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11 Ways to Reduce Clerical Errors

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Published: 23rd November 2018


Why does clerical error reduction matter?

Simple errors can come at extremely high costs. One simple error by one Australia’s largest banks, Westpac, cost in excess of $4,000,000 because they accidently deposited money into the account of a teenager who then proceeded to go on a lavish spending spree before the money was recovered (read more here).

Another time one of Australia’s largest banks, The Commonwealth Bank, was in the spotlight for bad clerical errors was when they accidentally leaked the data of over 10,000 customer. Simply missing off the “.au” part of the email domain saw personal information of their customers fall into the wrong hands (read more here).

Hopefully, you are now convinced that clerical errors need to be minimised, so let’s look at some techniques used to minimise clerical errors.

What can you do?

When doing research, I was shocked by the simplicity of some articles that provide advice on reducing the amount of clerical errors made. The internet is saturated with articles that will tell you to ‘double-check’ but you won’t find that here; I have categorised different controls you can use to minimise clerical errors into novice, intermediate and expert.

Author:

author Henry Newton

Henry Newton

Business Analyst


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Novice:

For simple clerical error reduction, most strategies start and end at data entry controls:

  1. Limits & Ranges
    The most basic, yet one of the most effective data entry controls is limits and ranges. A limit simply sets a maximum/minimum number that can be entered without entering an admin password. Whereas, ranges do the same thing expect they impose both a minimum and maximum, so the number most be between X and Y. This will help with basic clerical errors, for example you could set a maximum order quantity of 100 units so if the purchase order accidentally orders 8000 units instead of 80.00 units then a red alarm is sounded.

    This is highly recommended not only from a clerical error perspective but also an authorisation perspective to prevent internal fraud. Requiring a manager to approve abnormal transactions creates a segregation of duties and can help manage employees.

  2. Data Validation
    Another extremely effective way to reduce clerical errors is through data validation. Data validation ensures the data entered is in the correct format e.g. date, number, text, email. For example, if you were to enter text instead of a number the program you are using should produce an error.

  3. Reasonableness
    The last major check that should always be performed is the reasonableness test. The reasonable test will alert someone if a value is entered that is not usually entered. For example, usually accounting entries are processed the month after they occur but it is all too easy for an over-worked accounts keeper to receive an invoice with the date formatted in the American format (MM/DD/YYYY) and just key in the date without realising the company software is formatted DD/MM/YYYY. If it was December 1st on the invoice then the wrong date would be entered read as 12th January. A reasonable test would alert the account keeper that the invoice being entered is almost a year old and ask if they want to continue.

    The key to an effective reasonableness test is setting a good benchmark. A good benchmark to compare against should be indicative of almost all your usual business activities (the last thing you want is the warning routinely showing up to the point where staff just ignore it).


The lesser important (yet still important) tests are as follows:

  • Completeness and validity: check no fields are empty and no values were missed.
  • Sign Checks: check the numbers entered have the right + or – sign.
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Intermediate:

Forms

On a cost to benefit ratio this has to be one of the top options, predetermined forms will allow your business to ensure all the data required is gathered. It will increase efficiency because employees won’t need to determine what is needed every single time and it will also reduce the amount of entry errors. Additionally, a form is an excellent way to implement many of the novice controls discussed earlier since you know exactly where to check for what type of values. Forms can be implemented in more places than you would anticipate and there are some extremely cheap options. For example, google forms offer you the ability to gather data form any device and output the data into an excel file (one of the most useful and reliable file formats)

People management

At the end of the day, you will almost certainly have places in your business where there is potential for employees to make clerical errors. To quantifiably reduce the amount of errors you can implement all the other advice in this article, but somehow there will still be a way to make mistakes. That’s why a more humanised approach to error reduction can be just as effective. Unfortunately, there is no definitive advice I can give on this subject in a succinct manner (there is an entire fields of research dedicated to this) but I can give you some points to consider that may contribute to mistakes by your employees that all employers should consider:

  • Are you putting excess stress on your employees that may lead to fatigue (may be caused through long working hours, hard objectives etc.)
  • What would make your employees care about the work they do? Is it interesting, important etcetera?
  • What would make your employees enjoy their work at this organisation more than a competitor?
  • Overall, are your employees happier in their current role than they would be in other roles?

Variance analysis (reconciliation)

Unfortunately, some mistakes are just unavoidable. This method is one of the most advanced methods used to detect clerical errors and the sooner it is done the sooner you can fix the issue. It will provide you with a greater understanding of your organisation but also consume the most amount of resources.

Variance analysis involves comparing budgeted data, expected data and actual data. I believe it is best explained using an example:

A manufacturing company needs to routinely order raw materials to process into a final product. At the start of each period it budgets how much raw material it expects to use in the next period to plan out its production and cash flow. When it comes time to prepare the order of raw material it will prepare its order requisition (an internal document outlining what is needed) and then lodge a formal purchase order with its supplier. When receiving the goods will prepare a receiving report (record the amount of goods actually received).

In that simple scenario of ordering raw material, there are four different areas that the quantity of raw material is entered. Those 4 areas can be compared to identify variances (differences between the numbers).

Stage Quantity
Budget 1,100
Purchase requisition 1,000
Purchase order 10,000
Receiving report 10,000


Variances are perfectly normal, the important thing to understand is the reason for the variance. For example, in the above example, something clearly went wrong. They received 10 times more raw material than they had budgeted for. If throughout the ordering process, they had cross-checked documents, then they would have realised that they accidently added an extra zero to the purchasing order than was in the purchase requisitions.

Additionally, in the above example, the purchase requisition was 100 less than the budget. This may or may not be a clerical error. Perhaps a large order fell through or perhaps the person preparing the document accidentally entered the wrong number; the key here is understanding the variance.

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Expert:

Cross-foot balance tests

Or as I like to call it “fancy double-checking.” The core concept behind cross-foot balance tests is that you should be able to arrive at the same conclusion multiple ways. This will help avoid clerical errors when making basic calculations. ‘Foot’ is essentially accountant jargon for a column, so essentially using different columns to find the same total.

This is probably best illustrated with an example:

If you need to calculate the total amount that your customer owes you, there are two ways to calculate this. Firstly, you could add up the totals on all the invoices that are marked as unpaid and secondly, you could add up the total of all purchases they have ever made and minus the payments they have made. Both calculations should arrive at the same total and if they don’t there was likely a clerical error in recording which invoices have been paid.

Cross-foot balance tests are an extremely effective method of ensuring no clerical errors have been made. It can sometimes be difficult to find a way to measure your desired number using cross-foot balancing and often times it can be cumbersome actually doing the calculations which is why most organisations will automate the process.

Enterprise Resource Planning

Enterprise resource planning is a holistic approach that manages the flow of resources from their origin to the customer. Essentially, it is a computer system that tracks everything in your business e.g. sales, expenses, inventory levels, employee information etcetera. Enterprise resource planning differs from the traditional computerised application because it covers every aspect of a business and stores all the data in one single location.

How does this help with clerical errors?

Well, clerical errors are typically thought of as adding an extra zero or misspelling but they can get a little more complex and even harder to spot. For example, a customer updates their shipping address and the business ships the product to the old address; this could happen if the person writing out the shipping label read the customers address from the wrong program. This is an all too common mistake in organisations that grow, they get multiple software packages and data becomes duplicated and redundant.

An enterprise resource planning system will help reduce duplication/redundancy errors because it centralises the company’s data in one main data warehouse. An enterprise resource planning system is a large step merely to reduce clerical errors, but it is a noteworthy advantage of using these systems as it can help improve customer experience and increase overall organisational efficiency.

Systems automation

At the end of the day, it is an inevitable fact that humans are imperfect. Where there are humans there will be mistakes. The most reliable (and sometimes costly) way to reduce clerical errors is system automation. By integrating different computer systems, as mentioned above is enterprise resource planning, numbers from the origin can automatically be inputted to the destination.

One of the most common methods of automation used by businesses is API’s. An API is a way of making two computers talk to each other. For example, when making a payment, your first option is log into the website and manually type in the recipient’s bank details. Whereas if you were to use an API you could essentially get the bank details of the recipient you have stored in your supplier database and send them to your payment provider. Once programed and tested, this is undoubtedly one of the easiest and most reliable ways to make payments. Here at Instant Global Payments, our API can be used for making international payments. If you’re interested in a payments API, feel free to check out our website here.



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