Audience

The Root Cause of Accounting Mistakes (and How to Steer Clear of Them)

A single accounting mistake can have consequences that ripple through an organization and negatively affect it for years to come. That one mistake could have jeopardized a deal, created a breach of contract, threatened the risk of non-compliance, or obscured strategic planning. And as innocent as that mistake may have been, once it has been committed to, the effects are difficult if not impossible to reverse.

Every company is aware of how much risk accounting mistakes create. And every company is taking measures in reducing those risks as much as possible. The bad news is that most companies are still struggling with accounting mistakes despite their best efforts.

In all cases, these mistakes can be blamed on human error. Either someone was working carelessly and obliviously (something we’re all guilty of), or they were working with the wrong information without knowing it. As a result, they enter the wrong figure in the right place, or the right figure in the wrong place.

Obviously, the solution is to eliminate these kinds of human errors. But in practice, that is almost impossible to do. Companies have experimented with more rigid workflows, enhanced oversight, and various tech tools that are supposed to send up a red flag when an error is logged. Despite those valiant attempts, the accounting mistakes continue. They may not be as frequent or as egregious, but they are still an obstacle that disrupts momentum and growth.

The problem is a misunderstanding of the root cause of accounting errors. It is true that human error is the culprit, however, trying to get people to work without error is a doomed agenda from the start. This approach is based on the false assumption that with the right framework in place, you can empower your team to work perfectly at all times and in all situations. When this mission is framed in those terms, its foolishness becomes clear.

So if human error is the problem and there is nothing that can prevent all human error, what is the solution to accounting mistakes? In most cases, it is to remove the humans entirely.

There are a lot of inputs and touch-points that go into the typical order-to-cash process. A human runs the risk of entering bad information at any point. However, if many of these same inputs were automated instead, such as with an order to cash software, the risk of mistakes would drop immediately.

That is not to say that automation is infallible, though, it is immune to fatigue, distraction, stress, and apathy. The kinds of unavoidable issues that lead directly to human errors are irrelevant concerns when a machine is handling the work.

It is important to qualify this by saying that not just any piece of IT can be relied upon to handle something as important as the substance of your accounting efforts. But when that IT has been tailored to the workflows, data, processes, and goals of the user, it can reliably duplicate the routine work of accounting professionals while safeguarding against the vast majority of errors.

The added benefit is that once your accounting team no longer has responsibility for tasks that are quite basic and routine but also time and labor-intensive, they can focus their talents towards more productive pursuits that generate revenue and spur growth. For example, their focus could be shifted to providing financial information for strategic planning, or to increase the efficiency of the cash flow process instead of toiling away on repetitive tasks that a machine could do more efficiently.

You do not need to have experienced a major accounting mistake for this advice to resonate. Responding to the complexity of global markets and sweeping national and international regulations means that data management in accounting is more important than ever. If you’re ready to avoid the mistakes of tomorrow while preparing for the demands of next year, accounting automation is a must have.