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Take the Complexity and Risks Out of Intercompany Transactions: Q&A on How to Ensure Data Integrity and Increase Productivity

December 16, 2015

Companies that work in multiple ERP systems and have international operations continue to be challenged with monitoring cross-entity and intercompany transactions. The risks of waiting to see discrepancies in intercompany billing until month-end close are substantial, ranging from inventory write-offs, top-side adjustments, wasted resources, and financial integrity risk, to major financial exposure.

During this one-hour chat on December 16, Susan Parcells and Susan Hols of BlackLine took readers’ questions on how to address the complexity of intercompany transactions to ensure data integrity and improve productivity. 

We invite you to view the online chat replay below, and also read the entire, edited transcript.

Meet the panelists: 

Susan ParcellsSusan Parcells, Director of Finance Transformation, BlackLine
Throughout her career as an auditor and while holding various management positions within accounting, Susan recognized that the traditionally manual processes within the financial close were not only inefficient, but often times exposed companies to risk. She began to focus on process improvement around the close, helping accounting teams reduce their workload and instead use their analytical skills to focus on other value-added activities, all while enhancing controls around those processes. She now spends her time attending conferences, tradeshows, and other venues to educate companies on ways in which they can optimize their financial close processes along with having great control around them. Her greatest passion is helping others, which makes this role at BlackLine a perfect fit.

Susan HolsSusan Hols, Principal Solutions Consultant, BlackLine
Susan joined BlackLine in 2011, and her primary areas of interest and practice lie with process improvement and automation. Her role at BlackLine fits in perfectly with these focuses and allows her to work with prospective and existing clients to demonstrate how BlackLine can help them in these realms. Prior to joining the BlackLine team, she spent five years as a management consultant. While consulting, she worked on projects related to system implementation and upgrade, internal and external audit, financial planning, reporting, and accounting. Susan is a certified internal auditor (CIA) and a certified BlackLine implementer. Overall she has over 20 years of auditing and accounting experience including tenure at Wells Fargo, Ernst and Young, LLP, GMAC-RFC, Allianz, and UnitedHealth Group.

Live Blog A Q&A on How to Take the Complexity and Risks Out of Intercompany Transactions
 

Transcript

Natalie Miller, SAPinsider: Hello everyone, and welcome to today’s Q&A on how to address the complexity of intercompany (IC) transactions to ensure data integrity and improve productivity. I’m Natalie Miller, features editor of SAPinsider and insiderPROFILES, and I’m thrilled to introduce today’s panelists, Susan Parcells and Susan Hols of BlackLine.

Susan Parcells is the Director of Finance Transformation at BlackLine and throughout her career as an auditor has held various management positions within accounting. Susan Hols is the Principal Solutions Consultant at BlackLine with primary interests and practice seeded in process improvement and automation.

Hello to you both and thank you so much for being here today to answer readers’ questions on intercompany transactions!

Susan Parcells, BlackLine: Hello, everyone! I am happy to be here today and look forward to some great questions.

Susan Hols, BlackLine: Hi, everyone. I’m happy to be here with you all today and answer questions!

Comment from VSR: Before going in depth, could you please give an overview of intercompany transactions as a starting point?

Susan Parcells: Great idea! An intercompany transaction occurs when one division, department, or unit of an entity participates in a transaction with another division, department, or unit of the same entity. Such transactions occur for a variety of reasons. For instance, a company may sell inventory from one division to another division, or a parent company may loan money to one of its subsidiaries. Transactions occur not only between the parent company and a subsidiary, but also between two or more subsidiaries and even between two or more departments.

Comment from Guest: Intercompany transactions are a process with a lot manual work in reconciliation in regard to balance. SAP cross-company posting or processes help a lot. For companies with multiple entities of which more than 50% are cased outside SAP, do you see opportunities to reduce manual reconciliations?

Susan Hols: Yes, absolutely. BlackLine provides the ability to bring multiple entities for disparate systems into one centralized workspace. Clients with legacy ERP systems or multiple ERP systems can standardize posting of all intercompany transactions on BlackLine Intercompany Hub. BlackLine provides a controlled and templated approach to posting such transactions. Pre-posting validation rules ensure these postings are not rejected from the target accounts due to entry errors. Users can create, review, approve, and certify intercompany journal entries, which can then be posted to the entity’s general ledger (GL) clearance accounts.

Comment from Dave: Can you please discuss the requirements/considerations around assigning partner profit center to intercompany transactions? Thanks.

Susan Hols: Hi, Dave. When creating intercompany transaction types in BlackLine, you will be able to define criteria related to profit center. In addition, you can define, track, and manage all corporate and country governance requirements for each transacting entity, including transfer pricing, exchange rates, taxes, and other criteria.

Comment from HMG: If you have different SAP instances and different ERPs, can a tool like BlackLine’s intercompany software retrieve information from multiple SAP instances and different ERP systems? How?

Susan Parcells: Yes, BlackLine’s Intercompany Hub can retrieve information from multiple SAP instances and even different ERP systems. A text tab delimited file is created and sent to BlackLine on an automated, scheduled basis through the client’s SFTP site. SAP HANA can be connected through our data extract in our standard import templates through SFTP.

Comment from Hema Sridharan: Hello. If different company codes have different extended withholding tax setup and we would like to have intercompany postings between them, is that possible with some additional set up?

Susan Hols: Hi, Hema. Yes, within intercompany transaction types configured and defined in BLackLine, you can assign specific withholding tax requirements based on different company codes.

Comment from Rajan Srinivasan: Is this hub a custom-developed add-on to SAP? Can you provide more details and explain with an example how it will be used?

Susan Parcells: BlackLine is a separate software-as-a-service (SaaS) application that works with SAP to handle financial close activities such as intercompany transactions, settlements, and reconciliations. BlackLine’s Intercompany Hub solution handles IC transactions as requests where they will be validated, supported, and properly routed for the appropriate approvals. Once both sides of the transaction are in agreement, BlackLine will process the journal entries via configurable rules which will send journal entries to a single or to multiple ERP systems for posting. Because the agreement occurs on the front end and the entries are booked automatically, companies can avoid all the manual labor involved with tracking down discrepancies and one-sided bookings (which is typically done in the month following the original booking). Simply put, BlackLine takes a proactive approach instead of a reactive approach to the intercompany process.

Comment from Young Oh’Song: Hello, Susan. I have many intercompanies. Can you introduce best practices about period end (month end and year end) FX translation in SAP? How do you extract individual open items for each intercompany to reflect period-end FX revaluation? It would be great if IMG (configuration) is explained, too. I’m considering setting up (creating) FX adjusting BS accounts for each intercompany account. For example, if I have five intercompany vendor accounts, I’m considering five BS accounts as FX adjusting accounts. Thank you.

Susan Hols: BlackLine fully supports multi-currency including all ISO currency codes. BlackLine’s Intercompany Hub solution handles IC transactions as requests where they will be validated, supported, and properly routed for the proper approvals. Once both sides of the transaction are in agreement, BlackLine will process the journal entries via configurable rules which will send journal entries to SAP for posting. Because the agreement occurs on the front end and the entries are booked automatically, you can avoid all the manual labor involved with tracking down discrepancies and one-sided bookings (which is typically done in the month following the original booking). Simply put, BlackLine takes a proactive approach instead of a reactive approach to the Intercompany process and related FX requirements.

Users initiating transactions can select the required currency based on the entity or company code, for example. Or the currency code can be predefined based on the transaction type selected.

Comment from Rajan Srinivasan: How will an entity take care of entries initiated but not yet approved? Will the hub help them consider these entries when finalizing the financials? Or is it that these entries cannot be considered until these are accepted and approved? My question is more with reference to allocations where disagreements may be more probable.

Susan Parcells: A transaction that has not yet been approved will be visible to the users, allowing them to see what is outstanding as they work towards finalizing the financials. The idea is that throughout the month, as these intercompany transactions are being entered, the appropriate folks (those with permission) are working through the usual questions/discussions that often happen when dealing with intercompany transactions such as date of the recording, currency type, and so on. By having this go through a workflow, not only are we ensuring the appropriate folks are entering into and approving these transactions, but that they are addressed throughout the month and users are not scrambling at the end of the month to settle all of the intercompany transactions.

Comment from Guest: How is BlackLine’s Intercompany Hub charged — by transactions, by company codes, or by instances connected? And how long does it take to implement it?

Susan Hols: Various types of intercompany transactions can be configured in BlackLine with specific rules predefined for each transaction type including validation rules to ensure charges are properly allocated by company code, profit center, and so on.

Implementation time is dependent on client resources, number of IC templates, and the number of ERP systems (to determine the number of journal templates and extracts to be built). On average, an implementation will run six to nine months.

Comment from Michael: How does your tool handle a rejected intercompany charge/transaction?

Susan Parcells: Rejected transactions are sent back to the initiator through the configured workflow. The user rejecting the charge can include comments, review notes, and documents explaining why they are rejecting the transaction. An audit trail of transaction rejection is maintained in BlackLine.

BlackLine’s Intercompany Hub ensures this through sender and receiver approvals, journal validations, and automated booking of journal entries to source ERP system(s).

Comment from Guest: If the transaction currency is based on company code currency, this may be a problem. The intercompany charges between two units should use the same currency in one transaction, right? How can we target that?

Susan Parcells: BlackLine supports full multi-currency. All ISO currencies are supported. IC transaction initiators can select the required currency based on the entity or company code, for example. Or the currency code can be predefined based on the transaction type.

Susan Hols: BlackLine provides a controlled and templated approach to defining transactions types. Pre-posting validation rules ensure these postings are in line with specific currency requirements for any intercompany transaction type defined to prevent FX posting errors.

Comment from Kevin: What options are available for generating invoices for tracking and auditability?

Susan Parcells: BlackLine’s Intercompany Hub offers functionality that enables the system to automatically create a corresponding invoice based on details completed within an intercompany transaction and attaches it to the transaction upon final state certification. There are a number of countries and/or corporate best practices which require invoices to be attached to intercompany transactions.

Comment from TJ: SAP only allows cross-company within a single controlling area; how does BlackLine achieve intercompany transactions with multiple controlling areas?

Susan Parcells: BlackLine has a hierarchy structure that allows companies to set up multiple levels, whether that is based on multiple companies or multiple locations. As the rules are set up for the intercompany transactions, a company can either allow or disallow transactions to take place between those various entities or areas. Expanding this even further, if a company has multiple ERP systems, BlackLine has the ability to work with multiple ERP systems, allowing for one central repository and better visibility into transactions crossing over multiple ERPs or entities.

Comment from Rajan Srinivasan: Is there an on-premise edition also offered? Or only a SaaS edition?

Susan Parcells: This is only offered as a SaaS solution.

Comment from Lynda Bezzina: What are your suggestions for the best way to handle intercompany eliminations?

Susan Hols: The BlackLine Intercompany Hub eliminates after-the-fact manual reconciliations and settlements by reconciling intercompany transactions from different general ledger and financial systems in a centralized, clearinghouse environment.

BlackLine takes a proactive approach instead of a reactive approach to the intercompany process and related eliminations.

Comment from Howie: What options do I have for augmenting the group consolidation process?

Susan Hols: BlackLine has templates to import organizational charts and other settings to assist with the group consolidation process. Clients can also configure their organizational structure within BlackLine. The platform allows mapping with configurable hierarchy levels to roll-up from the lowest level (entity) to the highest level (entire organization). This enables group reporting and dashboarding views within the configured level of the configured hierarchy.

Comment from fordecn: At present, our SAP intercompany is done via Opened Items. Is this the best treatment when there is significant activity between the related companies?

Susan Parcells: The challenge around Opened Items is that it lacks some of the control, such as the validation rules (who can enter into a transaction, who can approve, dollar limits, etc.) as well as the workflow between the initiator and receiver.

Comment from Srinivas Thota: I would like to know, what are the best practices from the ECC side to support intercompany profit elimination for leftover stock on inventory?

Susan Hols: Hi, Srinivas. BlackLine’s Intercompany Hub solution handles IC transactions as requests where they will be validated, supported, and properly routed for the proper approvals. Once both sides of the transaction are in agreement, BlackLine will process the journal entries via configurable rules which will send journal entries to a single or multiple ERP systems for posting. Because the agreement occurs on the front-end and the entries are booked automatically, clients can avoid all the manual labor involved with tracking down discrepancies and one-sided bookings (which is typically done in the month following the original booking).

Comment from Guest: Is there a best practice/leading practice on currency setup to keep CO/FI in sync? We have SAP Material Ledger in scope with parallel valuation. We are in ECC 6 and countries have different inventory valuation requirements. Please clarify.

Susan Hols: Yes, rates are imported into BlackLine on an automated, scheduled basis to ensure they are in sync with ECC.

Comment from VSR: What are some general, standard SAP intercompany practices?

Susan Parcells: Some general suggestions or best practices around intercompany include establishing clear roles and authority around entering into and approving IC transactions; having visibility into the due-to/due-from accounts; using technology to have a more systematic method; and assigning accountability for ensuring that the intercompany accounts are clean.

Natalie Miller: Many thanks to everyone for joining today’s chat. As we come to the end of the hour, I’d like to thank you all for your great questions. And a special thanks to Susan Parcells and Susan Hols for these insightful answers!

Susan Parcells: For anyone looking to learn more about BlackLine's Intercompany Hub, feel free to check out this link.

Susan Hols: Thank you for your time today! Please email me at susan.hols@blackline.com with any further questions.

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COMMENTS

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TusharPoddar

1/5/2016 9:36:41 AM

I would expect more matured answers. Many answers are repeated and do not display the depth represented by question.

Currency Set-up

12/16/2015 1:58:49 PM

Is there any best practice/leading practice on currency set-up to keep CO/FI in sync? We have Material ledger in scope with parallel valuation. We are in ECC 6 and countries have different inventory valuation requirements. Please clarify.

fordecn

12/16/2015 1:41:01 PM

At present our SAP Inter-company is done via Opened items. Is this the best treatment when there is significant activity between the related companies


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