Automation of financial consolidation: a real-life case in mining industry

In this article I will go in more details on what areas of financial and management consolidation can be automated and what benefits it can bring.

To be more specific I will discuss the real-life case of our client in the mining industry.

Brief description of the client

• A group of 50 companies in the mining industry with headquarters in Canada and the Netherlands;
• The group owns a number of exploration and mining properties located in Kazakhstan, Namibia, USA and Australia. The investments are treated as subsidiaries, associates or joint ventures/jointly-controlled assets for the group reporting purposes;
• The mining entities are owned by intermediary sub-holding companies;
• The group also has trading (based on both long-term and short-term contracts) and services (drilling) entities;
• The group actively grows using M&As and as a result acquiring businesses with often completely different reporting policies and procedures.

Reporting requirements

Group level. The group is public and provides consolidated financial reporting in accordance with IFRS and operational and financial review on quarterly basis;

Sub-holdings’ level. The group has a number of loan agreements with the banks requiring financial reporting on different intermediary sub-holdings’ and group level;

Standalone level. Several group companies are to provide standalone IFRS reporting for different shareholders’ and tax purposes.

Board and management. The group also provides management reporting to the Board and various levels of management.

Reporting timeline before the automation

Financial reporting. The group presented its quarterly financial statements in USD in accordance with IFRS. All the standalone companies produced their financial statements in accordance with local GAAPs in their local currencies.

Management reporting. The group also provided monthly management reporting with detailed analysis of costs and margins by elements of costs and key operating segments (mineral deposits).

Timeline before the automation: consolidated financial reporting provided in multiple MS Excel books within 40 days from the end of the reporting period.

Approach to automation

1. Unification. The starting point for the automation is always the unification. The reporting areas for the unification should be carefully analyzed and selected and referred to the best practices in the industry. For this particular project we advised the client the following areas for unification:

• Unified accounting procedures and chart of accounts for the businesses in the same industry in the same geographic area. Such an approach brings the further benefits of seamless integration between the local reporting IT system and consolidation IT system;
• Unification of financial and management reporting. The unification between these two types of reporting is always important and can be made in several ways.

  We consider the best practice in this area to have uniform measurement and recognition principles for both sets of accounts with the management reporting be more detailed in terms of revenue and cost analysis, profits analysis, segment analysis etc.

  In this particular project we advised the client to have the unified chart of accounts and to prepare the reporting using unified algorithms first for financial reporting and afterwards for management reporting, with the latter being more detailed in terms of costs and margins analysis;

• Unification of reporting closure business process in order to provide fast closure. We analyzed the financial closure procedures and timeline and advised on a number of improvements to the process (including certain accruals and adjustments to the business process), which ensure 10 days earlier financial close of local reporting.

2. Methodology. We have prepared the following pieces of methodology for automation:

Timeline: 3 months.

3. Implementation. The client chose Oracle HFM for automation of its consolidated financial and management reporting and engaged a licensed system integrator for the project.

The methodology developed on earlier stages of the project (see above) was an entry point for the system integrator and a detailed scope of work.

Our methodology team supported the system integrator during the implementation by consulting of certain complex areas and adjusting the methodology to maximize the system efficiency.

4. Testing and putting into operation. Our team assisted the group and the system integrator with the parallel testing of the new system. We did the consolidation in the new system for one reporting period and reconciled it with the group’s MS Excel consolidation.

Timeline: 7 months (including 3 months of methodology, 3 months on implementation and 1 month on testing).

The benefits

I would stress the two major benefits from the implementation.

Timeliness. The Client benefited with at least 10 working days saved on consolidation process. The consolidation procedure now takes only a couple of days for monthly reporting and up to 5 days for quarterly with the rest time spent on analysis rather than routine calculations of the consolidation entries.

Data quality. The system has brought absolutely new level of the data integrity. Prior and during the consolidation data is subject to a number of system-checks, which significantly reduce the probability of error. The controls we have implemented within the system ensure that the information is accurate and logical and we do not have to search for a needle in a haystack like it often happens with the Excel-based consolidations.

In addition, the client achieved a number of other benefits from the implementation, including:

Audit trail. Process owners are now able to track who did what, when and how they did it.

Multi-user process. Many users globally access the system and participate in the close process around the clock.