AI Agents Transform Intercompany Reconciliation: From Million-Dollar Headaches to Real-Time Resolution

During our recent visit to São Paulo and Mexico City, where we engaged with various industry leaders, one conversation particularly resonated - the universal challenge of intercompany reconciliation. While discussing innovation in finance with Brazilian executives, their experiences echoed a recent encounter we had with a global Oil & Gas company that perfectly illustrates the industry-wide challenge we're facing.

The Million-Dollar Problem: A Real-World Case Study

This Oil & Gas giant was grappling with millions of unreconciled intercompany transactions, accumulated over several reporting periods. Picture this: transactions posted months or even years ago, each lacking proper cross-validation with their counter entries. The result? A massive backlog of mismatches in prices, deliveries, and FX rates required extensive investigation long after the fact.

The challenge was exponentially complicated by the time lag. Trying to investigate transaction details from years past proved to be a logistical nightmare:

• Original approvers had moved to different roles or left the company

• Supporting documentation was scattered across multiple systems

• Business context was lost over time

• System changes and updates made historical data harder to access

The Real Business Impact: Beyond the Balance Sheet

The costs and risks associated with such reconciliation backlogs create a cascade of business challenges:

Traditional Solutions: The Limitations

Current reconciliation solutions typically focus on matching transactions after they occur. While these tools have brought some improvement, they face several limitations:

The AI Agent Revolution: A Paradigm Shift

Our new approach developed together with EY FAAS Global Innovation & Digital, leveraging AI agents, fundamentally transforms intercompany reconciliation from reactive to proactive.  

This process flow illustrates an intercompany transaction system enhanced by an Agentic AI solution.  The "Human in the Loop” still performs important tasks and interacts with several AI agents. The AI agents play a key role in automating and verifying transactions across multiple ERP systems, facilitating efficient intercompany reconciliation by reducing manual effort and ensuring compliance. The clear advantage of an AI agent over traditional matching/reconciliation software derives from “understanding” content in the underlying documents and matching this content with various other relevant documents across the entities, e.g. General Terms and conditions, Finance Policies, Freight documents, Purchase orders etc. This process is called “multi-level” matching.  Here's a step-by-step breakdown of the process for an example supply chain case (sale of material):

1. Starting State: The process begins with a purchase agreement that establishes the terms for the transaction between the vendor and customer entities. Purchase agreement information stored in contract databases are integrated with the AI agent for real-time terms reviews

2. Purchase Order Creation (Step 1): The customer ERP system generates a Purchase Order (PO), which serves as the official request to initiate the purchase process.

3. Sales Order Creation (Step 2 & 3): In response to the PO, the vendor's ERP system generates a Sales Order. Here, an AI agent is activated to verify that the PO matches the purchase agreement terms. This step reduces potential discrepancies early in the process.

4. Goods Shipment (Step 4): The vendor prepares the goods for shipment, and an outbound delivery is generated. The AI agent verifies the freight documents against the PO, ensuring consistency with the agreed terms and purchase conditions.

5. Goods Receipt (Step 5): The customer acknowledges receipt of the goods through an inbound delivery and goods receipt, which is recorded in their ERP system.

6. Invoice Generation (Step 6): The vendor's ERP system generates an Accounts Receivable (AR) invoice. The AI agent performs critical checks for regulatory compliance, contract compliance, order compliance, completeness, and price. Once validated, the invoice is routed to the customer.

7. Invoice Receipt (Step 7): The customer ERP records an incoming Accounts Payable (AP) invoice, allowing both parties to recognize the financial transaction. The AI agent captures key information and validates them again across the data sources available esp. Purchase Order, Sales Order, Goods Receipt, but also against tax regulation guidelines and FX tables.

8. Accounting Entries (Steps 8 and 9): The AI agent facilitates automatic accounting entries in both ERP systems, posting the transaction details and matching entries. Additionally, exchange rate differences are monitored and reconciled.

9. Payment Order (Step 10): The customer issues a payment order to settle the transaction. The AI agent verifies the payment order against the intercompany balance, ensuring accuracy before the transaction is finalized.

10. Final Reconciliation (Step 11): The AI agent posts the final payment entries, completing the process flow and ensuring both ERP systems reflect consistent and accurate records.

Key Benefits and Innovation

Process Improvements

The system operates on a holistic approach that does not rely on a monolithic framework across all group companies but is capable of matching and reconciling diverse data sources and formats used across multiple ERPs. Automated validation and compliance are integrated at every step of the process, with manual intervention limited to cases of true matching differences or exceptions that require human resolution. An AI agent autonomously addresses such discrepancies by communicating with counterparties responsible for issues, such as those arising from inventory limitations, damages, or updated price lists. Real-time processing enables the system to function fully autonomously, with standardized handling of all transactions ensuring process autonomy. Built-in controls resolve matching differences promptly while maintaining compliance with laws and regulations. The system incorporates clear activity separation and provides end-to-end visibility to enhance efficiency and transparency.

Centralized Control and Reporting

Through the Hypatos Insights application, organizations gain:

• One-click intercompany reporting

• Complete audit trails

• Real-time status monitoring

• KPI tracking

• Process analytics

• Compliance documentation

Business Value

• Reduced processing costs  

• Improved accuracy  

• Better compliance  

• Faster closing cycles  

• Enhanced visibility | Stronger controls

‍

Implementation and Change Management

The LATAM connection

Our discussions in EY’s São Paulo office during a “Future of Finance” event revealed how universal these challenges are. Whether it's a Brazilian conglomerate managing multiple subsidiaries or a global Oil & Gas company, the need for proactive reconciliation is clear. The enthusiasm among Brazilian finance leaders for this AI-driven approach reinforced that we're on the right track.

Watch our webinar on demand to learn how to transform your intercompany reconciliation from a million-dollar headache into a streamlined, automated process.

‍