Now is the time to take charge of "The Last Mile of Finance"

Now is the time to takecharge of “The Last Mileof Finance”Abstract: these requirements, CFOs should consider “The Last Mile“The Last Mile of Finance” is a term popularized by Gartner of Finance” as a target for cost control, process optimiza-and others to describe the finance processes and activi- tion, and risk reduction that can enable finance to betterties that occur between the financial close and financial support the strategic goals of the organization.reporting and disclosure. Increasing regulatory reportingand compliance requirements, along with recent advances What is “The Last Mile of Finance”?in applications targeted at automating and enhancing The Last Mile of Finance is a term that describes thethese processes make now the most effective time for finance processes and activities that are undertakenfinance to focus on taking charge of The Last Mile of between financial consolidation and the filing of externalFinance. financial statements and other compliance reporting. While much attention has been focused on improving theIntroduction planning, consolidation and statutory reporting processes,Today’s CFO is under a myriad of pressures to control the post-consolidation processes that comprise The Lastcosts, meet expanding reporting and compliance require- Mile of Finance (see Table 1) have remained quite manualments, and support corporate growth initiatives (capital in most organizations.investment, foreign expansion, M&A etc.). To meet all of Process Definition Account Reconciliation Despite increased regulatory requirements, the process for reconciling accounts is still most often performed in spreadsheets. Reconciliation processes still involve manual effort that results in an inconsistent, cumbersome and resource-intensive reconciliation process that lacks sufficient controls, tracking and transparency. Internal Management Financial and management reporting are often separate processes. They originate from the and Financial same data sources but during the reporting process diverge to the point that financial and Reporting management reports must be reconciled at the end of the cycle. This results in discrepancies that require manual intervention and documentation, causing longer reporting cycles that delay access by decision-makers. Financial Controls and The Last Mile process involves many activities performed by many resources in many tools Workflow and systems. Financial controls and workflow cross these interrelationships to ensure that document compliance is traceable by finance and external auditors. Finance should be able to monitor and update financial controls as compliance requirements change. “Stale” controls can be worse than no controls at all. Disclosure The development of compliant disclosure documents including 10-Ks, 10-Qs and Annual Management and reports, as well as XBRL and IFRS submissions, are often manual processes that combine Regulatory Reporting data from multiple sources into a document that includes text, data, commentary, graphics and footnotes. Finance often manages many documents and versions and uses email to track down details, facilitate reviews, and garner necessary approvals. Automation of the participation, accountability, workflow, review and approvals in the preparation and submission of these documents is an opportunity to decrease development time and reduce risk from manual errors, improper review or rushing to meet looming deadlines.Table 1: Last Mile of Finance processes

Applications that help automate and optimize The Last According to Deloitte’s CFO SignalsTM "What North Mile have been around for many years. Many started as America’s top finance executives are thinking — and niche solutions for Sarbanes-Oxley (SOX) requirements and doing", CFOs are now routinely in charge (at least on a a recent wave has surfaced around disclosure manage- dotted-line basis and frequently on a direct-report basis) ment and XBRL (eXtensible Business Reporting Language). of a broad range of regulatory, governance, and strategy The Last Mile presents finance with opportunities to reduce functions, especially investor/public relations, strategic costs, improve efficiency and reduce risk by automating planning, corporate development, and mergers and acqui- manual processes and creating a more transparent, collab- sitions (M&A).² They are also frequently taking stronger orative and auditable process from financial close to final leadership roles in risk, transactions, and IT (see Figure 1). reporting and disclosure. Non-core ﬁnance responsibilities Why now is the time to address The Last Mile Nature of CFO’s non-core responsibilities of Finance Investor/Public relations Finance has been performing the processes in The Last Risk/Compliance Mile of Finance for decades, albeit mostly manually. So Internal audit why should finance exert the effort to automate and Strategic planning Corporate development/M&A enrich The Last Mile now? Many factors converging on IT/Systems (general/corporate) finance are driving this need. Real estate Procurment The expanding role of the CFO Legal The power and influence of the CFO has expanded in Line of business Human resources recent years. But with that power comes responsibility. The Marketing/Sales/Pricing IBM Global CFO Study of more than 1,900 CFOs states Customer service/support that while “the importance of core Finance responsibilities 0 25 50 75 100 has not diminished in any way, CFOs’ focus on company- Direct report wide concerns has increased sharply.” According to the Dotted line survey, 70% of CFOs are advising or playing a critical Non-reporting decision-making role in areas such as enterprise risk mitiga- tion, business model innovation and the selection of the Figure 1: CFO non-finance responsibilities key metrics linking performance to strategy execution.¹ are expanding CFO SignalsTM, What North America’s top finance executives are thinking — and doing, Deloitte 2011 Today’s CFOs should find ways to continue to automate“While CFOs and finance and optimize finance processes so that they have more time and resources to meet the expanding role of the organizations have clearly not Office of the CFO. The Last Mile of Finance is one area where the CFO can meet fiduciary responsibilities and fulfill ceded responsibility for their several of the expanding responsibilities highlighted in Figure 1. traditional functions, they do Current, pending, and unknown regulatory appear to be taking on broader requirements CFOs should also consider improving The Last Mile of and deeper roles in the wake of Finance now because of increasing regulatory requirements. As of June 2011, virtually all U.S. public companies considerable capital-market and must file reports in XBRL format and the requirements for detailed tagging expand exponentially after the second economic turmoil.” year of filing. Some companies have found that keeping the process in-house has saved time and reduced cost,—CFO Signals, What North America’s top finance executives are thinking — and doing, Deloitte Q1 2011 while others have found that an in-house process also provides greater auditability and accountability. XBRL and IFRS (International Financial Reporting Standards) get much of the publicity, but CFOs have many other filing requirements to consider.³ 2

What CFOs can count on is that new reporting standards it created the first increase in finance cost as a percent such as Dodd-Frank, Basel III and others will come to of revenue in 14 years. The current wave of regulation fruition, forcing enterprises to file more documents in more could bump up this ratio again. But most CEOs will insist formats than they do today. At the same time that govern- that finance cost as a percent of revenue remain flat or ment regulation is increasing, so too is industry regulation. decrease and CFOs will be under continued pressure to According to Deloitte, CFOs report industry regulation/ keep costs in line. CFOs should find efficiencies in their legislation as the top industry challenge in 2011 (see Figure finance organization to prevent the increased burden 2). from escalating the cost of finance. Outsourcing regulatory filings to third parties is one way to avoid adding staffIndustry challenges but many organizations are finding this path to be costlyPercent of respondents who placed each option in their top three as requirements expand (such as detail tagging in XBRL filings). Industry regulation/legislation Pricing trends CFOs should look at their post-consolidation processes New competitive tactics for opportunities to improve efficiency. And they should consider consistent processes and automation as a way to Avaliability of people/skill sets control finance costs while satisfying increasing burdens. InMarket growth (increasing number of products/services/customers) many organizations there are opportunities for efficiency Foreign competition in account reconciliation, journal entry processing, inter- Changing cost structures company transaction matching, and disclosure reporting. Mergers and acquisitions For example, some companies have used their disclosure New market entrants (domestic) management solutions to automate previously very manual monthly “blue book” reporting processes. Input prices Over capacity/excess inventory M&A, expansion, and growth Market contraction (declining demand/customer base)* *”Market contraction (declining Many CEOs spent the economic downturn “circling the demand/customer base)” is an Product substitutes option that was not offered in wagons” by focusing on cost control and core markets. past surveys Other But now CEOs are focused on growth.4 0% 10% 20% 30% 40% 50% 60% One result of the focus on growth is an uptick in M&A 2Q10 3Q10 4Q10 1Q11 activity. According to mergermarket, Q1 2011 was the busiest for M&A since Q1 2007.5 M&A and expansion Figure 2: Industry regulation is the top concern into new markets puts additional pressure on finance for CFOs in general but specifically in terms of The Last Mile of (CFO SignalsTM, What North America’s top finance executives are Finance. Distributed finance organizations with different thinking — and doing, Deloitte 2011) practices, procedures, and technologies leads to inefficient, time consuming and redundant processes especially for Regardless of the expanded filing requirements CFOs reconciliation, intercompany balancing, financial reporting, face from governments and industry regulators, finance and disclosure. Financial controls, accountability and trace- will not have the luxury to “ramp up” the organization ability are harder to manage in these environments and with additional resources to meet the expanding require- the risk of error increases. CFOs whose organizations are in ments. A focus now on automating The Last Mile of acquisition or expansion mode should build documented Finance will help CFOs do more with less and help finance processes for The Last Mile of Finance and automated organizations meet expanding compliance requirements procedures that can quickly be incorporated into acquired and narrow filing windows without significant staffing or companies or distributed finance organizations in new outsourcing cost increases. geographies. Increasing burden on finance Risk and liability of manual processes continues Increasing compliance reporting requirements and a to increase greater demand for auditability and detailed traceability Cost is not the only factor that should be driving the is creating a greater burden on finance staff but CFOs improvement of The Last Mile of Finance. Manual are under pressure to keep finance costs down. History processes lead to insufficient financial controls, inadequate shows that when Sarbanes-Oxley requirements took hold, reviews and approvals, and a lack of traceability and 3

auditability. All of these increase the risk of incomplete delays caused by accounting errors have been found to or inaccurate financial reporting and disclosure. As filing result in an average stock decline of almost 9% and that requirements mature, modified liability provisions for inac- earnings were down 5% each of the following two years curate submissions expire (e.g., for XBRL, 24 months after for these late filers.6 first submission) at which point filers will be subject to the anti-fraud provisions of federal securities laws. CFOs should Cost, accuracy, risk, and compliance are the factors that be sure that their Last Mile processes are buttoned up are driving CFOs and their finance organizations to improve before the temporary grace period ends. their Last Mile of Finance process now versus later. This is not intended to be an all-inclusive list and factors will vary A manual Last Mile process also exposes the enterprise by each enterprise and industry. But regardless of company to the risk of inaccurate or delayed 10-K or 10-Q filings, or industry, it is apparent that The Last Mile of Finance which can have a dramatic impact on valuation. Filing should be a focal point for any CFO.Why IBM and Deloitte for the Last MileWith all the processes and participants involved in The Last Mile of That “big picture” approach is a key reason why finance organizationsFinance, it’s essential to approach any technology initiative with a deep should look to IBM and Deloitte when it’s time to improve The Last Mileunderstanding of just how the processes, people and technologies of Finance.intersect and how any changes will affect the critical tasks involved. ScottRosenfelder, a Director in Deloitte’s Finance Transformation practice, The combination of innovative IBM technology with Deloitte’s deepobserves that finance organizations often focus on the reports them- domain knowledge, technical skills and experience in building relation-selves but not on the processes behind them. ships with CFOs and senior finance executives allows finance organizations to approach a technology initiative with confidence—and extend“People are in such a hurry to implement new technology that they fail its benefits beyond the immediate ”pain point.”to take a critical look at how they do things and why,” says Rosenfelder.“The result is that they can end up using a lot of great technology to Deloitte professionals consider everything from security issues andmanage a broken business process. By not considering the big picture, access rights, to creating an audit trail, tracking status and workflow,these finance organizations can actually limit the value they realize from and assuring better data quality. “And that’s where reporting tools suchtheir technology investments. That’s why Deloitte consistently begins by as IBM Cognos Financial Statement Reporting (FSR) comes in,” addslooking at the existing business process first.” Rosenfelder. “Solutions such as Cognos FSR can help the organization to point everyone involved with creating regulatory filings to the same information source and provide users with confidence that they are“By not considering the big dealing with the latest data. It also helps to make the process more easily repeatable from one reporting period to the next.”picture, these finance Yet Deloitte offers much more than just implementation of technology.organizations may actually limit “We ask, ‘What are the fundamental business needs?’ We look past the pressing 10-Q deadline to see how the information will flow intothe value they realize from their management reports. We advise across the various aspects of The Last Mile—consolidation, reporting, audit and more. Deloitte helps thetechnology investments.” finance team gain a broader understanding of a solution’s capabilities and how they could be applied deeper and wider across the organiza-—Scott Rosenfelder, Director, Deloitte & Touche LLP tion. We pride ourselves on our long-term thinking and helping our clients achieve the full value from the technology they invest in.” 4

Faster reports, better controls with IBM Cognos Financial and analysis, variance explanations, organizational charts and graphsStatement Reporting (FSR) into highly formatted reports. Users can then publish reports in multipleIBM Cognos Financial Statement Reporting (FSR) helps reduce the output formats, including Microsoft Word, Microsoft PowerPoint, Adobemanual, error-prone processes in each step of the Last Mile of financial PDF and InDesign.reporting by providing a single, secure platform for the production offinancial reports, narrative disclosures and XBRL tagged reports. For statutory filings, the integrated XBRL tagging capabilities of Cognos FSR can confirm proper controls and provide an audit trail over theCognos FSR provides tools that facilitate collaboration and enhance external reporting process, including XBRL mapping and tagging. Cognosgovernance over the reporting process with features such as: workflow, FSR supports many published global GAAP and IFRS taxonomies and cantask management, embedded compliance checklists, broad audit trail output reports in both XBRL and iXBRL formats. In addition to inte-reporting, business rules and automated validation. Cognos FSR can also grated XBRL tagging capabilities, for companies that report to the U. S.integrate source data with report data–creating dynamic reports that Securities and Exchange Commission (SEC), Cognos FSR provides instantrefresh in near real time when changes occur in source data systems. EDGAR conversion capability – ensuring a single source of report dataWhen it comes time to publish different reports for various consumers, across your EDGAR filings and XBRL submissions.Cognos FSR automatically combines financial data, narrative discussion How to gain more control of The Last Mile can be minimized by focusing on one specific Last Mile Improving The Last Mile of Finance is something that process successfully and then addressing others, rather all finance organizations should be doing right now. than attempting to revamp all Last Mile processes at once. CFOs should expect upfront cost and effort on the part Finance organizations should take the following steps to of the finance organization but that is outweighed by get started. the potential risks of delay. The effort and time-to-value Process Definition Evaluate current Last Evaluate all Last Mile processes. Identify process flow, participants, approvals, manual steps, Mile processes redundancies, interdependencies, data sources and tools. Identify costs and risk Estimate the cost to conclude current processes including technology, finance staff, non- finance staff and third parties. Establish risk points and risk impact of manual tasks, lack of controls, auditability, accuracy etc. Document compliance Identify what compliance and disclosure requirements are in place today, how they are requirements being met, and what expanded or new requirements are projected over the next several years. Prioritize Based on the evaluation of existing processes, cost, risk, and compliance requirements, determine which Last Mile process is the highest priority. Include the need for process change and cultural impact in the prioritization. Redesign process Based on the process evaluation, identify the necessary changes to process flow, financial controls, participation, accountability, and approval/sign-off. Do this before beginning software selection to prevent tailoring the process to the software rather than vice versa. Set goals and measures Establish specific goals and measures for process improvement. Examples would be: reduce close cycle by x days; reduce reconciliation cost by x%; produce disclosure documents x days after the close; maintain cost of finance as a % of revenue at x%. Select and implement Evaluate solutions for the chosen Last Mile process. Include solutions from preferred technology vendors as well as niche vendors. Consider product roadmaps and future plans to expand Last Mile product offerings as part of the evaluation. Implement and adapt Work with vendor and service provider to implement solution based on redesign process above. Compliance and disclosure requirements will evolve, so plan to review the process, reporting, and financial controls periodically to ensure these are adapted to changing requirements. Table 2: Action steps Finance can take 5

Summary Endnotes:The Last Mile of Finance is an area that is ripe for improve- ¹ IBM Institute for Business Value, The New Valuement, cost control, and risk reduction. Regulatory and Integrator: Insights from the Global Chief Financial Officercompliance requirements are expanding and more detailed Study, March 2010documentation, accountability and traceability is needed. ² CFO Signals, What North America’s top finance execu-Automation of The Last Mile can enable finance to meet tives are thinking — and doing, Deloitte Development LLC,expanding requirements and help reduce risk without 2011significant incremental costs. All finance organizations ³ Sarah Johnson, A Heightened Demand for Disclosures,should investigate the potential to improve their Last Mile CFO.com, August 18, 2010of Finance processes before issues arise, not after. 4 Joe Light, Most CEOs Prize Growth, But Other Priorities Vary, Wall St. Journal April 18, 2011 5 mergermarket, League Tables of Legal Advisers to Global M&A, Q1 2011For further information, please contact: 6 Tiago Duarte-Silva, Huijing Fu, Christopher F. Noe, & K. Ramesh, Information Content of Earnings DelayScott Rosenfelder Announcements, draft October 2010Director, Enterprise Risk Servicessrosenfelder@deloitte.com+1 312 486 2763Gayle KalvertBusiness Development Managergkalvert@deloitte.com+1 516 918 7004About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure ofDeloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure ofDeloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.Copyright © 2012 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited© Copyright IBM Corporation 2011IBM CorporationRoute 100Somers, NY 10589Produced in the United States of AmericaOctober 2011All Rights ReservedIBM, the IBM logo, ibm.com and Cognos are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Otherproduct and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at "Copyrightand trademark information" at www.ibm.com/legal/copytrade.shtml.Microsoft and PowerPoint are trademarks of Microsoft Corporation in the United States, other countries, or both. 6

Now is the time to take charge of "The Last Mile of Finance"

by Deloitte Analytics on Jul 01, 2012

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Now is the time to take charge of "The Last Mile of Finance" Document Transcript