Financial leaders in manufacturing need insights that will keep them ahead of growing costs and competition. Sometimes, the hardest part is trying to get an overall perspective.
When leaders can look across their long-term financial data, they can see key issues emerge. Some might not get that perspective from their financial analysis. They might be working with a limited or short-term view.
To get a digital window into long-term financial data, many manufacturers need audit insight.
Audit insight
Auditors begin with an overall view across your financial data, and they can use whole-ledger analytics to help you understand that data. “It can be used to create real value and insights for clients — uncovering things that they would not have known otherwise, thanks to the power of the audit technology and all the information it pulls in,” said Grant Thornton CFO Advisory Principal John Howell.
Analytics techniques can also help auditors test entire data sets and focus on important areas. “Ship-and-bill manufacturers with standard goods and price lists can run whole-ledger analytics on the entire revenue transaction population,” said Grant Thornton Manufacturing Industry Incoming National Leader Kelly Schindler. “That can identify notable outliers, to help focus audit testing, compared to running a statistical sample and subjecting the whole population to testing. The same can apply to manufacturers that provide a standard service to their customers, billed on a time and materials basis.”
Closer focus
Intelligent data can come to life in dashboards that are built on analysis of the company’s entire ledger. Strategic opportunities and efficiencies often emerge, and the dashboards ultimately help management identify data-driven opportunities to monitor and improve their finance and accounting processes.
Dashboards can also validate and quantify previously known pain points, helping companies to compare their own processes to best practice benchmarks.
“For manufacturers that build to-spec and track their percentage of completion within their system, analytics can be written to identify margin variances from the budget or compared to similar projects. Analytics can also identify where percentage-of-completion occurred at a faster rate than similar projects or the expected period of the contract,” Schindler said.
Whole-ledger analytics can help companies discover manual tasks that could be automated, find anomalies that need further investigation and help finance personnel focus on higher-value duties. One significant source of wasted effort in finance departments is the performance of manual journal entries that could be automated. A company might know that many of its journal entries are manual, but not know which ones or who predominantly enters them. With whole-ledger analytics, the company can identify which journal entries are manual, which are automated, and how many manual journal entries each employee is performing.
Finance teams know the value of metrics and want access to additional data about their own activity, especially when the metrics and insights emerge from the financial statement audit that’s already a required or established service. “The key is giving them actionable opportunities,” Howell said. Auditors can evaluate your data against other similar companies and provide you with some metrics as a gauge.
The fixed assets module is common across most major enterprise resource planning systems, so many companies expect it to automatically record depreciation expenses in the general ledger. However, that’s not always true. Analytics can quickly show which entries are not automated, so that you can find the best opportunities for automation.
When companies can decrease their number of manual entries, they provide opportunities to move staff to more valuable tasks and improve job satisfaction. Companies can also reduce the risk of error or fraud and save significant expense, sometimes without a new technology investment. Howell recalled that one accounting team was simply not using their existing system’s ability to auto-reverse accrual entries.
Audit insights from other industries
Targeted benefits
Insights derived from analysis of the entire ledger can have other specific benefits:
- Discover duplicate payments
In a large and complex organization, the risk of duplicate payments to vendors — even if inadvertent — is very real. A whole-ledger analysis can help the organization discover these duplicate payments by finding variations of the vendor number, invoice number, invoice date and invoice amount fields.
While this is not a preventive control, it can lead to cost recovery, and sometimes the duplicate amounts can be substantial. Howell recalled a case where separate, otherwise identical entries were found showing the vendor’s name with and without “LLP” at the end, leading to a $200,000 cost recovery.
- Accelerate the financial close process
Technology that examines the whole ledger can provide a detailed analysis of when entries were booked after a closing period and by whom. This analysis can be compared with the close calendar to see which functions were late booking entries, and which entries were early or on time.
- Spot performance improvement opportunities
Dashboards can help pinpoint immediate opportunities, reveal underlying pain points and identify key trends or areas for optimization in a low-cost, expedited manner. For instance, a large concentration of reclass entries may seem to be an individual burden for the accounting team. But the quick, quantified aggregation of those reclasses and root cause resolution can unlock process efficiencies that otherwise would have been overlooked, simplifying work for people in multiple functions across the organization.
- Build out your pre-ERP business case
An analysis of the full ledger can provide the KPIs and metrics to build your business case for investment in a new or upgraded ERP. The dashboards can establish baseline metrics today and then be compared after a quarter, year or two years to verify that you have achieved the efficiencies you anticipated after implementation.
- Create a scorecard for finance transformation
Governing committees and management can get a transparent view into the finance organization while also being provided key performance metrics to track efficiencies and effectiveness. Given that these dashboards provide historical data trends, companies can track the lifespan of their journeys and the data to benchmark for future goals.
Actionable information
Whole-ledger analytics can yield actionable information. “Dashboards built to display data based on a complete, automated analysis of the ledger provide clients with data-driven insights and opportunities to improve efficiency and effectiveness,” Howell said.
As manufacturers look for a digital window into financial data, make sure to establish trusted information that drives strategic business objectives. Get actionable insights that help you invest in your long-term success.
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This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
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