While the golden thread is at the forefront of most housing compliance managers’ minds, housing providers’ strategic plans often underestimate the effort required to maintain an accurate financial profile of assets.
Perhaps this is inevitable in most organisations, where asset, housing 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, Esuasive has worked with several housing providers which were looking for a solution to help them to keep their accounting records aligned with operational processes and physical assets. Integrations and interfaces can help but, much like painting the Forth Bridge, keeping operations and finance data in synch can seem like a never-ending task.
We have been wondering why this so often seems to be the case. Our conclusion is that this is as much about operations and finance generally being seen as 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 provider in South Wales), we embarked on a finance transformation programme last year with the goal of eliminating the mind-numbing reconciliations, data transfers and re-keying of data which punctuate so many accounting processes.
The programme’s ambition is to respond to normal business activities, such as additions and disposals, planned maintenance and repairs, voids, rents and service charges, 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 and consistent;
- Longevity and durability of information;
- Relevant and proportionate.
Of course, the original focus and genesis of the ‘golden thread’ was on building safety, but after discussions 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, with particular emphasis on the finance function not getting 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, we had a dawning realisation that it wouldn’t need to be complex and difficult if approached patiently and methodically.
A high-level review of the systems used in our customer’s basic accounting processes 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 adopting the golden thread principles to transform our customer’s finance processes would be a monumental challenge without first addressing the systems fragmentation. To address this, because our customer already ran its housing operations on Microsoft Dynamics, a strategic decision was made to replace its 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 comprised of many different components meant that the core ledgers could be rapidly swapped without the need for huge changes to their 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 main ‘asset events’ which needs to trigger specific accounting processes, this works in practice as follows:
1. Data simplification
We have eliminated data duplication and ambiguity by formalising the responsibility for maintaining supplier accounts, SoRs, prices, property reference numbers (UPRNs), project and location codes and so on.
The majority of these are now wholly managed in the housing system, with finance-only elements (such as suppliers’ bank accounts and payment terms) controlled by finance. By implementing the principle that data is held once, stored once and managed once, we’ve been able to support and streamline our customer’s repairs processes as they move through the relevant business functions.
2. Finance process automation
Building on this data rationalisation, operational activity is no longer passed 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’ve built the financial profile of the transaction into the operational process so that repairs accounting is fully automated.
When a job is first issued to a contractor, a financial purchase order (PO) is automatically created and the financial commitment established. When the job is completed, the PO 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 PO. 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 recharging.
By capturing ‘asset events’ (periodic rent and service charges, acquisitions, disposals, planned maintenance, repairs, voids and so on) to trigger the relevant accounting processes, such as revenue recognition, PO processing, contractor management, payables, VAT and asset depreciation processes, we’re 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 from 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.
Nick Hill is the CEO of Esuasive.