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Lean Six Sigma is effective at enhancing the efficiency of service operations, which includes accounting functions within organizations. Removing waste and defects from accounting processes increases service quality, strengthens internal control and mitigates risk. Though accounting and finance tasks can be difficult to understand, working closely with subject matter experts ultimately yields process improvement.
Creating journal entries is a bookkeeping task found within most organizations. The process varies depending on the accessibility of source documents and the software package used to maintain the general ledger. Accountants and bookkeepers experience different kinds of waste including rework, excessive motion or transportation, defects and over-processing. For instance, bottlenecks may exist at the supervisor level regarding journal entry approval. This can create excessive wait times. Using Lean Six Sigma to identify and remove these types of waste leads to process improvement.
Performing reconcilements normally involves matching general ledger activity to bank activity for a given reporting period. It is a process that can be tedious, especially if there are a number of reconciling items. Discrepancies between the general ledger and bank statements are often attributable to defects in accounting, cash management and treasury tasks. Researching reconciling items produces excessive waste ranging from transportation to waiting. Applying Lean Six Sigma to reconcilements will improve operational efficiency and the accuracy of financial reporting.
Materiality is a concept within financial reporting that references the magnitude of misstatements. While lean concepts are associated with minimizing waste, six sigma techniques are focused on reducing defects to 3.4 per million iterations. Financial statements that exhibit low levels of errors or defects have a lower probability of being materially misstated. Though one defect can produce a material misstatement, a reduction in defects substantially reduces control risk. Lean Six Sigma is an excellent tool for mitigating enterprise level risk.
If applied correctly, Lean Six Sigma is effective at improving accounting processes and reducing organizational risks. Removing waste and defects from accounting tasks greatly enhances the accuracy of financial reporting.