Local government is used to accounting within a complex system of rules for reporting, monitoring, governance and scrutiny. The public sector faces increasing demand for transparency in the use of public funds while pressure to maintain levels of good financial management and effective planning are higher than ever.
The challenge of the process can mean finance teams spend months looking back, consolidating and finalising the accounts that summarise what the organisation has been doing in the past. However, tight budgets, limited resources and changes in funding streams have led to organisations rethinking their approach.
With pressure on the sector to save money, many are looking to find ways to reduce the time taken up by closing the accounts – and the government’s decision to move the deadlines in some regions reflects their prioritisation of this agenda. Prompt closure is part of a wider ambition for good practice financial reporting within a modern finance department, but increasingly organisations are also looking to redirect valuable, expert resource to business planning and forward thinking.
Quicker accounts production lessens the impact of old-year work on the programming and production of new-year work. In-year monitoring and support can be picked up earlier in the year, meaning key financial decisions can be taken earlier on the basis of known facts about the organisation’s financial position.
With accounts closed rapidly, finance can concentrate their efforts on the activity of the authority as it happens, rather than spend the year trying to catch up. More real-time support means managers can trust their budget positions throughout the year rather than just focus on getting there by year end.
In turn this feeds forward into the next year’s closure process. More time is available to get things right during the year, meaning fewer errors need to be corrected or adjusted for during the closedown pressure. This positive cycle of gains can therefore benefit not only finance but also service managers and front line staff.
So how can authorities speed up? A critical success factor identified in every case of prompt production of accounts is commitment at the highest levels of the authority.
Good financial management needs to work across the whole organisation and thus non-financial managers need to be as informed as the CFO and the CEO; finance cannot work in isolation. However, the leadership team and the CFO should be prime drivers for making sure the closure goals are achieved.
Next, it’s time to look for practical, realistic steps that will make a difference. Organisations can learn from the experiences of others, but should also ensure plans are tailored for their own local challenges and situation.
Here are ten key ideas to help you achieve early closedown for next year.
Closedown is a constantly changing task that requires specific and detailed knowledge. Rotate attendance at training among the team and set up sessions to pass on information.
Make sure you fully understand the nature of the change first – time is easily wasted by diving straight into data analysis. Recognise that change may create a need for new skills or external support.
Test out your plans by doing dummy runs of closing troublesome or new areas earlier in the year, using either partial or fake datasets. This can identify issues with systems and processes, and clarify advice or training needs.
Build reviews into your timetable from the outset and encourage the mindset that you aren’t done until these sessions are completed. Identify where problems occurred and agree what will be done differently next year. Include the audit process in this review and create next year’s timetable at the same time.
Do you always get held up by capital financing? Are recharges or the collection fund always a headache? Identify the problems which form your bottlenecks as priorities for improvement. Avoid carrying known issues, such as inaccurate coding, through the year and mentally assigning them as ‘things to sort out during closedown’.
Many accountants’ first response to an inaccurate or late return is to reformat the spreadsheet or provide ever more detailed instructions. However, better returns can come from a relationship management focus. Take time to really understand how the person doing the work views it, and build from that position. Seek to motivate them and remove the barriers they identify.
Computers are far better at wrangling and manipulating data than humans. It takes time to develop good IT links and processes but with good design and management the investment can be handsomely repaid.
Make sure no one is spending time validating data that can’t be wrong, or worrying about insignificant differences. Take a risk-based approach and ensure you’re never just confirming that the spreadsheet software knows how to add up! Where possible, automate reconciliations.
Many delays during closedown are actually repeating the mistakes of previous years. Write down procedures in detail, including references to relevant files and contact details for information sources. Co-ordinating this task can be a great job for someone new to the process as it develops their knowledge.
Processes and systems can change overnight. People take longer, which may mean a delay to the rate at which you can reap the full benefits of an improvement. Be realistic in your expectations.