Automating the finance function

In an edited extract from Digital Governance (Routledge, 2020), Jeremy Swinfen Green explains why CFOs should embrace digital transformation for their own teams.

Automation, as part of a digital transformation strategy, is increasingly present across all areas of organisations. The finance function is no exception. But the purpose of automation is not to dispense with the role of the CFO. Far from it. Rather, it is to free up senior executives from routine tasks, enabling them to focus on activities that add greater value to their organisations.

Automation in finance

Automation involves machines (including computers) that are able to complete repetitive tasks at a fraction of the time it takes humans, and to do so with greater accuracy and without complaint. There are a number of financial processes that may be appropriate for automation. These could include making payments, credit control, and financial reporting.

Until now people have undertaken these processes. But if computers take them over, then people who simply record transactions do not have to be discarded. Instead they could be offered a new role where they identify the value in information and help make decisions based on that information.

Digital technology enables better analysis and better decision-making. Automated processes can use link up with data analysis and machine learning to make rapid and reliable decisions or to produce high-quality outputs such as reports.

Automated analysis is an improvement on human analysis, and it’s getting better. For instance, computers have been shown to be better at diagnosing skin cancer than doctors and can potentially select the best treatments. This doesn’t make doctors redundant. The doctor is still needed to sense-check the computer’s diagnosis, administer the treatment and monitor results. The same is true with finance. Computers may well predict outcomes and identify risks. But finance professionals will be needed to decide how to react to those risks.

There are a number of benefits from automation for finance departments and these include:

• Automated reporting. Financial reports can be produced and distributed speedily and accurately. Businesses that use XBRL (extensible Business Reporting Language) and ESEF (The European Single Electronic Format for reporting financial results) can transform the way they can report their results, increasing accuracy, transparency and compliance

• Reduced costs. Costs can be reduced significantly by automating key financial processes. In addition, there may be a reduced need to outsource specialist tasks with a saving not just in money but also in reliability and a reduction in the risks (including security) that come from using third parties

• Better use of people. Good talent is rare. And using it to undertake important but routine tasks that could be completed by a computer is wasteful for organisations, and frustrating for the talent. By freeing people up to do things that add greater value such as supporting financial decision-making, organisations increase effectiveness

• Increased speed. Processes can be completed more speedily. Even relatively complex tasks such as reviewing contracts or auditing companies can be conducted by computers. This reduces risk and opens more opportunities

• Improved quality. Data processing quality can be improved with automation. There will be a considerable reduction in error rates compared with human data input

• Greater consistency. Using a machine to undertake processes means that you can be sure that the process is conducted in the same way, whether it is in Paris or Paris, Texas. If financial consistency is put in place across different business units, it is far easier to compare performance

• Better records. If a machine undertakes a task it is simple to record when and where the task was undertaken and who caused the task to happen. It is much easier to ensure control and traceability with automated processes

As with data analysis, the automation of processes brings along with it certain requirements. In particular there is a need to understand any human issues: the threat of redundancies needs to be handled and imagination will be needed when deciding how best to redeploy existing staff.

In addition, there is a need to have the strength of mind to accept that while the computer may be right a lot of the time, it isn’t always right. For instance, software may have been programmed using the wrong data set. Or the software may malfunction in certain circumstances. And there may simply be a mechanical breakdown such as a power outage. There will be a need for constant monitoring and review by humans.

And finally, while automation is a great benefit, it won’t be appropriate for every financial process, or for the whole of a process. An understanding of when judgement (i.e. the presence of a human) is needed in a process will always be needed.

Finance process integrity

But there is another advantage available to finance professionals from the use of digital technology.  Software applications can be designed and developed to exhibit the characteristics of what might be called “integrity by design”. Such features can include the enforcement of:

• Account administration

• Account blocking and surveillance

• Authority limits

• Delegated authorities to roles or persons, typically as exceptions to normal rules

• Approval authorities, including exceptional, additional authorities

• Processing priorities, e.g. against timelines or compared to other tasks or first calls on spending

• Audit sampling

• Budget escalations e.g. when total spending on Acme widgets is about to exceed £n.

This technology capacity is presently often under-deployed even within existing capabilities. And that’s important, given the fact, reported by Action Fraud, that in 2017-2018 UK businesses lost £88 million to employee dishonesty, with the average loss exceeding £62,000.

In addition, financial processes that use technology to provide integrity by design could greatly reduce the incidence of damaging “CEO frauds” where CFOs are duped into making payments to fraudsters, thinking they are doing so on the order of the CEO. That in itself is a powerful argument for busy CFOs to embrace automated digital processes.  

Originally published in Business Reporter