In a perfect world, all financial transactions feed neatly into a single enterprise resource planning (ERP) system, fully automating the once tedious, manual task of reconciling an organization’s general ledger. The reality, however, is rarely so tidy.
Because multiple systems and missing transactions still commonly bog down the finance function, it’s important to track and manage how many hours, on average, it takes accounting staff to reconcile the general ledger.
When reconciliation takes too long, it not only strips your organization of the ability to make strategic decisions based on timely financial information but also slows down other accounting activities, such as forecasting and planning.
Does reconciliation happen fast enough at your organization?
The more systems and ERPs you have, the more connectors and integrations you need to connect those systems back to your general ledger. Typically, reconciliations on accounts related to liability and revenue also involve tracing transaction entries to source documents (for example, sales contracts, invoices, statements of work, etc.), which adds another layer of time and complexity to the process. When daily or weekly reconciliations are not possible, monthly reconciliations generally take longer.
According to benchmarking data collected by the American Productivity and Quality Center (APQC), the median number of hours for general ledger reconciliation is six. Organizations in the 25th percentile, on average, reconcile their general ledgers in five hours, whereas those in the 75th percentile take an average of 10 hours.
Multiple factors, including firm size, transaction volume and reconciliation frequency, influence how long the reconciliation process takes. If stakeholders inside and outside the organization are frequently waiting on lagging financial data to make decisions, it’s a good sign that leadership needs to step in to identify the bottlenecks. Steps should then be taken to shorten the cycle time while always prioritizing the accuracy of financial statements.
Tightening up the process
There are a few key areas to examine when seeking to speed up general ledger reconciliation.
Most modern ERPs include technology that automates the process of matching forbearances between systems. Check to make sure your organization is fully leveraging the capabilities of your ERP. Newly developed tools might speed up the accounting team’s work.
Secondly, organizations that have multiple systems handling and recording financial transactions, such as payroll or sales, should look for ways to consolidate. Having all the transactions and activities of a business in one ERP improves the completeness of the general ledger.
Organizations with a high volume of transactions should also consider whether daily or weekly reconciliations are possible. This reduces the workload when it comes time to reconcile the general ledger at the end of the month to produce financial statements.
Another important consideration is the skillset of accounting staff. Generally, the controller, director of accounting and staff-level accountants all have some role in reconciling the general ledger. These team members should be detail-oriented, possessing a forensic mentality. Accounting division staff must also be willing to fully investigate any issues that arise. When resolutions are evasive, a questioning mind probes further to find the answer. Bringing the right mix of skills onto the team can help shorten cycle times.
Downstream effects
The number of hours spent reconciling the general ledger is a foundational measure that, when optimized, sets an organization up to make process improvements in other critical areas. This measure acts as a precursor to cutting cycle time in the monthly closing process as well as in the preparation of financial statements and reports. Forecasts then become easier to generate and can be completed in less time.
By taking this first step, you can set in motion a series of efforts designed to improve the overall finance and accounting functions and increase the value they bring to the business.
Perry D. Wiggins, CPA, is CFO, secretary and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas. Data in this content was accurate at the time of publication. The most current data can be found here.
