Whilst the golden thread is front and centre of mind for housing compliance managers, strategic plans often underestimate the effort required to maintain an accurate financial profile of assets.
Perhaps this is inevitable in most organisations, where Asset Management, Housing Management and Finance teams chug along in parallel, relying on poorly connected systems and custom-built interfaces, with spreadsheets required to keep the data (sort of) in synch.
Imagine how different this would be on a unified platform that bridges the gap between operations and finance, especially in the critical areas of rents, repairs and asset accounting.
The case for change
In recent years, we have worked with several social housing providers searching for a solution to help them to keep their accounting records aligned with operational processes and physical assets. Integrations and interfaces can help but, like painting the Forth Road bridge, keeping operations and finance data in synch seems a never-ending task.
We have been questioning why this so often seems to be the case. Our conclusion is that this as much about operations and finance being seen as essentially separate business functions as it is about systems and data. Energised by this insight, and in collaboration with one of our customers, an innovative housing organisation in South Wales, last year we embarked on a finance transformation programme with the goal of eliminating the mind-numbing reconciliations, data transfers and re-keying of data which punctuates so many accounting processes.
The programme’s ambition is to respond to business activity (additions and disposals, planned maintenance and repairs, voids, rents, service charges, etc.) by triggering and automating the accounting processes for revenue recognition, purchase orders, payables, receivables, VAT, depreciation and fixed assets. By moving to a set of integrated business processes, our aim is to deliver real-time accounting, enhanced budgeting, faster accounts production and better financial planning.
Extending the golden thread
The Government defines the golden thread as something that requires “information that allows someone to understand” plus “the information management to ensure the information is accurate, easily understandable, can be accessed by those who need it and is up to date”.
Golden thread = information that is easily understood + information that is well managed
The guidance goes on to lay out a set of information management principles outlining how organisations will need to operate in the future:
- Accurate and Trusted
- Culture change
- Single point of truth
- Understandable/ Simple to access /Consistent
- Longevity/ Durability of information
- Relevant / Proportionate
The focus is of course on building safety, but in discussion with our customer’s Finance Director the idea crystallised that these same principles could be more universally applied to bring Asset Management, Housing Management and Finance closer together – in particular, so that the Finance function is not left behind.
Easily said of course but, in reality, that means systems integration, master data management and process change will be necessary, as foreshadowed in the culture change principle which states that organisations “will require increased competence and capability, different working practices, updated processes and a focus on information management and control. The golden thread should be considered an enabler for better and more collaborative working.” The challenge is exacerbated when Finance is at best only partially connected to asset management and other operational functions.
Putting theory into practice
Although the challenge appeared daunting to begin with, there was a dawning realisation that it did not have to be complex and difficult if approached patiently and methodically.
A high level review of the systems used in basic accounting processes at our customer revealed several different systems, with bolt-ons, extensions, integrations, interfaces and offline spreadsheets further complicating the picture, leading to:
- Master and reference data being stored in more than one place
- Systems with a narrow, specialised purpose
- Few people who knew in detail how the systems worked
- Poor or non-existent documentation
- Someone in Finance holding things together with spreadsheets
It quickly became apparent that adopt the golden thread principles to transform finance processes would be a monumental challenge without first addressing the systems fragmentation. To address this, as the customer already ran their housing operations on the Microsoft Dynamics platform, a strategic decision was made to replace the existing accounting systems with Dynamics 365 Business Central.
Given the complexity of the finance systems landscape, the customer’s mantra throughout project initiation was “keep it simple!”. The good news is, systems fragmentation comes with a silver lining: an accounting platform made up of many different components meant that the core ledgers could be rapidly swapped out without the need for huge changes to the satellites. This has indeed allowed us to keep things simple by using an incremental approach to process change.
The overall focus for the project is the elimination of unnecessary data transfers, file uploads, re-keying of data and tedious reconciliations. Taking responsive repairs as an example of one of the key “asset events” which needs to trigger accounting processes, this works in practice as follows:
- Data simplification: we have eliminated data duplication and ambiguity by formalising responsibility for maintaining supplier accounts, SORs, prices, property reference numbers (UPRNs), project and location codes, etc. The majority of these are now wholly managed in the housing system, with finance-only elements (e.g. supplier bank accounts and payment terms) controlled by finance. By implementing the principle that data is held once, stored once and managed once, we have been able to support and streamline repairs processes as they move through the relevant business functions.
- Finance process automation: building on this data rationalisation, operational activity is no longer passed across to the finance team to be manually recorded in an accounting system. Instead, repairs case data is now fluidly exchanged between operational and accounting teams. Instead of re-keying the data, we have built the financial profile of the transaction into the operational process so that repairs accounting is fully automated.
- Accounting: when a job is first issued to a contractor, a financial purchase order is automatically created and the financial commitment established. When the job is completed, the purchase order is available for matching, a liability is crystallised and control passes fully over to Finance, the operational side having been completed. Changes and updates to the repair order are automatically reflected in the purchase order. Thanks to the powerful data and process integration, accounting is smooth and accurate, period end accruals and provisions are straightforward, and the cost allocation makes for simplified service charge analysis and recharges.
By capturing ‘asset events’ – periodic rents and service charges, acquisitions, disposals, planned maintenance, repairs, voids, etc. – to trigger the relevant accounting processes, such as revenue recognition, purchase order processing, contractor management, payables, VAT and asset depreciation processes, we are ensuring that the financial profile of assets always reflects the physical, automatically and in real time.
Our customer’s Finance team is also discovering a raft of other benefits of operating on a single Microsoft platform, including the advanced capabilities of Business Central and Power BI which are helping them to deliver the transformation and become true business partners.