Accelerating a global bank's earnings release

Transforming financial controllership processes for financial services institutions has been an uphill battle. The reason: The industry has unique and complex issues with valuation controls, capital planning, internal controls, and change regulations when it comes to closing the books. Traditionally, bank CFOs and their teams have struggled with opaque, complicated, and inefficient close cycle processes and with business units that take too long to provide numbers.

Challenge

A stressful financial close process plagued by data flow issues and manual effort

Our client was experiencing these issues firsthand. Upstream transactions data stored in the bank's central data repository – its financial data warehouse – only flowed to the general ledger during the intense, compressed month-end closing process. Moreover, external dependencies for valuation and revenue booking further delayed it. Meanwhile, too many disparate in-house systems stored fragmented pieces of vital data, creating interface issues and encouraging redundancies in reconciliation and other closing activities.

This meant that critical financial data became available only inconsistently, making it difficult for the accounting team to retrieve and appraise. Valuation, independently of the price verification process, moved slowly, impacting mark-to-market review and downstream processes. At the same time, automation was inadequate. Poorly coordinated sub-ledger and general ledger inputs forced people into making manual, time-consuming, and frequent but nonmaterial adjustments to the books. Audit trails weren't traceable, and compliance took more effort than necessary.

These challenges took their toll. Longer close cycles meant the company was behind its peers in getting its earnings report out to the street. Insights became delayed, impacting decision-making and resulting in suboptimal employee and stakeholder experiences.

Solution

Reimagining the bank's financial close process end to end

First, we worked with the bank's finance team to conduct a thorough assessment of its existing close operations. To that end, we held design thinking workshops with a broad segment of the finance and accounting team to deep-dive into their challenges and pain points. We conducted 150-plus meetings and spent 2,000 hours of collective time to understand the bank's close cycle process with help from our proprietary framework assets, ProcIndex and Continuous Close Accelerator.

Then, we put our transformation roadmap to work.

We reshaped the bank's month-end general ledger and sub-ledger closing process. We integrated every aspect of it, making it holistic and seamless. We improved the data feed and made it easier to access, bringing in automation and introducing analytics across all upstream and downstream activities. We looked at every other factor that closing touched, too, including product control, liquidity, and risk management. And we focused on ways to reduce peak load using centralized governance and embedded controls.

Our three-pronged approach – process simplification, a new policy framework, and technology updates – played out in the following ways:

• We resequenced, restructured, and redistributed financial close tasks before, during, and after the process, balancing the team's peak load effort, relieving pressure, and reducing the risk of error.
• We defined a holistic materiality tolerance framework for all of the bank's segments and redefined the threshold limits for posting transactions – adjusting policies on cutoffs and frequencies associated with the close tasks. We also carried out data-driven scenario analyses of what impact a change in the threshold limit could have on the bank's earnings before interest and taxes (EBIT), revenue, earnings per share (EPS), return on average tangible common shareholders' equity (ROTCE), capital ratios, and other critical Securities and Exchange Commission measures. This analysis helped the bank define the right threshold limits and resequence close tasks.
• We integrated and automated front-, middle-, and back-office data flow, reducing manual handoffs for data inputs, data feeds, and upstream processes and enabling straight-through processing for transactions. This improvement created a seamless data flow from source systems to the general ledger through to consolidation and reporting with tight control of data integrity.
• We've also advised the bank on how to make the best use of its existing digital technology investments and suggested new ones, such as an automatic cash application, that will eventually improve the end-to-end financial close process even further.

Impact

A stress-free and faster financial close process that delivers earnings reports quickly

The bank now has a faster, more structured, efficient, and effective financial close process that has decoupled from other bank processes that do not affect close. Nearly 90% of reconciliations have become automated and the entire close process has become 90% standardized.

As a result:

• The bank has now brought down its general ledger close time and is now releasing earnings to the street two days earlier than before.
• Accounting efforts during financial close and earnings release processes have gone down by 30%.
• The user experience for the finance team has vastly improved because tasks are more evenly assigned and coordinated. Effective governance is in place, and the close cycle pressure has eased with a 25% reduction in peak effort, resulting in a better work-life balance for the bank's accountants.
• The finance team now has clear and real-time visibility of data, reducing handoffs for data feeds.
• With faster access to numbers and analytics-driven insights, the CFO and controllers can better assess the company's financial status and how it performs close tasks globally.

Most importantly, the investment bank is now close to becoming best in class in releasing earnings while operating at a lower overall cost of finance as a result of the transformation.