Is your accounting team doing too much manual work?
To understand the answer to this question, one helpful metric to track, benchmark and manage is the percentage of automated, recurring journal line items, as compared with those entered manually.
According to cross-industry benchmarking data collected by the American Productivity and Quality Center (APQC), organizations at the median automate 30% of general accounting journal line items. Within top-performing organizations — those in the 75th percentile — an average of 58% of monthly journal line items are automated.
Those companies in the bottom quartile report automating 20% of journal line items, on average. Organizations with $100 million or less in annual revenue, which presumably have lower transaction volumes than their larger enterprise counterparts, tend to automate fewer recurring journal line items — 10% at the median and 48.6% on average among top performers.
The percentage of monthly journal entries that are automated is a useful metric for accounting leaders to manage as part of a strategy for streamlining work, particularly in environments with high transaction volume. Through automation, accounting teams can increase efficiency, improve workflows, decrease rework associated with human error and mitigate the risk of errors on financial statements. Automation streamlines accounting work, but this automated work still requires supervisory review and signoff, to ensure systems are working as intended.
Because automation frees up existing staff who would otherwise be tasked with entering debits and credits manually, it also facilitates organizational growth and increases in transaction volume, without the need to increase headcount in the accounting department. Accounting leaders who look for opportunities to automate thus optimize another important and often more highly scrutinized metric, revenue per full-time equivalent (FTE) employee.
For all these reasons, accounting leaders should seek to automate as many journal line items as possible on a recurring basis, while making sure that humans stay involved in the process to review and approve entries.
Ways to increase automation
Corporate accounting leaders who assess this metric and find their organizations are not meeting automation targets have a few options for working toward improvement.
Most modern Enterprise Resource Planning (ERP) systems allow accounting staff to automate line items in the journal, such as by automatically spreading yearly payments over 12 months of revenue. Even basic accounting software used in small businesses can usually be integrated with online banking platforms, enabling at least some degree of accounting automation. Making sure your organization leverages its ERP’s full functionality is a smart first step to attaining optimal automation levels for your organization.
When looking to increase automation of monthly journal line items, start with those transaction types in which the parties remain the same over time. Payroll and employee expense reports, for example, are good candidates for automation. Recurring, complex transactions are another good target for automation. Transactions that are especially complicated or non-recurring should always be entered manually.
Setting up the automation of journal line items necessitates an investment of time and money, but the streamlined workflows and improved quality of financial statements that result make this an especially worthwhile use of resources in the long run.
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.
