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Re-engineering accounting systems

Having the right accounting system in place can help your business survive COVID-19.

Carel Smit, Financial Systems Manager, Gen2 Group.
Carel Smit, Financial Systems Manager, Gen2 Group.

Traditionally, accounting systems are used to process financial transactions and report the resultant monetary information. This, in turn, is used as measurement data against organisational objectives. In organisations, computerised systems are often the primary driver for the use of an accounting system to improve accuracy and compliance.

However, in recent years, quantitative information has been included in accounting systems so that it can be used in the analysis of responsibility areas in the business – and this is where the key differentiator lies.

Carel Smit, Financial Systems Manager at Gen2 Group, says: “Regardless of your definition of accounting systems, what has mostly remained as a common thread is the focus on history; the reporting on data from the last completed financial period, which could be information that’s anything from 40 to 60 days old. All too often, it is only at this stage that budget owners see the impact on their budget.”

While many accounting systems were built to fulfil the purpose described above, Smit believes market conditions and the impact of the COVID-19 pandemic necessitate a rethink of the role of accounting systems.

Over the past two to three years, most sectors of the South African economy have been under pressure. One of the worst hit was the construction sector, which saw most of the traditional and large contractors like Murray & Roberts, Group Five, Basil Read, Esor, the Liviero Group and many others forced into serious restructuring, filing for bankruptcy protection, or being liquidated. Just more than a decade ago many of the construction companies, including the cement producer PPC, were among the JSE Top 40 companies. Today, none of them forms part of this elite group of companies.

This sector was hard hit by a decline in government infrastructure spend and by September 2019, had 30 000 less workers in the industry than the year prior. In April 2020, the SA Forum of Civil Engineering Contractors warned that the COVID-19 lockdown could result in over 100 000 job losses over the next 18 months.

Smit says: “These examples from the construction industry are applicable to most sectors of the economy, and it’s time for businesses to re-assess how they use accounting software and the benefit they receive from their existing systems.”

He goes on to discuss how accounting systems can provide real benefit to businesses. “Systems must support the work-from-anywhere principle, while still maintaining full collaboration between co-workers and other role players like external auditors, suppliers and clients. It’s also essential that financial control and measurement become the focus at the start of business processes - via online approvals for all cost transactions before cost commitments - and not an outdated after-the-fact reporting function.”

Integrated online transactional documents are no longer a luxury, but a necessity, according to Smit, to facilitate remote collaboration and online approvals, while procurement functionality, including online approvals by budget owners, as a prerequisite to order creation, must become the norm and be seamlessly integrated with other accounting modules.

“In addition to standard accounting functionality, systems should facilitate easy profit, cost and budget variance analysis of any cost entity in the business, like departments, contracts, events, plant and vehicles, products, etc.”

He highlights that remote system access requires data capacity, which brings with it additional costs. Accounting systems can reduce data demand in the following ways:

  • Remote data entry must be minimised and optimised:

i. Through the import of transactions captured offline via Excel or other templates;

ii. Creation of new transactions by copying any existing transaction with new reference information for easy and quick editing.

iii. Quick access to open transaction dashboards with easy filtering and search functionality to reduce data transfer speed and volume.

  • Drill through reporting (going from one report directly to underlying data, without the need to exit and run another report) will reduce data volume and improve the user experience.

Smit says online cost approval of all transaction types, like journals, cashbook and non-order invoices, must become the norm, not only approvals of procurement requisitions or orders. “Reconciliations must be system-assisted and therefore available as online processes for easy collaboration and approval. The principle of single source data entry is an absolute and no data should be entered more than once. For example, a creditor invoice will update the general ledger, cost ledger, creditor reconciliation, B-BBEE spend and scorecard information.”

Finally, the cost of the accounting system should ideally be an operating expense (opex) item; a usage fee per user per month, allowing for the cost to align with the demand for accounting resource.

The benefits of having this type of functionality in your accounting software are numerous:

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