How Process Automation in Finance Operations Reduces Risk
By Mike Raia Posted October 25, 2021
A company’s finance operations are some of the most labor-intensive parts of its day-to-day activities and critical for its bottom line. To streamline their finance operations, many companies are shifting to digitally automated processes. Nonetheless, there are still many companies clinging to low-tech manual methods in their finance and accounting departments. The question is why.
When contemplating a large-scale shift from manual workflows to automation, many companies may perceive a certain level of risk in doing so. This is likely to be especially true for a critical area such as the company’s financial workings. But the truth is that process automation can drastically reduce risk in finance operations, and the reckless path is sticking with manual workflows. Here we outline several ways in which, from a risk-benefit perspective, automating processes in financial operations is the prudent path.
Reducing Risk of Manual Errors
No matter how resistant a company’s decision-maker may be to implementing automation, there is no getting around a simple fact --- manual processes are prone to errors. Consider the traditional manual processes used within finance operations. Spreadsheets, paper forms, emails - all of these outdated tools introduce more chances for human error. Without automation, there is an ongoing and pervasive risk of manual errors in finance processes.
Even the most standard and straightforward errors can drastically slow down finance operations. Errors in a spreadsheet of capital expenditure (CapEx) requests and authorizations for expenditures (AFEs) will delay or derail necessary equipment purchases. Missing information from a contract approval request could hinder a new business relationship with a customer, vendor, or supplier. Manual errors are harmful in ways both large and small.
With automation, finance processes become both faster and more accurate. Automation software can check inputted information for accuracy and consistency, perform calculations, and spot errors. In addition, an automated process can include prompts for all information necessary for any request, approval, or other action.
Speeding Up Approval Processes
Just as with many aspects of a business, finance operations involve numerous requests and approvals. The request-approval process is used for many finance-related actions, such as purchases, new contracts, and expense reimbursements for travel and entertainment. Unfortunately, the bottlenecks that naturally occur in a multi-level approval process can cause requests to pile up, meaning necessary business actions are stalled.
An automated approval system can avoid these unnecessary snags in numerous ways, including the following:
Initiating Requests for Approval: With an automated system, approval requests can be made directly on a centralized portal. This eliminates the risk of inconsistent or duplicate requests sent through different channels, such as emails or paper forms.
Automated Approval Workflow: After initiation, the requests can be automatically routed through the correct approval workflow. The approval workflows can be created and changed by administrators whenever necessary. They can also allow for contingencies, such as alternate approvers or elevating approval requests that exceed specific dollar amounts.
Exchange of Information and Documents: An automated workflow can allow comments, information, and documents to be exchanged in connection with any particular request.
Status Inquiries: Whenever the request initiator, anyone in the approval chain, or management needs to check on the status of a request, they can do so through the centralized portal. This eliminates the time-consuming need for follow-up emails and phone calls.
Streamlined Approvals: Approvals can be made quickly and easily, often with a click on a link instead of a signature on a form.
By eliminating the paper shuffling and email sifting associated with traditional manual processes, companies can make their approval processes as efficient as possible. Minimizing the risk of delayed actions or documents, such as purchases, expenses, budgets, or contracts, makes automation a worthwhile investment.
Better Compliance with Internal Policies and Procedures
Finance operations tend to be governed by numerous internal policies and procedures. With manual processes, these internal rules can be either mistakenly broken or intentionally evaded. On the other hand, an automated workflow allows for those policies and procedures to be built into the system. So if a CapEx request above a specific dollar amount needs to be elevated to the CFO for approval, that routing action will be done automatically. In addition, internal controls can be reviewed and enforced through audit trails, discussed below in connection with regulatory compliance.
Improved Regulatory Compliance
For many companies, there is an ongoing need to be prepared for regulatory audits by government agencies. Government contractors or companies operating in highly regulated industries such as finance, healthcare, or insurance, need surefire ways to comply with these audits. This is where automation comes to the rescue through the creation of audit trails.
An audit trail shows the details behind any given workflow or business process. It shows the participants in the workflow and the specific actions taken, along with time and date stamps for those actions. Within the context of an approval process, an audit trail would show who made the initial request, who provided the ultimate approval, and what intermediate steps were taken. This is possible because the automated system allows the tracking and capture of all these events.
Companies with automated finance processes can use audit trails to verify their regulatory compliance when hit with a regulatory audit. In addition, any deviations from complete submission can be easily observed and corrected for future audits.
To ensure efficiency and eliminate bottlenecks in finance processes, the company needs to review those processes from a bird’s eye view. Automation allows transparency into each workflow, so any participant can immediately check on any particular request or active status. On a larger scale, automation enables the reporting that allows management to view overall trends in finance operations. When there is a sizeable potential discrepancy between planned spend and actual spend, reports and forecasts can ensure the company is empowered to take corrective action.
Automate Your Finance Operations to Limit Your Risk
Now that we have seen the many ways automation can reduce risk in your company’s finance operations, the next step is implementing the best automation software. Be sure to find a solution that can streamline your processes in the ways listed above. The most significant risk lies in avoiding automated finance processes, while the most essential rewards come from embracing them.
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