With news that Tesco overstated its financial figures by £250m, Neil Kinson, vice president, EMEA, Redwood Software discusses the importance of automating critical processes to help retailers achieve the right figures the first time and every time
After discovering that its guidance to the City overstated expected first-half profits by about £250m, Tesco has found itself thrown into the media spotlight. With the suspension of the head of its UK business and calls for independent accountants and lawyers to investigate, Tesco’s highly overestimated financial figures are not a pleasant tale.
The significant overestimations are said to be caused by delayed accrual of costs. According to Clive Black, an analyst at Shore Capital, “It’s been a total failure of governance. The finance director announced he was going in April. For a period they’ve been rudderless in that respect.”
The shock announcement wiped more than £2bn off the value of the supermarket on Monday, bringing its share price to an 11-year low as regulators with the power to impose unlimited fines hovered and City analysts made calls for the chain to be broken up. Already, these inaccurate figures have damaged the brand’s reputation and resulted in the loss of jobs. The situation highlights the need for retailers like Tesco to change the way they handle critical processes so that this will never happen again. To do this they will need something more than just manual human oversight which can sometimes go awry.
Build in Accuracy Increased manual effort inevitably leads to a widening opportunity for human error. As manual tasks become more repetitive and complex, the risk of something going wrong escalates– and when brand reputations are on the line even one mistake is one too many.
So how can retailers like Tesco increase the efficiency of their finance processes to avoid being thrown into the spotlight for the wrong reasons?
The repetitive and painstaking nature of so many tasks in finance—the same qualities that make them so prone to error from human fatigue—also make them perfect candidates for automation. With financial close automation it’s possible to execute accurate and consistent processes with exact precision every time. Accuracy and adherence to compliance rules can be built right into the process itself so that catching errors doesn’t depend on watchful people alone. With automation, companies make it impossible to have figures that don’t make sense.
Audit and Error Correction Automated financial processes also create an impeccable audit trail. Complete transparency within and outside of an organisation is a must to uphold compliance rules and ensure trustworthy reports. More importantly, a good audit trail makes error correction easier and keeps confidence levels high.
What’s interesting to note in the Tesco story is that the overstatement was discovered when a whistle-blower alerted Tesco’s general counsel on Friday afternoon. When modern businesses hinge on up-to-the-minute data, Tesco shouldn’t have had to rely on a whistle-blower to discover their problem.
With financial close automation, manual errors could have been totally avoided before they were ever reported. Automated financial processes automatically and immediately notify finance or accounting managers if any figures don’t add up—well before erroneous data could end up on a public-facing report. So, when retailers are looking to achieve the right figures, this is a far safer way to meet the highest compliance standards with less effort. In this hyper-connected world, automatic audit trails also mean that it’s easier to trace and track any process at any time.
To stay out of the hot water that Tesco is now experiencing, other retailers need to act quickly to ensure their financial reporting is air-tight. The technology is available to eliminate financial errors in reports for good. It’s time to start using it before one more mistake slips by.