Audit insight for growing services firms


As professional services organizations grow and evolve, they often need a comprehensive look across their financial data.


Services firms might not have the technology to generate that view from their finance function. “Often in professional services, we see the need for finance transformation,” said Grant Thornton Audit Partner Katie Wojszynski. As firms grow and change, especially through mergers and acquisitions, they can develop a tangle of manual processes and disconnected systems in the finance function.


That can make it hard for leaders to see across the organization’s financial data — and to spot redundancies.


“Often, these organizations will buy other practices to grow a specialty that they need. With that comes a new finance group. You might look around one day and have 10 different finance people doing the same thing,” Wojszynski said. 


An audit that includes whole-ledger analytics can help firms identify inefficiencies, redundancies and possibly even areas for automation. “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.


Improve insight


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.


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 that of other similar companies and provide you with some metrics as a gauge.


“If you think about an engineering firm, you could look at milestone billings to see whether there are disproportionate contract assets, or unbilled or deferred revenue, compared to utilization rates and labor charges, just from account combination and timing perspective,” said Grant Thornton Audit Partner Tim O'Neil.


Many firms do not have access to this insight because their financial systems are not fully integrated. 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 you can find the best opportunities for automation.


Audit insights from other industries


Inform automation


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.


“Whole ledger analytics can be helpful to see how many people, and which people, are booking types of entries. Is there a way you can consolidate? Where should you consolidate? Where can you automate?” Wojszynski said. Sometimes, automation doesn’t even require new technology. Howell recalled that one accounting team was simply not using their existing system’s ability to auto-reverse accrual entries.


When companies can move toward automation, they can also provide opportunities to move staff to more valuable tasks and improve job satisfaction. “Look at the volume of manual activity through the lens of the employee experience, and think about it in terms of attracting and retaining talent,” said Grant Thornton Audit Partner Jarrod VanDerwerken. “We identified where someone was manually entering almost 200 cash receipts every day. Nobody realized that had developed because of acquisitions and some other factors. But is that the type of experience an employee wants? Is that the type of experience you want to be providing as an employer?”


The need for finance automation can be acute at certain times of the year. Whole-ledger analytics can identify the trend volume of manual entries at year-end, quarter-end, and month-end by contract type. “You could use it to determine headcount needs in the back office, based on volume of entries and timing, to help determine whether you want to use seasonal employees,” O’Neil said.


Your financial close can also be an important time to maintain your risk awareness.


Increase risk awareness


“In services, employees are often compensated based on their individual performance,” VanDerwerken said. “Whether it's errors or fraud, you can have a heightened risk of somebody doing things that directly impact their personal performance.”


One recent investigation into a services firm’s revenue recognition practices revealed more than $100 million in mis-accounted revenue, said Grant Thornton Services Industry National Managing Partner Frederick Kohm. “Middle managers were trying to accelerate the recognition of revenue through a couple of different avenues. It was happening before quarter-ends and year-ends. What it did was it impact bonuses for the managers. Along with the ethical, compliance and fraud issues, they're going to have to deal with potential disbarment.”


Another flag can arise from a high volume of entries that seem to avoid controls. “If you have approval thresholds on write-offs of $1,000 and you see a large volume by one person at $700, $800 or $900, just below the threshold, that can be indicative of concern,” VanDerwerken said.


Whole-ledger analytics can also help identify other important concerns:

  • 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.

Illuminate opportunities


While auditor independence requires that audit teams not advise firms on issues that are management’s responsibility, a whole-ledger analysis can illuminate opportunities where management may choose to take action. “The analysis can be post-audit or in conjunction with the wrap-up,” VanDerwerken said, adding that it can highlight issues like the days to close, volume of manual journal entries by specific people overall, specific accounts or transaction cycles, average amounts in areas where management can consider setting thresholds.


Whole-ledger analytics can yield important signifiers and actionable information for management, or those charged with governance, at the end of an audit. “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.



John M. Howell

John has over 25 years of professional consulting experience and has significant experience assisting clients with Financial Management and Reporting related process transformation initiatives.

Charlotte, North Carolina

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