Automation of financial processes based on digitized contracts

Digitization and automation is now a topic that is hotly debated on many levels and with reference to buzzwords such as "blockchain" or "artificial intelligence". But how much automation is realistically possible today? ... and already implementable in companies - with the existing necessities - in practice? Can digital contract data and its ongoing changes be used by departments to automate and optimize (end-to-end processes) business transactions, even deep into financial accounting?

Yes! A key supporter of the introduction of networker's SAP add-on CUNO at DEKRA was IT Procurement. More than 10 years ago, Martin Spitz - Vice President and Head of IT Purchasing in Global Procurement - recognized the potential of contract data integrated in SAP. Step by step, CUNO was established as a strategic contract data repository in the organization and other departments were involved. Corporate Real Estate Management in particular uses contract management intensively and in detail, with relatively few employees. For many years, under the leadership of Klaus Kleinert, the department has been responsible for more than 3,000 rental contracts and their correct commercial processing. Thanks to Pamela Puscher, a high-quality real estate contract portfolio has been built up in the SAP system over the years. As a result, a great deal of preparatory work for today's digitization and automation of rental and leasing contracts in the financial system at DEKRA had already been done in 2016, when the new accounting standard IFRS 16 was published (to be applied for the first time as of January 1, 2019).

Explanation IFRS 16

This standard sets out the principles for the recognition, measurement, presentation and disclosure of rental and lease agreements. In particular, this standard has resulted in the presentation of future rental and lease agreements in the balance sheet and income statement of companies. This information enables users of financial statements to assess how rental and lease arrangements affect an entity's financial position, financial performance and cash flows.

About CUNO-CLM

For many years, CUNO-CLM (Contract Lifecycle Management of the company networker, solutions GmbH - www.networker-solutions.de) has supported contract management in companies. Not only the image of a contract is stored in SAP, but also the contract information.

Digitized contract data helps to comply with contract rules (e.g., dates and deadlines), supports business processes and, with its evaluations and information, forms the basis for decision-making. Plan/actual comparisons provide ongoing information on the status quo of contracts. The plan data in the contract form the basis for balance sheet reports in connection with quarterly or annual financial statements. In addition, contract risks can be monitored and legal requirements (including DSGVO, ADV Auftragsdatenverarbeitung, ...) or quality checks of the internal control system can be stored in the contracts.

Contracts in the SAP system

Contractually regulated transactions leave their traces in SAP. The business transactions are mapped in SAP in individual documents (purchase orders, customer orders, invoices, payments, etc.). Postings are ultimately made in the FI/CO module. CUNO takes on the role of "networker" and links the contract data (as a separate SAP document) with the SAP document flow and the organizational data in the SAP system. In this way, CUNO-CLM enables comprehensive contract-related reporting.

Initial situation

Following initial analyses in 2017, the implementation of the IFRS 16 standard in the Group was started at DEKRA HQ in Stuttgart, in a project group spanning several departments and headed by DEKRA Group Accounting.

The set of rules of IFRS 16 is complex. Purchase and renewal options, notice periods, interest rates, changes in terms and conditions, asset retirement obligations, etc. have a decisive influence on the measurement of each individual contract.

It was already clear at the beginning of the project that without an automated solution, the additional manual posting volume would be immense. In addition, the reconciliation with the globally distributed, locally operating finance departments with different financial accounting systems would tie up additional resources. A "ready-made" standard SAP IT solution for mapping IFRS 16, which would have covered DEKRA's requirements, was not available on the market.

One of the providers was networker, solutions GmbH. The "sustainable" approach to solving the problem presented by networker largely coincided with DEKRA's ideas. Even companies that do not manage their financial accounting in SAP can fully integrate their contracts into SAP with CUNO. The overall concept was decisive for the selection of CUNO-IFRS. CUNO is fully integrated into DEKRA's SAP landscape - with all master and basic data, authorizations, etc.

By automatically deriving the business transactions - directly from the global contract portfolio - a standardized, sustainable and uniform solution can be implemented. In this way, relevant changes to a contract by the specialist department would automatically lead to a corresponding posting in the future. Manual intervention by the financial accounting department at headquarters would then no longer be necessary. Only central quality assurance, monitoring and consolidation would remain at Group headquarters in Stuttgart.

So much for the theory. But how did the implementation succeed?

The project

The first major challenge was to digitize the rental and leasing contracts spread across five continents. The second was to provide a uniform interface (SAP Fiori-WEB) for data entry and a standardized Excel file for loading contract data, since the conditions alone could easily require more than two Excel files.
dimensions. The third and by far the greatest challenge was then to validate the contents of existing contracts (sometimes with a history of up to 30 years) and to map the last valid status of the agreement in the new data model.

A lengthy, difficult process for the departments. The subsequent entry in the optimized SAP Fiori CUNO web masks then took only a few minutes. During this migration phase, companies and departments that had already been using CUNO for many years to record their contracts in a structured manner benefited. They only had to make adjustments to the IFRS 16-specific individual fields.
CUNO-Web

From this phase, an optimized "customizable" entry process via CUNO-Web has proven its worth and has now become an integral part of the new CUNO-Web interface. A configurable classification guides the user through several levels (e.g. company, material group, possibly further clusters/differentiations) in order to enter a new contract. Behind the levels there are already arbitrarily predefined parameters (e.g. contract managers, interest rates, purchasing groups, etc.), which can be automatically transferred to the contract. Only individual parameters of a contract (designation, dates, conditions, etc.) must then be added by the specialist department.

In CUNO-Web, an activity monitor is available for each contract, through which the processes on the contract can be controlled and monitored. Each employee has his own small configurable dashboard ("My contracts"), through which the activities, favorite contracts, dates, etc. can be edited and controlled. Reporting from individual contracts to group-wide evaluations - depending on authorization - can be configured via CUNO-Web and is available to every user via CUNO-Web.

First automation step: The initial assessment

On the product side, the newly created CUNO-IFRS calculation had to take into account all variants of possible contract and global parameters in order to correctly calculate the ROU asset/lease liability of the leased asset from future cash flows, taking into account repayments, depreciation and interest.

Projects whose goal is to automate processes require many sub-steps and developments before one can see success in its entirety. A test of patience and a joint development process for the client, project managers and project staff. Accordingly, transparent communication full of trust is required.

Validations during contract entry check the plausibility and quality of the data at an early stage. Improving and refining the validation of data is an ongoing process that will and must always accompany this automated connection. At this point, the first prerequisites have been created to establish an automated link between the production and financial processes.

CUNO-IFRS

The basic data of the contracts - including start, end, extensions, notice periods, options, periodic and one-off payments, restoration obligations, etc. - are automatically used for the transition from CUNO-Core (basic module of CUNO-CLM) to CUNO-IFRS. In CUNO-IFRS, the contracts are then subsequently measured according to the specified rules (at DEKRA only IFRS 16).

The initial valuation of this basic data for costing is recorded and ends with the successful posting run of the posting proposal from CUNO-IFRS. If the posting system is an SAP FI system, then the posting is recorded with the positive confirmation of the posting from the SAP system. If the posting system is not an SAP system (non-SAP), the firming takes place after successful generation of a (.csv) file with the corresponding posting proposal.

Second automation step: The follow-up evaluation

In order to sustainably and permanently implement the IFRS 16 regulations, after the initial measurement of the contracts as of January 1, 2019, it was also necessary to automatically identify the ongoing contract changes (extensions, condition adjustments, terminations, etc.) per contract and to post them accordingly.

The valuation and posting logic of over 60 different business transactions is stored in CUNO-IFRS. Every month, CUNO analyzes each contract and then automatically assigns the business transaction determined.

With patience - and the trust of the management - the project participants worked their way step by step through the logic of the individual business transactions. At DEKRA, these were in particular the employees of Ms. Bolach's Group Accounting team; in charge were the project manager (Vesna Bartolcic) and the technical project manager (Velizar Dinev).

Both were involved in their other day-to-day business in addition to their project work. Their tireless efforts, with the support of the entire project team, were ultimately crucial to the success of the project. A considerable double burden, which both of them mastered magnificently. They continuously detailed the technical interrelationships of the individual business transactions up to the final posting in SAP FI and tested non-stop.

Where do we go from here?

In principle, a process has been set up to continuously improve the quality of contract data and optimize processes. In a dynamic group such as DEKRA, regularly changing framework conditions must also be taken into account. The next steps include the transfer of system-based monitoring of IFRS 16-relevant information to the global financial managers. This will ensure correct accounting information by the "decentralized" managers. There are also plans to expand and improve the analysis and reporting options - for financial performance optimization in the context of rental and leasing agreements.

Conclusion: The automated financial process from contracts

Target reached!

The specialist department maintains the contract data in CUNO-CLM. Every relevant change automatically leads to a corresponding posting in SAP.

Basically, the automation of processes is a meticulous detailed work, in which step by step the business logic and the set of rules of the individual processes must be deeply penetrated by all participants. The architecture and implementation of the IT systems must, as in CUNO-CLM, permit configuration of the most diverse variants in order to be able to react to changes in a future-proof and robust manner.

Depending on the complexity of the transactions, the implementation of automation in financial processes requires time and the full support of management. In particular, the automated mapping of end-to-end processes that lead to financial accounting requires the involvement of employees from different departments in such a project in order to achieve the goal together.