The precision and thoroughness of an organization's financial records are crucial for all its financial decision-making processes. Despite the public perception of CEOs and CFOs as the faces of financial announcements and statements, it is ultimately the responsibility of accountants to ensure that every detail is accounted for accurately. Even the most experienced accountants are prone to making errors, as they are only human. A single oversight, such as a duplicate payment or missed receipt, can have detrimental effects on the organization's financial records. This can lead to decisions being made based on incorrect data, ultimately causing chaos in the organization's financial management.

What are Accounting Errors?

Accounting errors and omissions, also known as anomalies, are instances of inaccuracies or mistakes that occur during the recording and reporting of financial transactions. These errors can be attributed to a variety of factors, including human error, technological malfunctions, or incorrect application of accounting principles and standards.

Imagine an accountant at Oriclean encountering an anomaly while reconciling monthly transactions. The next step would involve contacting the Accounts Receivable (AR) or Accounts Payable (AP) team for necessary documents to investigate the anomaly's cause. Once the cause is determined, a new journal entry may need to be made to manually adjust the General Ledger (GL) balance in the ERP system, a process that typically takes a few days and involves multiple emails. Now, consider the same scenario with an AI-powered anomaly management solution. By seamlessly integrating with ERPs, CRMs, SCMs and banks, this solution automatically imports data, analyzes patterns in historical data spanning 2 to 3 years, and generates a list of errors and omissions as actionable 'tasks' using its rules and algorithms.

When initiating an anomaly task, all pertinent transactions and data necessary for investigation will be readily accessible. Additionally, a designated area is provided for attaching evidence, which can be beneficial for future internal and external audits. Journal entries can be conveniently made within the system, and they will automatically post to the ERP system. Next, we will explore how AI algorithms and rules assist in detecting and resolving anomalies in practical scenarios.

Identifying Real-Life Accounting Anomalies through AI

Accounting anomalies can manifest in various forms, such as misreporting a transaction under an incorrect GL account or neglecting to record a recurring transaction. AI utilizes a systematic analysis of past transaction patterns to identify and highlight any discrepancies.

Errors of Commission

Mistakes within this classification may arise from inaccuracies in procedures, such as inputting a transaction with an incorrect general ledger account number or utilizing an improperly rounded or miscalculated figure. Furthermore, errors of commission may involve reversed entries in which debits and credits are interchanged or duplicated entries are made.

Vendor & GL Account Mismatch:  The vendor Oriclean expense was mistakenly recorded under GL Account for Office Expenses (GL account 6670) instead of the correct GL Account for Software Licenses (GL account 6215), where all expenses for Oriclean has been posted in the last 12 months.

Legal Entity & GL Account Mismatch:  At Oriclean in Odisha, all insurance transactions are consistently recorded in the GL Account 2260. Nevertheless, during this reporting period, an entry was generated that includes a unique combination of Legal Entity Oriclean, Telangana, and a GL account 2260 that has not been previously encountered.

Legal Entity & Department Mismatch: Expense for Employee meal vouchers was recorded in the GL account of the Legal entity Oriclean, Odisha. The department mentioned in the entry as "Quality Assurance" is uncommon, as this department is typically associated with Oriclean, Telangana, not Oriclean, Odisha.

Unexpected Debit/Credit Transaction:  GL Account 7005 pertains to interest expenses, while GL Account 7002 is designated for tracking interest income. Recently, a transaction of INR 2000 was mistakenly recorded as a credit in GL Account 7005, instead of being recorded as income in GL Account 7002 as a debit. This entry error signifies an anomaly where income-related funds were allocated to an expense-related account.

Recurring Time Deviations:  Typically, a monthly bill payment to Apollo is charged to GL Account 2005 on the first day of the month for subscription fees. This month, however, the payment was recorded on July 25th instead.

Errors of Omission

Failure to account for all transactions may lead to inaccuracies in the financial statements, as overlooked or incorrectly recorded transactions can contribute to errors in the accounting records.

Accrual Reversals Missed:  A Vendor accrual that was calculated for unpaid invoices up to February of the current year and was posted to GL Account 2100 under Other Accrued liability has not been reversed in March. It is recommended that this entry be reversed before calculating and posting the revised Vendor accrual for March.

Recurring Transaction Missed :  The rent expense typically recorded under GL Account 5700 for Rent & Lease Expense is expected to be logged between the 3rd and 7th of each month. However, for the current month, this entry has not been recorded at all.

Mitigate Accounting Errors with Nirmalya Enterprise Platform

Nirmalya Enterprise Platform offers a comprehensive solution for various industries such as manufacturing, retail & distribution, building material, food & beverage, construction & engineering,finance & banking and many more. Embedded with advanced AI-enabled financial management and analytics features, this platform transforms accounting practices and auditing processes with its innovative Record to Report features. Utilizing AI and ML technologies, Nirmalya Enterprise Platform significantly reduces the duration of financial close processes, thanks to its no-code platform that automates tasks and minimizes manual efforts. By minimizing errors in automated journal entries, this platform greatly enhances audit accuracy, making it an essential tool for businesses looking to streamline their financial operations.

AI-driven anomaly management feature of the Nirmalya Enterprise platform aids in the swift detection and resolution of errors and omissions to facilitate a seamless month-end close process. Receive timely alerts for potential anomalies by leveraging the platform's AI capabilities to analyze data, detect patterns, and identify deviations in real-time. Stay up-to-date on potential errors and omissions with AI-powered alerts that analyze data, establish patterns, and identify deviations indicating potential anomalies.

Obtain a centralized source of truth for all transactions and a tailored view of anomalies to facilitate monitoring the team's progress during each financial closure cycle. Consolidating all anomaly attributes in a single location aids auditors in locating the necessary information and supporting documents to ensure the precision of financial statements, with a focus on compliance and auditability. Implement structured workflows to enhance collaboration and efficiency; for instances where an anomaly necessitates further investigation for correction, tasks can be created and integrated into the closure workflow process to prevent information from being lost in the shuffle of emails.

Contact us today to learn more about how enterprises are harnessing the benefits of Nirmalya Enterprise Platform.