Compliance, transformed: How finance can accelerate the close

Adam: Hello and welcome to PwC Canada's newest podcast, Finance in 15. A series that explores finance transformation and what it means for leaders in the finance function. My name is Adam Boutros and I'm your host. Today, we're going to tackle an area that's an ongoing challenge for many finance functions: accelerating the close. We'll explore the compliance processes that can slow down the close process and opportunities to improve it and deliver more value to the business. I'm joined by Jill Satre, Risk and Compliance Partner and Marino Fremis, Finance Transformation Partner at Canada. To kick things off, can you tell us a little bit about what you do? Let's start with Jill.

Jill: My background is in all things risk, governance and controls. I work with a team of risk professionals that focus on adding value for our clients by identifying opportunities for improvement within their business processes, controls, risk management and internal audit groups. And I think with the continued focus on business transformation and being able to drive greater insights from data and the overall pressures on cost efficiencies, we've been spending a lot more time supporting our clients on how they can really transform their compliance functions.

Marino: Hello, Marino here. I'm our GTA finance transformation leader. But as you can imagine, I also support clients all across the province and nationally as needed. The Finance Transformation Practice is one of the driving forces behind the future finance, helping our clients optimize their processes and upscale their people and structures to make them a more performance driven and performance enabling finance function. I personally had the pleasure to work with finance leaders and partners to fix problems large and small, from very focused single process transformations to more complex structural and technology changes that impact all of finance or the entire business. And if you could ever attach the words exciting and innovative to finance, this is where you do it.

Adam: OK, so it sounds like we have the right team here today to get into a pretty interesting discussion. Marino, let's start with you. What does accelerating the close mean to you and why is it such an important opportunity for finance teams?

Marino: Well, on the surface, it is what it sounds like. You're effectively improving the finance process. However, when I look at it more deeply, I really see two things. One is an opportunity to improve something that is very important to finance and the business, but not value add from a customer perspective. So think process efficiency and driving that and the other is an opportunity for people to make the close process more data rich and focused on enabling performance. When you're able to close faster, you have faster insight and you have more finance time to manage and influence performance. You also have better insight because the underlying data structures used in manage reporting are improved by accelerating the close. But now we have benchmark data to support this. According to PwC's Finance Effectiveness Benchmarking report, leading organizations take less than three days to close. They also have fewer errors for first time processing the journal entries. And finally, they also spend on average three times more effort on reporting and analytics, which drives improved business performance.

Adam: OK, so Jill, of course, compliance is a very important part of the close process and it can oftentimes be a barrier to accelerating the close. So what's your take on that?

Jill: Well, one of the interesting things is outside of some of the core folks that are involved heavily in the finance process, the controller, CFO, CEO, those that actually have the direct accountability for the processes and controls, a lot of people don't actually have a good understanding of the purpose or the importance of the compliance process. And I think addressing this is an opportunity for companies to take more of a risk based approach that focuses on outcomes versus outputs. To what Marino was talking about. You really want to be able to link compliance to performance in order to build more awareness around the purpose and the importance of compliance. And that really is across all three lines of defense. I'd say a big advantage of accelerating the close for controllers, is they can solve not only the speed issue of finance teams being unavailable for long periods of time, but they can also improve the quality of the data, as well as allowing for more flexibility to respond to changes throughout the process.

Adam: OK, that's a great take. And I think, yeah, you're talking about turning compliance from something that organizations have to do to something that can really enhance the productivity of the organization. So definitely on point. If we look at how these organizations are typically structured and the projects that you're involved in, Marino, what opportunities do you see that usually have the biggest impact?

Marino: Biggest is, it's tough to quantify. If I simply just go on biggest think about, you know, the biggest impact would be the improved reporting and analytics capabilities that you can eventually drive into that you alluded to earlier. However, there is a not too short path to get there. I think what you're trying to get is that the quickest are foundational impacts, the things that really kind of hit the road running. Now, the close process can be quite complicated and nuanced, really, depending on the industry that we're talking about. Having said that, though, there are two typically two areas with the quickest in quotation marks impacts. One's around account reconciliations we use we usually see a lot of time here and much of it can be improved through lean process, design and policy clean up. Too often we see work being caused by old rules that haven't changed, like one dollar threshold for reconciliations. The others are on data aggregation. Too much time is spent on pulling data together so that it can be used. Solving these shows quick impact and of course, sets up for the bigger impact areas of faster, better monthly financial reporting and improved performance analytics.

Adam: Yeah, there's there's nothing like a finance team that has seen some of those old policies revisited and just kind of make their lives a lot a lot more enjoyable and make work a lot more fun. So I think there's a lot in it for everybody out there in that area. So let's go back to the Value-Add concept. And Jill, I really do want to hear your take on this one around how companies can get those deeper insights to run their business by reimagining their compliance processes.

Jill: Yeah, and I think data is the key to that. And it's the source of data that can start to create challenges. I think it's certainly not uncommon for organizations to spend time challenging the data. So where is the data coming from? What report are we using? Why don't the reports reconcile? I think the starting point really is to be able to streamline your processes and controls to ensure that you have the right data from the beginning. A good close process means that you are able to have more timely analysis, whether that's daily or weekly, to have that information to help you make better decisions and better run the business. So it's really about leveraging the right data to be more proactive, more predictive, as well as more preventative. So essentially, it's like being a lot more forward looking than always looking back.

Marino: And if I was to jump in there Adam, you know, an example from an efficiency standpoint, one of my clients recently, they used to spend three days every month aggregating and reconciling just the revenue figures and working with them by streamlining their data definitions across their entities, building more effective and automated account mapping between the entities. Of course, we reduce that reconciliation, their reconciliation effort from three days to one, which, of course, sped up the close and also freed up some time. But what also did was, was bring in this new capability to show you how in month polls of revenue were 90 plus percent accurate. So there was, the level of inaccuracy, maybe not was not usable for financial statements, but we were able to demonstrate how good it was and how consistently decent it was. And it could be used for decision support and for performance analysis. Think in month kind of performance reviews.

Adam: Fantastic examples, absolutely, I think 90 percent accurate to make more timely decisions, a lot of people would take that trade off. So, you know, Marino where do companies get started? Like, is it technology? Do you start with process? What do you think

Marino: I'm going to give you the consultanting and say it's both. But where we see success is when we start by defining the purpose of the close and building a transformation strategy for it. This is one of those processes where the fixes are really dependent on what are you trying to do? How rigid do you need to be on policy? How fast do you want your close really to be? How connected does it need to be on performance? These can drive very different change roadmaps. Having said all that, I find that focusing in on process and policy as a start really helps you to find the technologies you want to deploy and how you want to deploy them. The key is to remember that technology is an enabler and you want to deploy technologies that enable something and have that something really clearly defined.

Adam: The actual starting point can vary from organization to organization. So it does come back to those really powerful questions you were asking there Marino, and that really can dictate the starting point. You know, here's a question for both of you. Maybe we'll start with Jill and then move over to Marino. Change management is certainly a big part of these projects from everything that I've seen and worked with. And, you know, it's a lot of the processes have been institutionalized over a number of years. And it's difficult to get organizations to really move the needle here and truly accelerate that close. Do you have any strategies that you have for working with organizations that can help them through this change management? Jill, let's start with you.

Jill: Yeah, I do think the first thing is really the understanding of the importance of some of this and the why you're doing it behind to really understand kind of why you want to move the needle and where do you want to get to. It's kind of looking into that future state to really help people get on board with the change.

Adam: Yeah, makes sense. Let sort of everyone see the North Star and where you're headed, and that can really drive change. Yeah. Yeah. Good point. Marino, what's your take?

Marino: Totally agree with Jill. Like we find sometimes we get into these legacy situations where just this is the way we've always done it or we've been doing it this way for years. And, you know, getting people out of that box, out of that, the comfort of how you've done it. It's more about how do you want to do it. And one of the ones I frequently challenge, Adam, is I actually ask the question. And part of it's being facetious is to say, you know, have you talked to your auditor right? Did you ever bring your audit team and understand what their perspective is on your close? How good is it, how bad is it, what your rules really need to be? What are they really auditing? Right. Because I think sometimes that, you know, we talked about it earlier, but, you know, you and I definitely talked about it earlier that there's a mismatch between what you think is required versus what is actually required and what do we even mean by the word required. Right. And how good or bad does some of your reconciliation efforts have to be? A perfect example I can always throw out there's you know, there's sometimes a misbelief out there that you have to reconcile everything every month versus your auditor expects it to be reconciled monthly. That doesn't mean it has to be done at month end. Right. And you could do things like that that can move work around and think about that lean process mindset. But then again, questions, dialogue, challenging. Why are we doing this to Jill's point of having that conversation to bring people into here's where you could go and then we get into do you want to get there?

Adam: This has been great, and before we wrap up, any final thoughts from you, Jill?

Jill: I think one thing just not to lose sight of is really the cultural impact or the people impact. Having manual and resource intensive compliance processes can have a pretty negative impact on the culture of your finance team. If you think about it, your finance team is working month ends, quarter ends, year ends and is limited to when they can take vacation time. And I think just the complexity and some of the data issues, I think most people in that role would prefer to have better processes and improved data so that they could free up their time to do things more challenging and interesting. And overall, you'll have happier staff, but also better retention.

Adam: There you go. Let's end on a high note, more vacation and people actually being able to get some time away uninterrupted, not dealing with the last minute compliance and close. I think that's a real win. So thanks to both of you for joining me today and thanks to our audience for listening. I hope our discussions have given you some good ideas about how to accelerate your close. And a lot of organizations struggle with these sorts of compliance issues. But the good news is it doesn't have to be so difficult. To learn more about how we can help you visit our website www.pwc.com/CA. We'd also love to hear your thoughts on this podcast series. So be sure to stream, share, subscribe and leave us a review. I'm Adam Boutros and this is Finance in 15.