Remote Closes: Best Practices and the Future of Virtual Finance

In short:

• Some finance teams are closing the books virtually for the first time — with little opportunity to prepare
• As companies shift their processes on the fly, a few key strategies will ensure month end financial closes go smoothly
• Here are ways to overcome common challenges in making the switch to remote, tips for closing the books virtually and the case for cloud-based closes

Even before coronavirus, remote work was on the rise. In its 2019 Employee Benefits survey, the Society for Human Resources Management found that 69% of organizations allowed employees to work from home at least some of the time. But while potential cost savings spurred many CFOs to advocate for remote work — even before a pandemic forced the matter — it was often a case of “do as I say, not as I do.”

Take closing the books, a finance function that’s rarely done outside the office. Despite the availability of technology and an increasingly virtual world, most finance and accounting professionals still rely on traditional, manual processes to close the books — a mix of spreadsheets, on-site systems and in-person collaboration.

In fact, in a poll during a recent Deloitte webinar, over 40% of the audience said that no professionals involved in their financial close processes worked remotely prior to the current crisis. An additional 31% said that less than one-quarter of their teams were offsite during a typical close.

Now, though, over 75% of those surveyed say that the majority of their professionals are working remotely on the financial close.

The spread of the coronavirus and ensuing remote-work mandates have now rendered that everyone-up-close-and-personal approach impossible, at least for the foreseeable future. That’s a big shift that happened fast. Have changes to policies, processes, technology and culture kept pace?

So far, evidence points to no: 43% of surveyed executives on a recent NetSuite webinar focused on virtual accounting practices said that while they could perform a remote close, they could not do so as effectively as in-office.

Barriers to smooth remote closes are both human and technological. There are new costs involved as well. We set out to discover what challenges teams with newly dispersed staff and auditors face now and gather best practices to guide the new virtual close process.

Our goal: Bring some predictability to an otherwise unpredictable time.

The Human Factor

Under normal circumstances, virtual employees tend to be more productive than their commuting peers. Nicholas Bloom, a senior fellow at the Stanford Institute for Economic Policy Research, conducted a two-year, randomized study with Ctrip, a 16,000-employee travel agency. After nine months, Bloom found that home working led to a 13% performance increase as well as improved job satisfaction.

But being a remote worker by choice is very different from abruptly being forced to get things done from home. For one thing, Bloom notes (opens in a new tab), many professionals are not trained or equipped to work remotely.

“We are home working alongside our kids, in unsuitable spaces, with no choice and no in-office days,”says Bloom (opens in a new tab). “This will create a productivity disaster for firms.”

Or at least, for those firms that don’t take proactive steps to help workers overcome personal productivity constraints.

“It’s a particularly challenging environment out there,” says Kyle Cheney, a partner at Deloitte & Touche LLP (opens in a new tab). “Those of us with family at home may be homeschooling or providing care for infants or toddlers who don’t necessarily respond well to, ‘Hang on a second, I’m on a video conference.’”

Peter Nesbitt, VP of finance at Teampay (opens in a new tab), a distributed spend platform, has experience operating with a remote team and says managers need to be flexible with the goal of helping people do the best job possible with what they have available.

The constraints of working from home will likely be more pronounced for some employees versus others. Those with young children or poor internet connectivity will be at a disadvantage compared with peers who have already worked remotely.

Cheney says colleagues may need to be online at staggered times, or even adopt some shift work. And even then, many simply will not have as much capacity as they did in the office. Even in best-case scenarios, CFOs are likely to see a decrease in their teams’ overall productivity.

Determining how to offset this is an important near-term task for leaders, as we’ll discuss. Most urgently, think about whether there are tasks central to a successful close that can be done by only a few people, or even a single individual. Then figure out what it will take to make these stakeholders productive.

A complicating factor: Technology might not be helping matters.

Traffic Jams Aren’t Just for Commuters

Predictably, few IT teams were prepared for a mass exodus of employees from offices equipped with high-bandwidth connectivity and tested security. In fact, 54% of HR leaders in a recent analyst poll (opens in a new tab) said that poor technology and/or infrastructure is the single biggest barrier to effective remote working.

“Our people need computing resources, which could simply consist of a PC or laptop, stable Wi-Fi and a place to work,” says Cheney. “But these can’t always be taken for granted today.”

Cheney works with companies that have only desktop PCs, or associates that work solely at service centers that aren’t accessible right now.

Technology problems don’t stop at hardware and facilities. Many companies are finding that their networks are not equipped to support dozens or hundreds of concurrent remote connections.

“The volume of people accessing corporate systems that enable the close and financial reporting is significantly greater now,” says Cheney. “Companies are running into VPN capacity issues, trouble with user permissions and general bandwidth.”

The VPN issue is especially problematic. Use of virtual private networks, critical for security (opens in a new tab), has increased substantially since the start of remote-work mandates. AT&T says use of its cloud-based business VPN, called Anira, surged roughly 700% over just a few weeks.

Remote closes have traditionally happened on site because the data required — detailed inventories, statements of goodwill, liabilities — is sensitive. How will you make sure it stays confidential while in transit between home workers?

Small companies may not have VPN capacity issues, but in larger firms, where IT has sized the VPN for only a percentage of employees, everyone piling in can crash the system.

“Because of bandwidth capacity issues, many organizations are struggling to provide secure VPN connections for all of their remote employees,” says Justin Jett, director of audit and compliance at analytics company Plixer (opens in a new tab). “This can result in employees not using the VPN, or having a significantly poorer experience as compared to when in the office.”

Some employers are asking people to stagger working times. Citigroup, a bank with about 200,000 employees worldwide, resorted to asking non-essential workers in North America to hold off logging in to its remote access system until the afternoon — a move intended to minimize the time that European and U.S. employees were online at the same time and prevent the system from being overwhelmed.

At least until you can budget for and provision additional capacity, Jett recommends educating employees that non-critical, bandwidth-intensive activities, like streaming video on a system connected to the VPN, may result in peers being unable to log in. CFOs may want to set aside a window for activities connected to closing and ask employees not involved in the effort to stay off the VPN.

Both questions — of capacity and employee suitability for remote work — come into play in a big way for companies that use offshore business process outsourcing (BPO) or financial services firms. Because of data privacy and compliance concerns, many companies regulate data access strictly to those physically in the office, another hurdle to keeping finance teams functional.

IT and BPO trade association Nasscom estimates that more than 1.3 million people are employed in the BPO sector, the majority of them in India. These outsourced professionals offer crucial back-end operations for Western companies, particularly those based in the United States and Britain. Yet few BPO firms have the infrastructure or permissions in place to enable their employees to work from home.

This is having an impact on contractual compliance, where outsourcing suppliers are no longer able to meet their obligations. Whether or not a contract can be terminated because of that depends on the agreement; for example, is there a force majeure clause , and does coronavirus fall under its scope?

However, even when possible, termination may not be the best route because re-procuring or insourcing arrangements would be quite complex at this time.

Instead, legal experts recommend (opens in a new tab) communication and flexibility. Maybe not all services can be performed, and not all service levels can be met. CFOs should identify their business and operational priorities, and then work with providers to address them, rather than trying to hold firmly to all of contractual requirements.

Look for innovative ways to get what you need while preserving outsourcer relationships(opens in a new tab).

Security & Physical Separation

The unexpected massive shift to working from home has strained companies’ security measures — and attackers know it. Tonya Ugoretz, deputy assistant director of the FBI’s Cyber Division, said (opens in a new tab) that in March, the Internet Crime Complaint Center (IC3) received between 3,000 and 4,000 cybersecurity complaints each day.

Compare that to its previous average of about 1,000 per day.

“There is a digitally historic event occurring in the background of this pandemic, and that is, there is a cybercrime pandemic,” says VMware cybersecurity strategist Tom Kellermann. “It’s just easier, frankly, to hack a remote user than it is someone sitting inside their corporate environment.”

As cybercrime proliferates, leaders must take steps to avoid disruptions to the financial close, and the business as a whole. The IC3 has found two prevalent COVID-19-related threats that may affect financial professionals with access to company data:

• Online extortion schemes (opens in a new tab) where scammers attempt to blackmail individuals into disclosing sensitive personal or corporate information.
• Business email compromise(opens in a new tab) scams that target businesses, through their company email systems, and attempt to redirect electronic payments, such as wire or automated clearinghouse transfers.

In addition, companies must password protect videoconferences (opens in a new tab) and reinforce awareness of how phishing emails are exploiting the fear, confusion and anxiety around the current crisis. Ask IT to ensure that your now-remote team understands the prevalence and seriousness of these attacks, how to identify phishing attempts and the process to handle these emails.

Companies are also feeling the imposed distance from the physical components of their businesses. Part of this comes from a reliance on paper: invoices, checks and other documents in paper form are likely inaccessible right now. However, another complicated issue is the question of how to address inventory, a major component of the month-end close.

U.S. audit standards require some components — generally inventory is among them — to be physically counted. That count represents a crucial component of companies’ balance sheets. If auditors can’t access material inventory for physical audits and complete their work, they likely wouldn’t submit a report.

“If anyone has any inventory or work in progress, it would be extremely difficult to verify,” says Brian Cairns, founder of business consultancy ProStrategix Consulting (opens in a new tab). Cairns cites checking physical inventory for loss or damage, for example, as tasks that will be next to impossible to do remotely.

Workarounds can include postponing the inventory count or installing cameras, or even autonomous drones, and setting up the auditor to look at specific areas of a building. However, getting that done at this point will be challenging.

The Human Connection

Security, BPO, bandwidth and demanding toddlers aside, the benefits of collaboration when closing the books are the prime reason some organizations have avoided making the process remote. There’s no doubt that working side-by-side can speed up the financial review and account reconciliation process.

In that NetSuite webinar, 42% of attendees cited culture as a substantial hurdle in performing a remote close.

Even Jody Cire, CFO of AllCloud (opens in a new tab), a cloud-native professional services firm, admits that the transition was difficult for some of his colleagues.

“The bulk of the accounting staff is in our Tel Aviv office, and they are used to working a little more collaboratively,” says Cire, who’s based in Colorado. “We’re certainly using [online collaboration tools] more intensively now at the lower levels of the organizations than we had before.”

In the vein of both collaboration and technology, one issue warrants highlighting: Visibility into schedules, materials and data.

“The close schedule, with activities and assignments, may not be accessible remotely,” says Deloitte’s Cheney. “Team members need to be able to collaborate online. They need to be able to share an understanding of task assignments and sequencing, as well as access the systems and data they need to complete the close.”

Team members that used to be able to “drop by” their colleague’s office to work on part of the close process, go over a spreadsheet or discuss issues that arise are now expected to do that online.

Unfortunately, as many companies have learned, that transition from in-person to online interactions isn’t always a smooth one.

There’s a technical side to collaboration that some leaders did not anticipate: Teleconferencing has its limitations. For instance, at Wells Fargo & Co, teams have been asked to start conference calls at odd times, like 2:20 p.m. rather than the hour or half hour, to avoid clogging its conferencing system.

Finance leaders need to ensure that their teams have the tools to collaborate effectively. Multiple, reliable platforms will likely be needed to substitute for in-person interactions — instant messaging, videoconferencing and teleconference capabilities to start.

Leaders also need to evaluate data sources to ensure that the full team can access critical information and has visibility into tasks and timing. While it’s up for debate whether in-person interactions can be replaced by technology, one thing is for sure: Collaboration with unsuitable technology certainly won’t cut it.

Short-Term Plan: 7 Tips for Handling the Switch to Do Now

Set up a virtual command center: As companies work their way through the learning curve of the remote close, Deloitte’s Cheney recommends setting up a virtual command center to oversee the effort.

“That team should utilize some sort of playbook that outlines the activities and controls that need to be in place,” says Cheney. “That command center [will also] work with your technical help desk to address technical issues that might arise.”

The virtual close playbook (opens in a new tab) should include a prioritized list of close activities, considerations and risks given the virtual nature of the process and updated protocols for technology and collaboration tools.

Communicate, communicate, communicate: Working remotely on the close in his tenure at Teampay made Nesbitt realize the importance of communication in the virtual world.

“Communication is the responsibility of the leader, not the led,” he says. “And over-communicating needs to happen when you don’t have in-person communications.”

Nesbitt, who manages a small accounting and finance team, admits he’s had moments when he realized he didn’t communicate clearly enough, or enough times to make it clear, what actually needs to be done, when and by whom.

And then, make sure it’s happening.

“The management piece becomes a lot less passive in this environment,” he says. “You have to be much more active.”

Tighten up security: The sharp pivot to work from home led some stressed technology departments to permit less-rigorous security policies. It’s time to tighten things back up. That virtual command center should work with the technical team to make sure that all compliance standards are met, best practices are followed and everyone knows who to contact with security concerns while working through the close.

Map out processes: “I think that closing the books, in general, is a bunch of small processes to build one big process,” says Nesbitt, who adds that mapping each piece is imperative. “What is each team doing as a part of close? What are the specific tasks? When are they doing those tasks? How long do those tasks take?”

Your team needs to be able to see the critical paths and have real-time visibility into schedule, sequence and assignments.

With his remote team, Cire uses collaboration tools to run point for his team.

“I can see where we are in the close process and interfere with any other projects that may come up that risk derailing the timeliness of the close,” says Cire. “It also allows me to help prioritize projects.”

Create new check-in points: When you can’t just go over to someone’s desk and ask, “Hey, what are you working on?” leaders need to help their teams manage scheduling and prioritization in other ways.

“One of the interesting ideas I had heard from a controller is that they’re doing a morning standup every day [for] 15 accountants,” says Nesbitt. “They go around the room and spend one minute saying what they’re going to do today.”

Standup meetings (opens in a new tab) are a very common practice for developers and engineers that Nesbitt says the finance and accounting world should adopt. By doing a standup remotely in a video conference, he’s able to get the close team on the same page each day, review the tasks that need to be done and minimize duplicate or missed work.

Assess and address capacity: Cheney advises CFOs to assess their teams’ resource capacity, from both a staff and BPO standpoint, and when necessary, outsource or acquire necessary talent, to the extent fiscally feasible.

Analyze technology needs: Ironing out all the technological issues arising from the sudden shift to remote work will take time and is beyond the scope of this article. But getting the tech in place for a successful remote close is both doable and necessary for success. Employees need secure access to the key systems and data required to complete the close. They also need reliable tools for collaboration, connection and communication These can be put in place affordably, now (opens in a new tab).

Long-Term Vision: 5 Reasons to Virtualize the Close

A silver lining in the sudden switch to remote closing is that it provides an opportunity for finance chiefs to improve their processes. Many finance organizations have not adopted the necessary cloud-based tools to automate and virtualize the close process.

The ability to close the books remotely is clearly beneficial, now and when we get to the new normal. So, with the world rapidly moving to the cloud, why is the finance function lagging?

Quite simply, because it’s the way things have always been done.

“It’s a sense of, ‘If It’s not it’s not broke, don’t fix it,’” says Nesbitt. “I think the challenge of that is that people in finance tend to be very conservative in nature, and they don’t want to change things, especially on the accounting side. So, if it doesn’t require a change right now, let’s not change it. I think there’s a lot of inertia.”

Virtualizing the close may also be seen as a new cost rather than an opportunity to increase operational efficiency and save money.

Our advice is, take this time to overcome inertia and gain the benefits of a cloud-based close process. Like what? Other than the obvious one of being able to close the books remotely when the need arises, virtualizing the close has several notable benefits.

Speed: In its report, Change in the Office of Finance, Ventana Research found that 85% of companies surveyed that nearly or fully automate their close processes are able to close their quarterly books in six or fewer business days. Just 43% of those that have partially automated are able to work that quickly, and just 33% that use little or no automation have this ability.

Faster closes deliver reduced workloads; better analysis; and, in the case of public companies, more time to craft the management discussion and analysis portion of the process.

Efficiency: Robert Kugel, SVP & Research Director at Ventana, was a strong advocate for virtualizing the finance function prior to the coronavirus crisis, insisting that it will “de-stress the process.”

“If you automate the things that can be automated, there’s less work for people to do, particularly the mindless stuff,” says Kugel. “There are no dropped balls, as hand-offs now are automated, and people get reminders. So, you can focus more on the things that are important.”

In addition to the time-saving advantages of automation, Kugel argues that using the network rather than a conference table makes the close more convenient and efficient for those involved.

“Regardless of where you are, regardless of when things are happening, you can work asynchronously much more effectively, or in sync at the same time without actually having to be there,” said Kugel. “You can have approvals in workflows that are signed off in a mobile device. That enables you to have a lot more flexibility under any circumstances.”

Improved quality: Even with increased speed, those who have virtualized the close process argue that quality goes up, not down, when it comes to the final product.

“The fact that it’s digitized actually forces you to think through the different moving pieces and the communication part,” says Nesbitt. “You have to really map out who’s doing what and when — the right types of communication need to happen at the right time. If you’re just in the office, it’s easy to just kind of wing it each month.”

Systematizing the process and creating a workflow, he says, eliminates redundancies and forces companies to become more thoughtful and efficient.

“Additionally, recordkeeping is much easier when things are organized digitally,” says Nesbitt. “So, if you ever have a question about a prior period, or an auditor has a question about a prior period, we have easy access to all those files.”

Security: It’s a common perception that a cloud-based close process is insecure. Kugel says that’s not so.

“There is still a lot of preference for doing it [on premises],” he says. “And it’s just an irrational fear. It’s the, ‘I want to make sure that my systems are safe and secure behind that door in accounting, in the closet down the hall.’”

That’s great — until people must work remotely.

“People in finance and accounting need to wrap their heads around the reality that spreadsheets circulating in e-mails are not secure,” he says. “Things get lost. You have volume control issues, you therefore have huge data quality issues.”

Non-hub hires: Both Cire and Nesbitt have an additional argument in favor of a cloud-based process: It enables finance professionals to be located all over the world. While Cire and the company’s CEO reside in Boulder, Colorado, the majority of AllCloud’s accounting and finance professionals are in Israel. Nesbitt is located in New York while the rest of his team is scattered.

Eventually, we’ll be able to go back into one office. But should we?

“Do we even need offices, or do you want to hire someone in a lower-cost location than somewhere like New York City and then work with them remotely?” says Nesbitt

Fully virtualizing the close process is a worthy project, even after remote work mandates end.

“I would argue that it is demonstrably more secure, more accurate and more controlled,” says Kugel. “I think you get a better product.”

Megan O’Brien is Brainyard’s business & finance editor, covering the latest trends in strategy for CFOs. She has written extensively on executive topics as a former content creator for Deloitte’s C-suite programs. Reach Megan here.