Don’t count your beans until they’re batched

Improving transaction processes is a prerequisite to moving the finance function forwards.

By Jon Miller, Pannone LLP

There are two main strands to the modern finance function in a law firm: business support for managing the firm, including provision of management information, profitability analysis, business projections and general strategic input; and creation and management of effective systems to process transactions and capture information.

While ultimately the real value of the department (and, let’s be blunt, the finance director) will be seen in the context of its ability to support and drive forward the business (please refer to the excellent article by David McLaughlin in issue one of FD Legal)¹, the best way to actually achieve this is to become progressively more effective at managing the underlying transactions. The higher the volume of transactions in your business, the more this will be true.

The value of getting it right

Pannone LLP is a full-service law firm, splitting its workload evenly between corporates and individuals. The latter includes bulk remortgage and personal-injury departments, both of which create huge volumes of transactions.

In any given year we will process upwards of 300,000 bank and billing transactions alone.

It will be second nature to readers of this publication why it is important to process all transactions expeditiously and accurately, but it is worth briefly reiterating this. Clients require expediency to meet their own deadlines and accuracy to ensure the right amounts are sent to the right places; internally, speed and accuracy are the foundation blocks of maintaining the key reconciliations and providing accurate, real-time information, upon which key management reports will be based.

If you are unable to process transactions effectively there will undoubtedly be knock-on effects in terms of management time, with progressively more time taken up fire fighting operational problems and, therefore, less time to add real value to the business.

Choosing the tools

Underpinning any successful finance department will be a pool of high-quality, customer-focussed professional staff. Given this expertise, it is imperative that their time is not wasted on repetitive transaction inputting so that they can focus on quality control and added value. To facilitate this, transaction processes need to be reviewed in detail (particularly those relating to high volumes) to try to identify where efficiencies can be made. Then systems (whether manual or electronic) can be devised to improve processes in ways that enhance their speed and/or their accuracy.

The Pannone experience: remortgage

The value of such an approach can be clearly illustrated by our own experiences in our remortgage section. Four years ago, all accounts instructions were initiated by way of pre-printed forms (known as ‘chits’) – different coloured pieces of paper representing different transaction types, completed in pen by fee earners and sent to accounts via internal mail. Each remortgage completion would have a ‘bundle’ of related chits, consisting of (as a minimum): a receipt for the new remortgage advance; a payment to redeem the existing mortgage; a payment of any surplus arising from the remortgage (or a receipt in the event of a shortfall); a transfer from client to office to pay the associated bill; and a journal to account for the billable HMLR searches. The volume of remortgage completions varied between 1,000 and 2,000 per month, so up to 10,000 related transactions per month required processing.

Each chit was completed manually by fee earners, and then checked by accounts staff before being keyed into the accounting system. Furthermore, the bank transfer (TT) payments were manually keyed in to the modem-based bank interface for onward transmission. All this double and treble handling of monetary values, bank account details and client/matter numbers, combined with the high volumes of transactions, was a potential recipe for disaster.

So did anything actually go wrong? Fortunately, the quality of the firm’s cashiering staff was such that errors were rare – incredibly so in retrospect. However, we did have the occasional fun and games when a TT was sent to the wrong recipient or for the wrong amount – this invariably led to wasted management time in getting the funds frozen and returned to the firm.

We also suffered from the fact that we physically could not update our own ledgers quickly enough to show the correct position at all times, with the consequent danger of believing sufficient funds are in a client account when that may not actually be the case. For the same reason, bank reconciliations were extremely difficult to keep fully up to date and drew considerably on the resources of the department just to remain a few days behind. Filing of all the chits was also problematic and it was often very difficult to locate them after processing. So it’s safe to say, drastic changes were required.

After discussions with the managing partner and the IT and remortgage departments, it was agreed that we would specify an integrated workflow system to automate the entire transaction process, from fee-earner calculation of surpluses or shortfalls right through to updating the accounts ledgers and dispatch of TTs.

Subject to quality control and authorisation procedures, transactions would remain ‘untouched’ through the entire process.

It took the best part of two years to get all elements of our current workflow system fully operational.

The IT development team wrote the new system in SQL with an MS Access front end, which was designed so that fee-earner screens looked like the original paper chits, even to the extent of being colour coded for different transaction types. The key features within the system now include:

A remortgage calculator, which uses information held on our Axxia
case-manager system to populate a completion statement and calculate the appropriate surplus or shortfall;
Automatic creation of electronic chits for all associated transactions: these are reviewed and approved individually by fee earners;
A direct link with AFD Bankfinder software, which checks the consistency of the recipient bank account details;
A partner authorisation screen for all appropriate transactions. This is password controlled and allows the partners to approve, reject or query any entries;
Once approved, the data populates an accounts checking screen where each transaction is checked (particularly the details of the remortgage advance). When satisfied, transactions are ticked through on-screen and sit in a batch file waiting to be processed directly into our accounting system via an API link written by Axxia. At the same time, another batch file is created with details of any outgoing TTs, which can be uploaded directly into our new internet-banking system for onward transmission;
The same basic system, minus the remortgage calculator, has now been rolled out across all departments firm wide.

The result

The accuracy of the data in our accounting system has been significantly improved as transactional data is no longer re-keyed. The end result is that we can extract better quality information from the system, which is also available same-day, and have the ability to deal not only with existing levels of completions (approximately 2,000 per month) but also any increases in these volumes.

Accounts staff that previously spent much of the day keying transactions into various systems are now primarily engaged in quality control, ensuring that all details are correct before processing, as well as running after-the-event reports to check the veracity of data.

The accounts team is also less stressed out and has a more productive role within the firm, while managers and supervisors in the department are less bogged down in operational issues and can provide financial and commercial support for the important strategic issues facing the firm. This not only provides invaluable support to the firm but also enhances the internal perception of the department.

Reference

FD Legal, Oct/Nov 2006, p19

Jon Miller was appointed finance director of Pannone LLP (then Pannone & Partners) in June 2002, having previously spent over four years in the finance department at Addleshaws. He can be contacted at jon.miller@pannone.co.uk.