I’ve read a number of articles recently indicating that Intercompany Reconciliation is the last mile in reconciliation activities. The suggestion is that technology has already solved all the issues across the business and accounting process, leaving Intercompany (an odd mix of Business Process, Accounting Process and FSCP) ripe for focus. I am not so sure.
This is not something we are seeing at the sharp end of corporate matching and reconciliation. Many corporates still struggle with even the basic end of Reconciliation (well the Matching aspect to be precise, the Reconciliation bit of indentifying the ledger differences is easier) when they are dealing with mid to high volumes of data. We still see major issues in the GL account known as Bank or Cash – it’s manual working out there.
The main reason for this is the poor quality of data available to perform matching of incoming bank receipts and sales invoices. It’s hard to automate when the data you need is just absent (although that’s why we’ve built data enrichment and enhancement into Gresham’s CTC). Once the data is in a better shape, even just in an understandable written form, the automation is easier and you can begin to solve the problem.
Let’s remember that Excel is the tool of choice for matching and reconciliation across corporates globally – hardly an automated solution even before we move to Intercompany.
But is Intercompany Reconciliation even that important when you can’t solve the third party stuff right now? Yes it is. Never underestimate the issues arising from a missing debit that will hit the group P&L hard. For sprawling multi-nationals, reconciliation of intercompany can be a nightmare and there is always the potential to come across a one-sided entry or major discrepencies on booking volumes of transactions. The end result, if technical accounting is completed correctly, can be booking a large and unexpected group P&L profit or loss (most likely a loss). More likely than not you’ll ‘lose’ or ‘fudge’ the difference in FX – no one understands FX movements; right?
Perhaps not surprisingly, you could spot this by doing a detailed proof (or reconciliation if you like) of the FX movements . But does anyone actually proove their FX movements or do they in fact just have them as the balancing figure? Take a guess. Well you can prove them if you put your mind to it but no one else seems to care or understand what on earth you’ve done – the [financial reporting] world of FX really is for the technical [financial reporting] specialists and is in reality complex, boring and too much effort.
Anyway, as exciting a topic as it is I am not convinced that Intercompany is currently the last yard in the world of reconciliation. A very important yard from an FSCP perspective, but there are many miles to go back in the core general ledger accounts that involve real debits and credits, not just imbalances in intercompany. It would be significant progress to work out what your customer had paid.
I like the idea of automating the matching of Intercompany transactions so don’t think I am out of this all together – the best thing about Intercompany is just that; it’s your company so you can do things to make the matching easier. To make matching really work, the group can work on inserting clear identifiers in the payment message. But will each Subsidiary actually follow those rules? Oh well, there we go again. Well, you can at least try to tackle all those lovely cultural issues of agreeing balances…good luck in Italy and France especially.
If your FSCP is first rate then you clearly won’t have these issues – you are a prime candidate for Intercompany Reconciliation automation. But show me one company like that and I’ll show you 10 with bigger fish to fry.
The existing technology isn’t working – get that fixed and we might be able to move on.
