The Actual Cost of Manual Accounting

We are all aware of the time required to manually execute accurate end-of-period accounting. In addition to time-consuming processes, manual accounting causes costly errors and extreme accounting burnout. 

How can CFOs, accounting managers, controllers, and accounting operations leaders identify those significant performance gaps and measure their true impact on the bottom line? Also, is the time and effort required to shift from manual to automated accounting processes worth it?

These are the top five quantifiable benefits that organizations experience by evolving to an AI-driven automated accounting process that will help your team eliminate manual accounting tasks and reduce operating costs.

Cost Savings

Manual accounting processes can be a real drag on a company's productivity, especially as the volume and complexity of transactions increase. Many organizations rely heavily on labor-intensive accounting processes, making it extremely challenging to reduce the cost of accounting operations. 

Unfortunately, there is also often a lack of transparency regarding who's responsible for which task, leading to further delays in completing reconciliations. This inevitably results in an extended time to close the books, with top performers taking less than five days and those at the lower end requiring more time. This translates to an entire work week. Furthermore, manual processes also impact FP&A's productivity since they are often stuck waiting for financial results before they can begin their planning, forecasting, analyzing, and modeling work for the next period.

Time Savings 

Accounting teams spend a lot of time and effort compiling, validating, and processing spreadsheets and paper documents. Tasks like journal entries, allocations, adjustments, and reconciliations for general ledger and intercompany accounting all take up a significant amount of time. 

Unfortunately, there is also often a lack of transparency regarding who's responsible for which task, leading to further delays in completing reconciliations. This inevitably results in an extended time to close the books, with top performers taking less than five days and those at the lower end requiring more time. This translates to an entire work week. Furthermore, manual processes also impact FP&A's productivity since they are often stuck waiting for financial results before they can begin their planning, forecasting, analyzing, and modeling work for the next period.

Audit & Compliance Preparedness

Audit and compliance costs have been on the rise in recent years, and they are unlikely to decrease anytime soon. While audit fees may have stabilized somewhat since the introduction of SOX, the amount of accounting time dedicated to meeting audit requests continues to increase. 

The disparate reconciliation processes across multiple locations and business units, along with inadequate explanations and supporting documentation, often add to the burden. This can result in a lack of follow-up on aged items, incomplete reconciliations, and an inability to quickly answer auditor questions. These issues constrain accounting resources and ultimately increase the overall cost of an audit. 

The current regulatory and compliance landscape is also adding to the complexity and cost of audits. New revenue recognition and lease accounting rules have had a significant impact on accounting operations while evolving PCAOB standards are placing greater emphasis on internal controls over financial reporting. As a result, organizations should be prepared for higher audit and compliance costs in the years ahead and should take steps to improve their accounting processes to mitigate these costs where possible.

Risk Management

Relying too heavily on manual processes can lead to financial statement inaccuracies and an increased risk of fraud. This was highlighted in a recent CEO Today survey of over 1,100 C-level executives and finance professionals from around the world. Shockingly, 55% of respondents reported not feeling completely confident in their ability to spot financial errors before reporting their results. Additionally, nearly 70% of leaders admitted to making significant business decisions based on inaccurate financials. Even more concerning, only 38% of finance professionals trusted the numbers themselves.

The reasons for this lack of trust were broad. Manual data inputting was cited by 41% of those who didn't trust the numbers, while 56% noted issues with a lack of automated controls and checks, labor-intensive data extraction processes, and the use of sprawling spreadsheets. 

But beyond the potential for financial inaccuracies, manual accounting processes can also increase the likelihood of fraud. Companies with material weaknesses are particularly vulnerable, with manual accounting practices being a major contributing factor. Dependencies on spreadsheets and other files that can be easily manipulated, as well as excessive manual control over journal entries and adjustments, are some of the key drivers of this risk.

In short, relying on manual accounting processes can be a risky business. By implementing AI-driven automated accounting controls and checks, companies can not only reduce the risk of fraud but also increase the accuracy and reliability of their financial statements. 

This not only benefits the company but also instills greater confidence in investors, stakeholders, and other key decision-makers.

Talent Preservation

Performing repetitive period-end processes manually can have significant costs for accounting teams. This includes a lack of job satisfaction, which can make it challenging to attract and retain accounting talent, leading to substantial operational risk. A talent crunch can impede new business initiatives and the effort to meet compliance and regulatory requirements. Additionally, manual processes can increase the risk of financial statement errors, leading to higher costs from hiring and training replacement personnel. 

Additionally, it can reduce employee engagement, lower productivity, and ultimately decrease the value that each employee can contribute to the organization. This can be especially problematic for accountants who have finance and data expertise, as they are more likely to be lured away when they have to spend time manually matching transactions, extracting data from their ERP into spreadsheets, or manually entering journals. According to a recent report by the NC State Poole College of Management on behalf of Protiviti, succession challenges and the ability to attract and retain top talent were ranked as the second most significant risk in 2019, moving up from the sixth position just a year earlier. In conclusion, relying on manual accounting practices can be a burden not only on finances but also on the organization's growth and sustainability.

How to maximize accounting resources and streamline processes

Manual processes in accounting are expensive, time-consuming, and risky for finance teams, CFOs, investors, and businesses as a whole. They drain resources, increase the likelihood of errors and fraud, hinder audit and compliance processes, and lead to employee burnout. In the current rapidly changing business environment, where companies are adopting new business models, pursuing mergers and acquisitions, and prioritizing planning and analysis, manual accounting processes can impede business performance.

From our autonomous invoicing system to our in-depth AI software onboarding procedures, the Vic.ai team is here to help you get rid of manual invoicing once and for all. Our goal is for your team to never have to tediously sift through an inbox full of invoices again!

There is a more efficient way to execute repetitive accounting tasks and close the books with clean audit trails. Eliminate mundane tasks altogether and expedite your invoice processing times with our AI-based invoice processing system. Simplify and streamline accounts payable with the 7 ways to unlock faster and more accurate accounting e-guide. Click the button below to download the accounting guide.