Scrutinizing the numbers
BI vendors strive to offer execs greater visibility into accounting
RISING TO AID C-level executives under accountability pressure, BI (business intelligence) and enterprise application vendors are stepping up to the plate with offerings designed to improve financial visibility.
New federal regulations require that CEOs and CFOs at approximately 1,000 of the country’s largest public companies must certify the accuracy of their financial statements, beginning with quarterly reports due on Aug. 14.
Cognos and Sagent are among many BI vendors that have responded by bolstering the analytics capabilities of their offerings in an effort to give executives greater visibility into financial reports by allowing them to drill down into specific transactions.
BI platforms narrowly define data and thereby help companies avoid honest mistakes as well as fraudulent attempts to “cook the books,” said Delbert Krause, senior product manager at Burlington, Mass.-based Cognos.
Cognos in June rolled out a financial management application designed to boost a company’s insight into financial performance. In November the company will add capabilities that support integration with Microsoft Excel.
“[Executives] would like to know every step that took place, from the gathering of the data to the analysis, to the adjustments that are made … so that they can always look at a number and understand where it came from,” Krause said. “When you define the data to come in a certain way, the system will process it as it is defined. Gray areas of definitions would be very easily exposed.”
Sagent this week is scheduled to unveil a new information integration offering designed to allow users to combine data ad hoc from multiple sources. The new technology, which comes in the form of the company’s DataFlow server repackaged as an extraction, translation, and loading tool, provides real-time integration by combining external information on the fly with data from a data warehouse, according to officials at the Mountain View, Calif.-based company.
Executives often struggle to integrate multiple data sources that can then be analyzed and culled for financial reporting, said Dave Henry, vice president of product marketing at Sagent. For example, inventory data may be stored in the data warehouse whereas sales information is housed elsewhere. Or, an executive may want to link financial reports from multiple divisions and compare them with industry benchmarks as part of financial reporting.
“It can connect to any source of structured data regardless of the origin and blend all the information into a real-time virtual view,” Henry said. “We can either use the information where it resides, or it can be put in a data warehouse.”
The view can be called from within reporting tools and spreadsheets or via Web services, he added.
BI financial solutions are designed to boost accuracy compared to using only shared spreadsheets, which lend themselves to mistakes, said Cognos’ Krause.
“When you’re dealing with an application like Cognos Finance, it is one database with all the security and mechanisms to ensure that the data isn’t changed or altered inadvertently,” Krause said.
In addition, the application is designed to allow companies to close their books as often as daily, without having to wait until the end of the month to address a problem that could affect revenue or earnings forecasts, Krause added.
Business intelligence tools are best suited to allow executives to drill down into the source of financial reports to review their accuracy, said John Hagerty, an analyst at AMR Research in Boston. For example, if an employee forgets to book an order in an order management system but makes the adjustment in the general ledger, a BI tool could help find the discrepancy in the revenue figures, he noted.
“That’s a situation where, as you start seeing the source of where information is coming from, it may be a flag to start investigating further,” Hagerty said. “If you see some anomalies, people will drill into the support data to find out why.”
However, he noted that BI systems would be hard-pressed to catch someone intent on committing fraud if the data were entered correctly in the data capture system.
Revenue recognition is indeed the area that can be most challenging for companies compiling financial results, said Bob O’Connor, CEO of Canton, Mass.-based Softrax, which provides a revenue management solution geared primarily toward high-tech companies, which increasingly have multiple revenue models that include subscriptions, services, and content charges.
“We want to capture the details of that contract — the products, the prices, the delivery, and the recognition rules,” he said. “We have built an XML-based product that takes that information and shares it with an ERP system. In today’s environment the difference between an honest mistake and total fraud is not as thick a line as it used to be.”
Application vendors also are adding analytics to back-end financial systems to help companies better leverage raw transactional data.
PeopleSoft, in Pleasanton, Calif., has embedded analytics in its financial module designed to daily report to executives the status of key performance indicators. Executives and line managers can receive color-coded reports highlighting any variances from performance goals, said Renee Lorton, senior vice president and general manager for PeopleSoft financial management solutions.
In addition, cost controls can be embedded in the system to ensure that budgetary limits are not exceeded, Lorton added.
“If you don’t have the type of financial system that will give you this real-time information, then you really don’t have the visibility you need to have the control in your organization,” Lorton said.
