Other Invoices, Other Rooms

Reconciling intercompany transactions has never been a favorite pastime of finance employees. But a new breed of tools promises to ease the pain.

Mention intercompany transactions to finance managers, and most get a peculiar look on their faces — a look most readily compared to the soulless expression seen on prospective root-canal patients just before they disappear down the long hallway and into the dentist’s lair.

Admittedly, this may be something of an exaggeration (dentists don’t have lairs). But reconciling intercompany transactions has never been a favorite pastime of finance department employees. While most accounting and financial consolidation packages include some capabilities for intercompany elimination or transaction monitoring, many programs track figures only at an aggregate level, requiring extensive analysis to resolve variances. “For many companies, investigating intercompany variances is a very time-consuming process,” says Kathleen Wilhide, a research director at technology research firm IDC. Worse, she adds, “it may delay closing the books at month’s end.”

But a new breed of tools promises to ease the pain. The applications, typically modules within larger business performance management suites, can handle the complexities of intercompany eliminations. That includes reconciling differences and currency valuation, a task that often bedevils companies with business units in several different countries.

Right now, two major financial software vendors, Hyperion and Cartesis, offer stand-alone programs designed specifically for managing the intercompany transaction reconciliation process. It’s likely that more vendors will join the game. Indeed, IDC says financial consolidation programs made up about a quarter of the sales in the $1.2 billion business performance management sector in 2003. And Wilhide notes that the financial consolidation software market remains strong, as domestic businesses come to rely on the programs to cope with Sarbanes-Oxley, and global operators look to comply with international accounting standards.

The Template of Doom

Francois Vitte knows all about vexations triggered by intercompany transactions. Vitte, financial consolidation manager at communications specialist Orange Group, helps the London-based company oversee 70 different entities operating in 16 countries. Until 2002, reconciling the transactions between those companies was a Herculean task. Workers at each subsidiary had to fill out Excel templates and send them to partners via E-mail. “We faced a lot of delays and nondelivery of messages,” says Vitte. “It was not a very reliable or efficient system.”

Determined to simplify the process, Orange Group installed Cartesis Intercompany Server in 2002. Using the program, workers at different business units are able to reconcile intercompany invoices and balances via the Web. One example: when a customer in France goes to the U.K. and uses his cell phone on the foreign network, the invoice generated reflects the roaming charges between Orange France and Orange U.K. The Cartesis software helps employees reconcile the transactions to ensure they match, and makes the necessary accounting eliminations in the consolidated financial statements to avoid double counting of sales/purchases.

Vitte says the program has provided greater visibility into the entire transfer pricing process. It has also eliminated the need for workers at individual businesses to key in monthly data. The time savings has been so sizable, in fact, that Orange’s parent company, France Telecom, began using the software in 2003.

Finance managers at Ferrero International Group are hoping for similar results. The Luxembourg-based maker of Nutella and Rocher chocolates began the process of rolling out Hyperion’s new Intercompany Detail Module in the spring. While it’s a little early to assess the impact of the application, consolidation department manager Salvatore Castelli says he expects improvements in speed and accuracy.

In the past, workers at Ferrero’s 50 subsidiaries manually input transaction data, with the balances keyed separately into the company’s reporting system. This created a double loading of data (the preferred method for guaranteeing that mistakes make their way into a ledger). Castelli reckons some 85,000 transactions were balanced that way every year. In fact, intercompany transaction balancing had gotten so tedious that the company performed the task only once a year.

With the Hyperion program, Castelli’s group now maintains centralized control of all the invoices and transactions between Ferrero’s companies. The module enables finance department employees to drill down and look at each invoice that makes up a balance.

By logging in to the Web-based program, a buyer can see all transactions declared by a seller in one system designed specifically for reconciliation and reporting. All data is integrated, and little time is wasted rekeying data. Says Castelli: “We are improving our control over the reconciliation process.”

Sounds practically painless.

Esther Shein is a regular contributor to CFO.

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