Profit & loss exhibit

c) Interoffice trial balance

d) Other (Specify)

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C. The “Final Mile” – Analysis and Reporting

(Continued)

Number of Error Corrections

• Average number of error corrections completed daily.

Benchmarks

• Yes/No metric indicating whether company internally or externally benchmarks the

report content and report results on a regular basis.

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Your Roadmap to

Implementation

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Your Roadmap to Implementation: Four Simple

Steps!

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1. Include the People that Impact the Close

2.Create Consistent

Closing Schedules

3. Measure and

Simplify the Closing Process

4. Automate!

Questions!

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