PLX Technology, of Sunnyvale, Calif., designs and makes integrated circuits for customers in the computer server, storage, communications, industrial, and consumer electronics industries. Arthur Whipple, chief financial officer of PLX, tells IncTechnology.com that upgrading to new financial software helps the publically-traded company ensure the proper internal controls that allow him to produce high quality financial statements.
Elizabeth Wasserman: Tell us about your business.
Arthur Whipple: We’re a high tech Silicon Valley company that builds integrated circuits, which are in an area of connectivity that goes into enterprise class electronics. Our major customers include Cisco, IBM, Huawei, Dell, and various customers that make big servers and big backbone systems. We make devices that stitch together components such as the microprocessor and memory to get them to talk to each other. We’re the glue in these systems.
Wasserman: Why did you need new financial software?
Whipple: We decided to go with BlackLine Systems. I’ve installed this twice now. First, at my previous company, Silicon Storage Technology. The issue here was initially about account reconciliations. In order to have reliable financial statements, you have to look at each account in the financial system and make sure each agrees with reality. If you have a petty cash box, you need to count it and make sure it’s there. You have to make sure somebody actually counted and made sure the receipts are there. If you have a bank statement, the bank doesn’t know about the checks you’ve written that haven’t been cashed yet. You have to do a reconciliation from outside to the general ledger. You’re looking for an external confirmation for an internal number.
Wasserman: Why is this important? Is it just because you’re a public company?
Whipple: What you are trying to do is make sure that the financial statements you put out there are correct. A lot of judgment goes into financial statements. You want to make sure you don’t have mistakes in your financial statements. The reputational risk with poor financial statements can be a real problem. You can lose credibility with your shareholders and that creates huge opportunities for attorneys and other people to come in and make claims when people make mistakes in financial statements.
Wasserman: What was behind the timing of the change?
Whipple: People have been doing account reconciliations forever. But up until 20 years ago they were done with pencil and paper. They made lists of numbers and added them up and reconciled them to bank statements. Over the last 20 years, people have started to use spreadsheet technology, of which Excel is the most popular. But the programming is done by amateurs. In most financial systems, the code is done by professionals, and locked up, so that you can’t change the code without someone checking it thoroughly. With Excel, an accountant can decide to make a formula change and that can throw off all your numbers. Academics have done tests and found that up to 80 percent of the Excel spreadsheets out there have some error in them. We were able to get rid of all our Excel based reconciliations and move to a program that was hard-coded by people who know what they’re doing and locked down so people can’t make errors. BlackLine automates the entire process, virtually eliminating manual errors.
The other side of this is that we are also tracking tasks. We’re making sure that the things that need to get done actually get done. It’s a glorified to-do list. There are dozens or hundreds of things that have to happen and aren’t reflected as a balance in the financial statement. You have to check with the transfer agent to make sure equity is properly stated. You have to make sure you know the number of checks that are outstanding. The analyses in 10Ks or 10Qs need to be done reliably, and you need to have a history of what you did. In this case, if I write a memo to file regarding a fixed asset impairment, that impairment letter or memo can be stored for people who need access to it and it doesn’t get lost as you have with paper documents. Once we have uploaded the file, it’s protected from loss.
Wasserman: What have the results been?
Whipple: The results have been excellent. There are a couple of things you don’t know for many years. We haven’t had any issues at all in terms of account reconciliations not being done. I have a dashboard I can look at and I know that all the reconciliations and tasks have been completed and, if not, I know who to go to. When we get to filing SEC documents, everything that needs to be done has been done before I sign my certification that the financial statements have been properly done. CFOs and CEOs are now personally on the hook for the accuracy of those statements under Sarbanes Oxley. I am now confident that all the things required to be done have actually been done in these financial statements.
