The Smart Philosophy

The Smart Philosophy

By Mark Szczepaniak, Chief Financial Officer, Velocity Mortgage Capital

Mark Szczepaniak, Chief Financial Officer, Velocity Mortgage Capital

In today’s ever-changing market environment, CFOs have the responsibility to provide management, investors, regulators, lenders, rating agencies, and analysts with enhanced financial reporting that is accurate, timely, and transparent. At Velocity Commercial Capital, we are leveraging the use of technology to significantly improve the financial reporting process by automating many manual processes and establishing end-to-end subsystem communication designed to eliminate the need for manual intervention in recording financial data.

The more the data can be calculated and processed through system solutions, the more time our financial staff members will have to analyze trends and provide management with recommendations for improvements in business processes.

We have adapted the “SMART” philosophy in applying technology to our financial reporting. All databases and systems that impact our financial records are measured against the five areas below.

Structured data

“Big Data” got its name for a reason. And it’s still growing.

And it’s not just about the sheer volume of data, but how much of it is structured. Unstructured data (data that does not have a pre-defined data model or is not organized in a pre-defined manner) requires a lot more time to sort, format and process for companies to be able to analyze it, let alone glean useful insights from it. IDG estimates that unstructured data is growing at a rate of 62 percent per year, and by 2022, 93 percent of digital data will be unstructured.

We saw this happening within our own business years ago. The amount of time and resources required to leverage the data was growing exponentially with the volume. In turn, we designed processes that standardize data across multiple platforms and centrally store the data in a data warehouse. The data warehouse is used for online analytical processing (“OLAP”) and can be accessed with user report-writing tools such as Microsoft’s Power BI.

Now data from different sources can be pulled together in automated reports to enhance financial reporting. That

automation frees up time and resources for more analytical projects and reduces the errors that can happen with more manual data calculations. This allows our team to spend more time focusing on servicing our broker network and their real estate investment clients.

Meaningful

For financial reporting to be useful, it must be meaningful.

The Financial Accounting Standards Board (“FASB”), in its Statement of Financial Accounting Concepts No. 1 on financial reporting, has as one of its objectives that “financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.”

Ineffective financial reporting can lead to poor or incorrect business decisions on the part of management and can result in investors or lenders making investment decisions that may not be in the best interests of the company.

To improve the significance of our financial reports, we implemented the use of system-developed tables, charts, graphs, and key performance indicators to simplify complex financial data. This makes it more understandable by users of that financial information, enhancing our team’s ability to make good decisions and provide the most relevant and impactful information to our brokers and their customers.

"The key concept to making financial reports more transparent is to make them more understandable"

Artificial Intelligence

Artificial Intelligence (“AI”) enables a smarter approach to handling mountains of data.

Autonomous Research is a leading independent research provider on the financial sector. They estimate that financial institutions could see upwards of $1 trillion in projected cost savings through the implementation and use of artificial intelligence in their daily business.

AI technology can be setup to mimic the human thought process as it relates to objective, logical, decision-making tasks. This makes it possible to instantly sift through hundreds of thousands of records and help decide which accounts should be impacted within the financial statements.

We have engineered AI to take on many of the internal tasks of analyzing data from various, disparate sources. By applying logical, sequential decision routines, we can interface financial entries to our general ledger within minutes of data being received. Tasks that would normally take hours and even days for staff to accomplish are now completed almost instantaneously. We also use AI for fraud detection and for exception reporting.

The many benefits and applications of AI result in better and faster service for our customers, and theirs.

Real-Time

There’s no time like real-time.

It's widely suggested by the scientific community, and across the Internet, that people make around 35,000 decisions every day.

Think about how many of those likely happen regarding your business. CFOs and other executive managers need to make informed business decisions daily. The fast-paced nature of today’s business world, means they require updated financial reporting with data about events as they occur.

With our real-time reporting capabilities, data that used to be recorded monthly, usually about two weeks after the month to which the data related, is now being recorded, and reported on, daily. Significant data entries such as interest income, interest expense, and amortization of deferred fees are all now being recorded daily to the general ledger.

Management can now track the financial performance of the company daily and make proactive decisions that impact the business before the company’s books are closed for the month.

Transparent

Transparency is not optional.

Whether we’re talking about how the government, major social networks, companies or websites are using data, transparency is not just appreciated, it’s expected and often regulated so it is critically important for a company’s financial reporting to be transparent.

The key concept to making financial reports more transparent is to make them more understandable. Users of a company’s financial information are better able to support the economic and business direction of the company if the financial reports are open and transparent about the nature of the industry and the company’s specific goals and objectives.

We used technology to re-design our web site with the main goal of making the data contained within the site timelier and more transparently. Whenever possible, we include links within the data, so interested parties can “drill down” past the numbers to view the concepts and definitions of the processes that underlie the numbers; all with the goal of improving customer experience and transparency in mind.

Technology offers so many ways to drastically improve financial reporting and the overall stakeholder experience. If you have not already started to incorporate technology into your financial reporting philosophy, do so now and get SMART about it.

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