With hundreds of legal entities worldwide, each generating transactional records for thousands of general ledger accounts, The Dow Chemical Company has about 1,000 employees prepare and submit roughly 250,000 account reconciliations each quarter. Five years ago, two situations conspired to put additional pressure on Dow’s existing reconciliation processes and transform what had been a relatively uneventful, if stressful, financial close.
First, Dow acquired specialty chemical manufacturer Rohm and Haas, itself a global Fortune 500 company with numerous legal entities, representing a sizable increase in the number of account reconciliations that Dow would now have to process. Second, integrating the recent acquisition of Rohm and Haas employees and systems — as well as those coming from other smaller mergers and acquisitions — was occurring in parallel with a major IT project. Dow had started a global initiative to phase out multiple instances of its SAP R/2 legacy mainframe in a migration to the SAP ERP 6.0 platform. This project was putting additional strain on Dow’s accounting resources who already had their hands full navigating the account reconciliations.
Despite having structured account reconciliation policies in place, such as requiring key accounts to be reconciled by the 10th working day of the month and signed off on by the 15th working day, it wasn’t easy for Dow’s accounting resources to meet these deadlines while following the spreadsheet-based manual reconciliation processes without devoting a lot of time and effort.
One significant challenge was a lack of standardization. Data was extracted from the SAP system and transferred to spreadsheets, with supporting documents stored on file servers or in file folders. For many teams, printing copies of account reconciliations was standard practice. Each team had its own processes, as well as unique customizations to the spreadsheets. All of this made it difficult for managers signing off on the reconciliations to verify if they were prepared correctly, or to locate any needed supporting documents.
Pat Withrow, Accounting Director with Dow, describes the previous process. “There was no central database and no standardization; electronic and paper copies were stored in locations all over the world, which made the review and approval process a significant burden. The person who prepared an account reconciliation would let the reviewer know, and this started a hunt for the paper trail. They’d have to find it on a file server or more likely it was a hard copy. I used to sign off on reconciliations, and I’d have a two-foot-high stack to go through by hand. It was a very tedious process.”
Dow realized that making small changes to existing manual processes — such as requiring a uniform spreadsheet format or tightening supporting documentation procedures — wouldn’t address the larger challenge of having a manual reconciliation system that was prone to data-entry errors. And because the upgrade to SAP ERP Financials would be unlocking an enterprise-wide view of transactional data, the business needed to move away from a process that involved hunting for information in three-ring binders. “We revisited our policies and processes and knew that small changes weren’t going to deliver the productivity improvements we needed,” Withrow says.
Turning to the Cloud
Once Dow decided to automate its account reconciliation processes, it created a top 10 list of requirements for an automation tool. Chief among them were speed to implementation, ease of use, and compatibility with Dow’s existing policies, such as its preparation and certification timelines for key accounts. Another requirement was compatibility with both SAP R/2 and SAP ERP, as Dow’s intent was to automate reconciliations for its various businesses and operating divisions irrespective of where each division stood in its SAP ERP upgrade.
After demoing account reconciliation software from several vendors, Dow decided to implement the SAP-endorsed software-as-a-service (SaaS)-based Financial Close Suite for SAP Solutions from SAP gold partner BlackLine. (For more details about the BlackLine solution, refer to the sidebar at the end of the article.)
Any concerns over cloud security were mitigated quickly when BlackLine demonstrated its encryption procedures and overall data security measures for safe off-premise data storage. “Our IT people were involved very early on with a very extensive review of those security measures and came away satisfied,” Withrow says. “The way BlackLine rolls out new versions and addresses potential security breaches became clear selling points.”
The software’s auto-certification functionality in the Account Reconciliations module was appealing to Dow because it offered an out-of-the-box configuration similar to the rule sets and policies the business already had in place for many of its key accounts, albeit in a manual checklist. This meant that Dow could quickly automate its key accounts without having to spend a lot of time setting up new auto-certification rule sets.
“The fact that we didn’t have to make any process changes was one of the key efficiencies,” Withrow says. “Having well-defined policies in place, with rules already established for four different buckets of accounts, meant that when we rolled out BlackLine, we didn’t have to put in a more structured policy framework.”
Dow signed the contract with BlackLine in September 2012 and began the implementation in November 2012, after completing a 30-day pilot. In the first, second, and third quarters of 2013, Dow completed the implementation of the Account Reconciliations module for its North America, Europe and Latin America, Pacific, and intercompany accounts, respectively.
For the pilot program, Dow chose to expose about 70 users across the globe to the new functionality. Its intent in creating this test environment was twofold; it would help obtain user buy-in, and help the company identify areas where functionality could be improved once it began a large-scale rollout.
“We would have encountered a lot more challenges with the implementation if we hadn’t completed the pilot program,” Withrow says. “That initial rollout helped us not only understand the functionality, but also identify which of our more complex reconciliations would need more attention once we completed the implementation.”
Withrow also credits the pilot program with helping to ensure that Dow didn’t use the allotted 40 hours of BlackLine implementation support included in the contract. This, she says, speaks to the BlackLine focus on ease of use for both administrators and end users. Its reconciliation templates are designed to simplify system data loads, making it easy to run through batches of accounts and decide which functionality will be turned on for which accounts, such as multicurrency, or which accounts will satisfy the auto-certify rule sets. “It’s an intuitive walk-through where decision points on a screen will turn on (or off) certain functionality,” Withrow says. “The easy setup ensures that you don’t miss anything.”
This ease of use helped allay the normal user resistance over having to adapt to a change in familiar processes, and Withrow says that the transition to
automated reconciliations went about as well as could be expected. Growing pains were soothed rather quickly when users realized that the software was indeed helping them perform their tasks more efficiently. They also appreciated the peace of mind that comes from knowing with certainty that an audit trail won’t end at their desk.
“On average, it didn’t take more than a few months before everyone was on board, even those who were really resistant,” Withrow says. “I spoke to someone recently who said they used to wait until the last minute to prepare their account reconciliations because it took that long to get everything together. With that legwork now automated, they are just waiting for the books to close to validate balances, and then the reconciliations are done.”
In addition to freeing up resources to divert to the SAP ERP implementation, we’re also finding that teams are now spending more time during the closing process performing analysis, drilling down into balance sheet fluctuations, and conducting other valuable activities there hadn’t been time for previously.
Pat Withrow, Accounting Director, The Dow Chemical Company
Closing with Confidence
Withrow attributes this user satisfaction to three major benefits provided by BlackLine:
- Auto-certification. At implementation, Dow auto-certified more than 50% of its key accounts and more than 60% of its overall accounts through the BlackLine Account Reconciliations module, significantly reducing workloads and allowing for teams to shift toward more value-added activities related to the SAP ERP upgrade.
- Improved transparency. Unlike with spreadsheet-based accounting, with the BlackLine central repository, Dow can easily see the percentage of accounts that are being reconciled on time and in accordance with its policies; reviewers can see the status of any reconciliation at any time.
- Improved auditability and enhanced finance controls. The visibility that comes with automation means that internal or external auditors have clear audit traceability; reconciliation printouts and piles of supporting documents are all in one location, which helps ensure compliance.
“With these benefits, we’re now, for the first time, able to put metrics around the processes, which also helps drive other opportunities for improvement,” Withrow says. “In addition to freeing up resources to divert to the SAP ERP implementation, we’re also finding that teams are now spending more time during the closing process performing analysis, drilling down into balance sheet fluctuations, and conducting other valuable activities there hadn’t been time for previously.”
A New Beginning
Dow completed its SAP ERP upgrade in August 2014. The company looked at this as an opportunity to begin the second phase of its BlackLine implementation, which includes auto-certifying more accounts and ensuring its newfound account reconciliation standardization is realized on a global basis, and not just on an operating segment or geographic level.
Also, with its upgrade to a single SAP ERP platform, Dow can now implement the BlackLine SAP Connector, which extracts data from SAP ERP and formats and imports the data directly into the Account Reconciliations and Variance Analysis modules. The rollout of Variance Analysis is another part of the second phase of Dow’s BlackLine implementation. Variance Analysis is a monitoring tool that checks for account deviations that fall outside of preset parameters, automating period comparisons such as quarter-over-quarter, year-over-year, or budget-to-actual figures. Much like account reconciliations, automating discrepancies and what had been manual troubleshooting processes will make scenarios obsolete that had previously been stressful and fairly commonplace.
“With the old system, if our company controller called at the end of the day asking about a balance sheet change on a European account, we would have had to call people in Europe and wake them up, assuming we could find their phone number. Now, we can take one look and tell the controller precisely what is happening with that account,” Withrow says. “Efficiencies like that are hard to put into numbers, but they let you see the gains that we’ve made.”