The Month-end process has begun; for the next few days, your team grinds it out to ensure that the books are clean and all financial activity for the month has been recorded. Scrambling to meet your deadline, you do manage to close your books, but not without missing documents, some irregularities, and a few invoices which surface out of nowhere and take you by surprise. That much is almost entirely predictable.
And so the question one should be asking is: Were things better at any other time? Has the month-end close always been an unpleasant experience for the millions of accountants that lived before your time?
Well, let’s see: In the early 1600’s, the East India Company, one of the first multinational companies of the world, held a virtual monopoly over international trade. Indeed, at no point in history had a public company — one that was answerable to a large number of shareholders — presided over such a lion’s share of global commercial activity. And so the company, to its credit, was also one of the first organizations to attach great importance to accountants and the vital functions they performed. At its peak, the company had over 22 bookkeepers in its employ. And, as it happens, their troubles and concerns weren’t all that different from yours. Granted, their financial records were written on sheepskin books, with quills dipped in ink. But problems such as missing documents, and errors in manual entry, existed then as much as they do now. With the mountain of documents piling up in their premises, journals would go missing, invoices and bills of lading would be lost, stored improperly or forgotten.
Technology has changed in unfathomable ways since that time, but in so far as financial record-keeping goes, the problems, which afflicted us a few hundred years ago, have yet to be mitigated.
Consider the spreadsheet and the various ways in which it forces the same problems on your accountants today:
If your accounting team is still using Microsoft Excel, its process is probably rigged with unnecessary delays. Excel’s obvious limitation is that a single master sheet can only be accessed by one user at a time. For years, team members have tried to find their way around this limitation by storing a local copy on the desktop, making their inputs or changes, and then overwriting the original file on the cloud. This process is not just inconvenient and unnecessary, it also forces your team to spend more time on a task than is necessary.
To a large extent, Google spreadsheets helped in solving this problem by enabling multiple users to log into the spreadsheet and work on it simultaneously. That functionality, however, brings with it a new set of problems. Multiple users working on a spreadsheet at the same time doesn’t make for a very unpleasant user experience. Often, your team members will find that a multitude of users are working on the spreadsheet at the same time; inevitably, they log out with the half-hearted promise of updating the spreadsheet at a later time. In the process, they might neglect inputting their entries on the spreadsheet — such a scenario is all too prevalent and it hardly incentives them to be more proactive in entering purchase requests and approvals before an order is actually placed with a vendor.
Ultimately, your spend data becomes incomplete and unreliable, and your Accounts Payable team must revert to dedicating big chunks of their time to digging out the relevant purchase requests and approvals when an invoice comes in.
No Centralized Storage of Documents
If used and updated diligently, spreadsheets can be useful in tracking purchase transactions — right from who placed the Purchase Request and for what item, to who approved it, down to who placed the order for the requested item. What spreadsheets do not offer, however, is a centralized system of storage. Yes, you can determine who placed an order for the vendor; but where is the actual Purchase Order that was placed with the vendor? Is it lying in your Purchasing Manager’s inbox? Do the details on the Purchase Order match the items that were requested? Similarly, at the Accounts Payable stage, there is no easy way to match the Purchase Order with the Invoice and the Packing Slip largely because all of these documents are stored in scattered places. To an auditor going over your purchase history, these limitations can lead to a loss of confidence in your internal controls, besides more billable hours, and a lot of headache for your accountants.
It Doesn’t Tell You The Full Story
Auditors are often greeted with cluelessness, moments of confused silence and, if things are particularly worse, outright lies, when they ask to see the full audit trail behind a particular transaction. The more conscientious and stringent auditors want access not just to your invoices and purchase orders, they want to determine the full story behind a purchase — that includes looking for answers to questions like (1) Who requested the purchase? (2) Who approved it? (3) Were any changes made to the order by someone? (4) Was an order edited? (5) Were any of these changes communicated to the relevant stakeholders? (6) Precisely when did these actions take place? (7) Have the approvals been time-stamped?
Auditors want details and, no mater how conscientious your team and accountants are, these details require a level of precision and dedication to record-keeping that spreadsheets just can’t enable.
Spreadsheets Are No Guarantee Against Unanticipated Invoices
In many companies that lack a purchasing process, accountants have to wait for invoices to come in before determining how much money has been spent in the month. This process (or lack thereof) is a very reactive attempt at accruing for spend. It effectively means that the accounting team has no visibility into how much money has been spent, what it has been spent on, and by whom, at any point in the month. This indicates an explicit lack of Spend Visibility, and can have serious implications when it comes to forecasting and budget awareness. It’s quite simple really: If the Accounts Payable team is surprised by an invoice, it means that an order was either not recorded, or is not visible to the accountants. That is a serious lapse in Internal Controls. And the blame, principally, lies with the use of spreadsheets. Because spreadsheets require so much manual entry, and are inherently inconvenient, purchase records prior to the invoice stage do not find their way into the spreadsheet, and, when they do, they are often ridden with human errors.