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ERP to the Max

Seven ways to optimize your ERP solution.

By David E. Sweas, CPA

Fall 2012

The typical enterprise resource planning (ERP) software implementation process involves a lot of testing to ensure key system functions such as quoting, production, procurement and order fulfillment will deliver what they’ve promised before going live. That said, there’s an area of the process that’s often only superficially looked at before system startup—accounting.

Because ERP solutions contain “automated accounting engines,” from day one accountants using the solution need to have a well-rounded understanding of how the system drives financial output. There also needs to be assurance of the quality of and control over financial data. Failing to understand and act on this could have negative consequences for the ERP solution.

These seven practical, scalable tips will help CFOs address this very issue.

1. It’s no longer all about the GL

For an accountant to focus solely on the general ledger (GL) is to merely touch the tip of the ERP iceberg.

True enough, most ERP systems are designed around the GL. Naturally, GL accounts still represent an organization’s financial position and have to tie in with certain areas and reports. The point is that accountants need a deep understanding of the transactional details that drive debits and credits to the GL. This principle applies to transactions in the back office (such as receivables, payables and treasury) and especially to transactions on the operations side of the business, where the greatest level of accounting complexity tends to exist.

Another word to the wise: Many software packages embed (within operational modules) financial configuration and processes belonging to functions such as project accounting and cost accounting, which may make accounting-facing functionality the responsibility of nonaccounting personnel. It’s important for accountants to establish a high degree of ownership and control over these functions and processes.

What’s more, accountants need to be aware  that some accounting sub-processes cross ERP modules.

2. Understand the system configuration

As a result of internal controls, SOX, and the like, the responsibility for financialrelated system configuration and maintenance often rests with business areas outside of accounting. It’s critical that ERP configuration be under lock and key, with accessibility limited to a select group of users. However, even if not under an accountant’s control, to properly understand and analyze financial results it‘s important that he or she understand systemwide configurations that have a direct or indirect effect on journal entries (JEs).

3. Built-in reconciliation needed

Most ERP systems contain sophisticated mapping configurations that drive financial transactions to specific GL accounts, typically on a daily or ongoing basis. Both continuously reconciling major balance sheet GL accounts to transaction-driven backup reports and performing reasonableness checks are critical given not only the interrelationship between the balance sheet and profit and loss, but also the fact that ERP system JEs are “close-looped” and transaction- driven, and place a financial value on transactions.

This continuous balance-sheet reconciliation will keep the P&L accurately stated and allow for income statement analysis throughout the month. Ultimately this results in a favorable impact on the month-end close cycle and analysis, which in turn has other positive effects on the organization.

Another point to note: Daily posting of ERP-driven JEs to the GL, while a must, isn’t sufficient in and of itself; the process must include ongoing reconciliation.

4. Chart of accounts design is crucial

Best practices tell us that the chart of accounts (COA) is typically thought of as a means to drive reporting and analysis. While this is true, another aspect of the COA structure is the ability to embed reconciliation into transactional/financial processing by leveraging various “reconciliation points” contained in the software configuration. The rule of thumb here is, if there’s a GL reconciliation point available in your configuration, take it (build it into the COA).

5. Exception reporting is a must

It isn’t about what you can build; it’s aboutwhat you can build and control.

While heavy emphasis is placed on GL-driven financial reporting, many ERP implementations completely overlook the development of critical “exception dashboard” reporting within the CFO’s area (or may relegate it to a “second phase”).

To illustrate the point, ERP systems will allow the processing of certain operational transactions that might have an abnormal financial impact from an accountant’s point of view. Examples of these exceptions include unvalued or undervalued transactions, operational adjustments to inventory or receivables, and transactions that fall outside a certain financial “acceptable tolerance.”

A word of advice: Exception reporting should be ongoing, and not associated only with month-end closing activities.

6. Don’t design for month-end close

While this statement may seem counterintuitive, the principle is this: If the correct configuration, data controls and ongoing reconciliation are in place, the month-end close actually becomes a byproduct of the ongoing accounting process, instead of a major monthly task.

7. Make a seamless role transition

Month-end closing is largely viewed by the greater organization as a non-value-added activity, albeit a necessary one. In an ERP system, it‘s expected that the accountant’s role will shift dramatically from a focus on closing activities to analytics, especially as organizations continue to embrace business intelligence tools. Understanding the system configuration, processes, ongoing reporting and controls, and resulting migration towards a “continuous-closing” process, will enable accountants to transition to those duties.

What’s more, making the leap to ERP often means retooling and retraining the CFO’s group, as skill sets and processes adapt to the new technology. Consequently, goals for user adoption should include not only how to use the new system, but also how to use it differently than the legacy system, since many current accounting processes won’t map, task-fortask, to the new system.

David Sweas is a career-long ICPAS member who spent the first portion of his career in public accounting and industry, with heavy experience as a user of and advisor on financial systems. Since 1996, he has been an ERP consultant focusing on the implementation and optimization of financial and cost accounting applications and processes. David is presently a director in the Chicago office of MarketSphere Consulting LLC’s ERP practice.


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