Autonomous Accounting: Use-Case for Month Close

Ron [00:00:04] Anyway, I want to introduce Ric Ratkowski. He’s a domain expert in accounting, been in finance for 20 years, manufacturing, retail, real estate companies, internal audit practices like what? What in accounting, financial planning and I.T.. 15 remaining 15 years career with leading software companies in product management as a subject matter expert. I’d like to introduce Ric Ratkowski and Rick, the stage is yours. Rick and I also worked together for 15 years, thanks to read it off a sheet.

Ric Ratkowski [00:00:39] Thanks, Ron. And so I started my career in accounting and did it until I got tired of the software. And so then I went to work for a software company. And so then I started working through the software. And today’s topic is autonomous accounting, and it’s called use cases per month and close. Because when you really look at problems and how to solve them, you’ve got to break it down and use cases, right? You see a big problem and you got to take it apart and that’s what we’re going to do. So I’m going to talk a little bit and I’ll circle around them and talk about first principles thinking, and then we’ll get into looking at the current close process and take it apart. And then we’ll look at the use cases and put it back together. And again, I always feel like and I do this with stuff, I take it apart, I put it back together, I then own it, right? So I do it with cars all the time. And then there’s a noise and I know exactly what it is and theory at least. So that’s we’re going to do first principle thinking is something HighRadius does, something that Sashi really motivates. And I don’t know if you’re familiar with it, but it’s basically what you you take you question everything you know about something and you take it apart and you question it and then it creates new knowledge. And so if you Google first principle thinking it’ll bring up space x and Elon Musk and what he did when he you know, he’s got the space X company and he went around, he talked to Nassau and he basically questioned, why are you throwing that first and second stage of the rocket in the ocean and why aren’t you recovering it? Because it’s very expensive. And now that’s what they do differently. And so why I’m talking about it is because this was built with first principle thinking. And we’re going to talk about what were those first principles, where did we go? And so on this screen, we’re really and again, if you’re sitting there’s a screen back there and there’s a screen up here. I tried to make it as big as I could. I didn’t realize I was going to have a small screen here. I’m sorry for that. On the left, you have what we do in a close, right? What do we need? We need data and we need internal data, like your ERP systems, your ledgers and your sub ledgers. And we need expert external third party systems. And I only put two here. Right banks we know we need bank data, payroll systems, Ariba data, concur data. You have a bunch of data you need and the process in the middle is to validate it. And then on the right side, we have the stakeholders and I’m preaching to the choir here. Right? You all know this and the stakeholders really need the data because and you really need to close the books fast because if you take ten days to close the books and I just totally messed up my budget, I don’t find out until it’s too late and I can’t take corrective action. And that is the situation we’re in. And then the other departments all throw rocks at accounting. And I mean, that’s what I’m used to, right? So that’s the situation. And when we get to the financial close process, that’s how I think of the closed process. It’s chaos, right? You have lots of different transaction types. You have different people in different departments who really know the right answers, who you have to chase down. You have thank heavens for the accounting principle of materiality. We would have never got through without materiality being involved. And you also are you know, you’re balancing resources and you’re balancing time and you’re balancing accuracy. And those are bad things to have to balance. Right? And so that’s what we deal with and to help us out. Then we unexcelled everything, right? We put them all in workbooks and I used to be responsible for this and then the auditor to ask me for something because you’re doing a substantive testing and then I’d have to go out and I’d have to figure out on whose desktop it was so I could give it to them. Right? And then we got all this success and we got all this chaos. We have another spreadsheet. Green means it’s done. Read me. It’s a list of all the tasks we have to do. And I joke. You know, the army has a lot of rules because unfortunately they create a rule every time somebody dies. Okay? Every item that’s listed on there is because we made a mistake and we missed it. And so we make that part of the task. And oh, by the way, these are all disconnected from everything. So somebody does it and they create the journal entry in the journal entries in Excel. And if it doesn’t get back to your general ledger. You missed OC, but it could be green on there. And somebody asked, What’s your status? And you look at this and then you go around and call everybody up because you know that’s not up to date because it’s manually, everything is manual. And so that’s the process we’re dealing with. So what we’re going to do is start breaking it out into use cases. And this title I always find entertaining continuous clothes closing throughout the month. Right. And you know, 15, 20 years when I was doing this and people are talking about continuous clothes and I’m like, yeah, they don’t know what they’re talking about because 40% of your transactions come in at month end, right? The train wreck has it month ended. Oh, by the way, I don’t get the data till month end window. You know, one of the biggest pains is bank reconciliations. And when do I get the data? I get it in month end. I can’t tie out myself ledgers till month end, so how can you have a continuous close? And so that’s our first use case. And what we did again using this first principle thinking is we looked at it and we said, the problem is you need real time data, okay? You can’t live off of data once a month. And if you think of the bank reconciliation process, you get the data in, you bring it into Excel to CSV file, you do V lookups, you do all this stuff, you find it all matches or you find what doesn’t match. And if you did that every half month, right, you have to nightmare’s a month instead of one because then you get new data in and it doesn’t increment. You got to reload it, stuff doesn’t match up, somebody move something around and it’s just, you know, the pain and agony of doing it at the end of the month is better than the pain and agony of doing it twice a month with real time data that goes away. Okay. And with real time data from your general ledger, Ron talked about this earlier. For those who are here, you can start analyzing the transactions on a daily basis and so continuous close starts to be a reality with this, but it’s a nonstarter if you don’t have real time data. And when I talk to people about this and go, wow, bank data every day, that’s really hard to get. Okay. Oh, by the way, what is HighRadius really known for accounts receivable processing for getting the cash every day and matching it to the payments. So we’re the benefactor of their knowledge on how to do that. That’s how we can get it every day, because they’ve already they’ve already got the bank connections. They have everything there. So that was the first use case. You know, how do we get to a continuous close? You got to have real time data. The next problem is we’ve got to manage the process. We got workflow, we got collaboration, we got journal entries. We got to do all this in one place rather than doing everything offline and wandering around and and then hoping against post back posted back to the general ledger and everything else. And so we go from this. And we add a task manager and we add the functionality to do journal entries back to the general ledger from our system. Again, it’s a bi directional real time interface, so it goes back to the general ledger. And it has a task manager. Now, if you would go out and look at no code or low code systems out there, everybody has workflow, right? That’s what they do. They just don’t end in Excel. They end in Salesforce. Right. And so we’ll take that and. Because everything is done here. Can you imagine doing a monthly close where instead of making sure everything is up to date because everything is done here, you get a dashboard. It tells you what you have to do. And again, this is an eye chart. I’m sorry. It shows you where you stand in the process. It shows you what’s behind what’s ahead and what you have to do to finish. And it’s all a byproduct of people doing their jobs, not something somebody is keeping up. Okay. So again, the workflow thing we had to add and this is what it looks like and again, this is an eye chart and I tried to make it bigger, but basically what it is, is it’s all the tasks you have to do and you’ve got the closing unit, who are you doing this for? The tasks name the tasks, priority, your due dates and most importantly, your workflow, not just who it’s assigned to, but who reviews it and who’s approves it. And oh, by the way, once it’s approved, all those Excel files that are all over the place are in a binder now and they’re locked in. So you give your auditor the auditor rights and they can go in and look at this and do all their substantial testing. And so that’s where, again, I think of this is a closed binder. And so that is, is the workflow process. And these different workflow processes trigger different actions. And what I’m going to talk about when we talk about the financial clothes, when we talk about the base processing, the next thing I’m going to talk about, if you saw Sid’s presentation this morning, I’m going to talk about purchase orders and just a basic example of how we tie all this together. So the next use case is eliminating Excel Hell. And it’s something that I used to call account analysis. So it’s not like reconciliations or anything like that. It’s looking at an account at the end of the month and saying is what’s in there? Right. In our example is purchase orders. In our example is where you have a lot of outstanding purchase orders and at the end of the month you have to accrue those purchase orders. So what do you do? You send out you got a spreadsheet with all the purchasers, you pull it from your purchase order system. It’s an Excel. You add some columns, you send it out to everybody who owns those purchase orders and you ask them to fill it out. And then you go get a stick and you chase them down and you get them to fill it out. And now you got 20 separate Excel files that you have to consolidate to do the calculation to create your journal entry to post it. And so what we’re going to do is we have again, this analysis module is part of part of the core closed process and it’s an eye chart. But if you look at it, it looks like Excel now it’s excel in an application. So if you asked me what control it was, I’d have to look it up. But there are a lot of controls out there that look like excel, that do excel, that can consume Excel. And that’s what we’re using. And so this has in it the columns of subsidiary vendor, pop number, date, time delivery, all the stuff you need from the POA and it is configured off of what you do now. Okay. And then if you look at the tabs at the bottom, we have an input tab that says Open play. What’s that? Oh. When every time you open it up, it grabs the data from general ledger and it’s input because you can’t change it. So if somebody goes out, you change that. You can’t change it. We own it. Right. You can’t change it if you want to change it. You go to the next tab, which is the accrual tab. And that’s where you can configure it with columns and things and you can have them fill out what’s the planned amount, what’s the percent completion. So we can do the calculation, what’s the actual amount, what’s the revised? You can get them to fill in whatever you need. So you can do the final calculation, which is your journal entry. And if you look at this, this is how you do it in Excel, right? You’d have these tabs and you do the calculation, you do the journal entry, and you would post it back. And what I just described to you and you know, Ron mentioned it, said mention it, it’s called connected workspaces. It’s kind of the core. I think Sashi even mentioned it. It’s the core to connect all these sheets together so they’re not dangling out there. So they’re under control. And oh, by the way, they’re not really spreadsheets. They’re stored in a database. And why is that important? And they’re not stored as a blob. So you can access the information. So you can see the information, so you can keep it calculated. And so this is kind of the core of the closed process, right? We do a journal entry, but you expect it to look like and we posted to the ledger when it’s approved. And now you know it’s done. So the next use case we’re going to talk about. So that was the generic one, just analysis and the next one is account reconciliation which deals with matching OC matching your bank per GL to your bank per the bank and matching intercompany eliminations. And again, matching is a challenge, but you know who does matching really good integrated receivables. Why? Because they match payments to check two invoices, right? So again, we’re leveraging that technology to do our matching. And so we have another module called reconciliations. It looks like an eye chart. But the important thing is it’s built out with tabs similar to how you would build it out. Right. We have the bank general ledger. We have the bank statement, the information from the bank itself versus what stored in your general ledger. And we have a matched items and that’s where we leverage the artificial intelligence to match it up. Now, it doesn’t match all of it up, and you may have to match some of it up, but you have these unmatched items. And thinking of continuous clothes, you know, this is where things would fall apart without real time data, because with real time data, we can process this every day and do better matching. And, you know, you can go out and look at it and what’s matched. Okay, service charges aren’t matched. We need to analyze that and you can take care of it on a daily basis rather than waiting to the end of the month. And it’s how you would build it that matched items. If you’ve ever done reconciliations, I’d call that the rainbow sheet, right? Because you’d have the items you match and you colorize it one color and you have the I don’t know what to do with and you colorize it another color. And at the end of the day, it makes perfect sense to you and nobody else. And I tried automating that with the fan elses and it just ran out of room. Right. And so then the summary sheet becomes the journal entry. But that’s the, you know, that’s something big item we do and close is reconciling a lot. And then the last one, the last use case is errors and omissions. And, you know, people when I was responsible for their clothes would would ask me, well, you know, see if I would be like, so how do you think the clothes won? And my comment would be, I think we caught everything material and I know we didn’t catch everything, okay? And so the objective of this is to really catch more stuff. And again, if you were here for Ron’s presentation, he talked about that on some of the test cases when this system was being built on what it found. And so the you know, it’s another module called anomaly detection. And what does it do? It basically flags thing and you can run it on a daily basis and it’s made up of rules, business rules that we know to be true. Okay. It’s also the thing about accounting is it’s very pattern driven. You know, this vendor is always charge to these accounts. This vendor always covers these periods or it’s always a prepaid for these vendors. My favorite one where I caught is to be an internal audit, and I call it theft. Was somebody taking accounts payable and posting it to Goodwill? Okay. Yeah. Nothing from payables goes to goodwill. Right. And so those kind of that breaks the pattern. We call it anomalies. Statistically, it’s outliers. Okay. But that’s what puts that together. And so the you know, every morning you can come in, you can check this out. And again, you’re now talking about a continuous close because you’re moving the train wreck. From the end of the month. Throughout the month, right. You still have a little bit of a train wreck, but we’re trying to move that out. And so that’s what’s going on here. And so basically what I’ve talked about is these five use cases, continuous closed requires real time data. We have to manage the process with workflow and it has to control the entire process. So part of that process is eliminating Excel Hell. So everything is done. It looks like Excel, but it’s managed in the system. We have templates to start you out or you can create your own and a lot of companies have them. And then the matching is a big feature for reconciliation and the anomaly detection for error and omissions. Those were the key use cases that again, first principle thinking from the bottom up is what we came up with. Now, the last part that I just want to mention is if you look at this, I talked about the three big pieces, right? The one is the real time data. The other is the task manager and doing the journal entries. And the last one is connected workspaces. And that’s all the Excel stuff. Now, that was for the financial close and I’ve handed out these cards with these little QR codes on them and ask people to complete it. Because what we realized from this and the only thing changing is the heading, which you probably can’t read, is if you think about your planning system and if you have any BPM system, enterprise performance management system that works for finance. But what you don’t think about is you have all these departments and all these operations out there who really plan a lot more than finance does because they plan on a daily basis, a weekly basis, a monthly basis, because if they don’t plan, they get trucks coming in that they can’t handle and they do it all in Excel. Okay. And so what we’re talking about now is really the and a part of using this connected workspaces for their planning systems. Because, you know, number one, you have a lot of ad hoc analysis. And number two, you have this gap between, you know, the EPM system and the operational plans because operational plans are in units and rates. Right. They don’t care about dollars and accounts. You ask them for something. They convert it to dollars in accounts. And then you plug it in and then you roll it up the CEO and he goes, Not enough. And then you turn the crank again. And then they complain about it and you can only turn it so many time. So we’re looking at that situation for this connected workspaces as well. And so that’s what I wanted to cover today, you know, taking a use case approach to the financial close. I think the next thing says Q&A. Sure.

Audience [00:20:01] And I know some folks, my friend just writes it in my head for all their transactions, too. They might not push all their transactions to the ledger. So I assume when we just need to rethink how you are, you push from places to ledger, that kind of thing, right?

Ric Ratkowski [00:20:15] Right. Depending on the general ledger. But more and more, they’re getting I mean, like if you’re familiar with SRP, they have the Universal Journal. Every posting ends up there in the ledger immediately. Right. But yeah. Without with separate ledgers only pushing it in month end. That’ll be a problem. We have to get over that for a continuous close.

Audience [00:20:34] And have you seen challenges like it pushing back of doing those feeds like on a continuous basis as opposed to once a month? Because for example, that’s how we close we push all our subsystems into ledger once a month.

Ric Ratkowski [00:20:45] I t pushing back and accounting pushing back. Right. Because I mean, you have balancing controls. When you have that kind of system, you have the balancing controls. You have to go through that. Okay. Now and that’s again, going back even 15 years and I’m hearing continuous close and I’m thinking those guys are not because there’s so much friction in between those two points.

Audience [00:21:05] Thanks.

Speaker 4 [00:21:12] My question is about the preventing the spreadsheet hell that you described. And I’m wondering, as you think about the workflow tools and some of the the enhancements in that shared workspace, connected workspace, how do you factor change management into it? Because sometimes I feel like people have used Excel spreadsheets or email just to try to get the users, the end user community to get that, you know, responses back. Right. And so how does changing the tool address that change management issue?

Ric Ratkowski [00:21:50] Yeah. Good question. I’m I haven’t, I haven’t thought about that. I don’t know if you ever on.

Ron [00:21:57] Think about it all.

Speaker 4 [00:21:58] The way from here. All right. That was your stumper of the day.

Ric Ratkowski [00:22:01] Yeah. Yeah, I don’t.

Ron [00:22:07] Yeah. Let me think about it, and we’ll. Yeah, we’ll get back to you. It’s too late in the day.

Ric Ratkowski [00:22:12] No.

Audience [00:22:16] I think, first of all, great presentation, right? How do you take care of like diverse data? Right. Because there are clients who are political versions of ERP. Multiple sources of truth. Right? Right. How do you how do you address that? Because you need to have like a clean data to do like dirtiness clauses in like G postings or reconciliations. Right. How do you address the data master data issue?

Ric Ratkowski [00:22:44] So, I mean, from an implementation perspective, you know, multiple ledgers, multiple closes, multiple, you know, multiple versions of of the same software. Microsoft Dynamics comes into mind. I mean, from an implementation perspective, you’re going to eat the elephant one pot at a time. Right. You’re going to you’re going to start implementing one of them. Create momentum. Because if you don’t create enough benefit, you won’t get everybody else to change. And, you know, the idea is let’s do it all at one time and that isn’t going to work. You have to do it one, one part at a time. And, you know, a lot of times customers like to work on the hardest problem first and, you know, the hardest ledger, the oldest ledger. And in my mind, you work on the easiest first, because when you work on the easiest first, the hard stuff gets easier. Right. And so my only comment would be, take the situation, you break it up and you decide which ones you’re going to do first. Right. Because even, you know, we talk about integrating with Microsoft Dynamics, but there’s like 15 versions of Microsoft Dynamics and everyone is a little bit different and, you know.

Ron [00:23:56] All right. Other questions? Anyone else? Everybody just listen to that circus music down there and wondering what’s going on. I did see an elephant walk by a minute ago. So messed up their game. All right. Well, Rick, thank you. Well done. We’ll give Rick a round of applause.

Ric Ratkowski [00:24:16] Thank you. Thank you. Well, because if they want to demo east.

Ron [00:24:23] Rick wants me to tell you if you want a demo.

Ric Ratkowski [00:24:26] Yeah, you go to. So if you if you’re interested in this, you want to see a live demo. It’s over in the East Section. It’s called Autonomous Accounting. And they can give you the demo and go into more details. Yes. Let’s let it. Yep. Great. Thank you.