We have all experienced our car dinging annoyingly to announce that our seatbelt isn’t on. Or the flashing digital speed limit sign asking us to slow down. These are real-world examples of Exception Reporting; we should all wear our seatbelts and probably shouldn’t speed.
Exception Reporting is not a new thing. I first encountered it in 1994 when I was tasked with supporting a VAX/VMS system serving a large user base in the United States and Canada. Our small team was able to keep things in line on a shoestring budget, partly due to the extensive use of Exception Reporting.
Gartner talks about the cost of ignoring this issue. They refer to “data quality” as a way of measuring how many mistakes sneak through, and they make it clear that ignoring the issue costs real money.
HOW EXCEPTION REPORTING SAVES MONEY
There are multiple definitions of Exception Reporting, but in short, it is some form of report or notification that points out an unexpected (non-compliant) result. We can check to see if profit was down in the sales module, or if someone was late to work in the timeclock system.
Or, we can look for customers that are past due or vendors that are over budget. Each of these examples are technically exception reporting, but could also be considered KPI or Dashboard reporting as well.
OPERATIONAL EXCEPTION REPORTING
I find that the real power of exception reporting comes from applying it to configuration and setup data in a system. Put differently, we use reporting to identify situations where business rules are violated.
Consider an Accounts Payable system. We have a business rule that states each vendor must have an email address on file if they are configured for EFT payments. The email address is used to notify the vendor that they have been paid. The exception report would look for all EFT vendors and make sure the email address is not blank. We could go a step further, ensuring that the email address value is at least five characters long and contains an at (@) symbol.
WHAT ABOUT REQUIRED FIELDS
In a perfect world, we would mark the email address field as required. Except it isn’t required for non-EFT vendors. So, we would write some code in the user interface to mark it required if the vendor is an EFT vendor. That is a great solution, except writing code at the user interface level is frequently much more difficult than adding a simple query to a report. Is it much cheaper and more flexible to use a report to enforce a rule than to customize the software.
THE POWER OF “SETUP” EXCEPTION REPORTING
As we work on an implementation project, we always track the new business rules that get created as a part of the process. For example, a payroll check should always include a Worker’s Comp code, or a sales invoice should always include sales tax unless the customer has a certificate on file.
A business rule is any kind of process rule your company has that should not be violated. Frequently, nobody is being sneaky; they just make mistakes. Catching those mistakes before they cause problems is the power of exception reporting.
Toward the end of the implementation, we add a query for each rule to the exception report, nearly eliminating the risk of a business rule violation going unnoticed.
PREVENT MISTAKES AND SAVE MONEY
In our example above, a missing email address simply means a vendor isn’t notified. However, if we consider a payroll system, things get more serious. For example, employees that work in California need to have a deduction for California’s State Disability program (SDI). If the deduction is missed, the company must pay for it, or worse, go back to the employee and ask for the money back. An exception report to identify improperly-configured employees would prevent this mistake from happening.
It could be argued that competent payroll staff should never make such a mistake; however, the argument is moot given how simple it is to add a simple query checking for the issue. Additionally, considering all of the varied payroll laws in different states, the combination of conditions the staff must know becomes mindboggling.
EXCEPTION REPORT EXAMPLES FROM THE REAL WORLD
At Telmar, we have configured countless exception reports for clients over the years. Some examples include:
- The wrong salesperson was being paid commission regularly. We added an exception check to verify that all sales transactions are associated with the correct salesperson, fully eliminating the issue.
- Sales tax is always a challenge; missing tax, too much tax or tax that is wrong. In a lot of cases, we can verify several aspects of the sales tax on an invoice to nearly eliminate errors.
- Reconciling control accounts on your balance sheet does not need to be difficult. We regularly validate that the proper AR, AP, Cash, Inventory, Drop Ship, Accrual, Deferral, Payroll Liability, or other account is used in a specific transaction.
- 1099’s are difficult to manage throughout the year, inviting a painful project in January. We add an exception check to ensure the vendor has a Tax ID on file if they are configured as any form of 1099. Or, we enforce W9 completeness by reporting on improperly-configured vendors.
- It is very easy to make a typo in a date field, and if the field is not validated, that can cause problems. We regularly check each date field to prevent typos from sneaking through.
- Certain businesses experience issues with typos in quantities. We have configured various checks, including a sanity check on payroll hours per week, a maximum invoice dollar amount or a check for negative numbers. Each of these verifications can catch a mistake before it gets too far.
WHAT DOES IT TAKE TO GET STARTED WITH EXCEPTION REPORTING?
Designing an effective setup exception report does not need to be difficult. At Telmar, we have a basic process we follow:
- Meet with end-users to understand common mistakes, or rare mistakes that cause significant issues
- Review the data in the system to understand how we can identify each mistake with a query
- Create a simple report showing a single record for each identified issue
- Create a query that drives the report, adding each item to the query
- Keep open communication with the users to identify other queries to add to the report
Did You Know?
Exception Reporting adds a layer of automation unexpectedly. Less manual effort is used to look for common mistakes, saving time for more critical tasks.
EXPERIENCE AND TEAMWORK MAKE A BIG DIFFERENCE
Creating an effective setup exception report is a group effort. Users have differing experiences with the systems and come to the table with varied perspectives. Most will have some input that is beneficial, regardless of how they present it.
A seasoned consulting group such as Telmar brings a wealth of knowledge, guiding the users’ conversation to identify problem areas. We collect the information in the meeting, asking pointed questions to clarify pieces, and use that information to generate a list of queries to create. Additionally, our substantial experience allows us to design queries effectively, reducing false positives without missing the real issues.
If you do not have exception reporting configured in your environment, contact us to discuss the options. We thrive on making systems better for the users and the company.
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Telmar Computer Solutions, Inc. is providing the information in this publication as a courtesy, free of charge, to share information with the general public. Nothing in this publication is intended to be, nor should be, interpreted as advice or consultation on any matter, including taxes, accounting, business management, system configuration or operation, or any other similar topic. Please engage the services of an appropriate professional for assistance in these areas. Telmar Computer Solutions, Inc. is not responsible for any loss, including downtime, lost files/data, rework, or other expenses sustained by you, your company, or any person who relies on this publication.
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