In the fintech and accounting world, “automation” is often seen as the ultimate prize. But in the race for efficiency, a crucial distinction is often missed. In his insightful article,
“100% Automation is Not the Goal,”
Alejandro Nazario of TOS Advisors provides a powerful framework for this: the pursuit should be for *intelligent automation*, not total automation.
“The last 5-10% of any workflow is always the most difficult to automate… Instead of spending an exorbitant amount of time, money, and resources to automate that last 5-10%, focus on building a robust process around it to ensure it is handled properly.”- Alejandro Nazario, TOS Advisors
This is the philosophy behind one of the most vital tools in modern accounting: the suspense account. It’s the perfect example of a robust process built to handle that critical 5% of transactions—the ambiguous ones that require human judgment. At KnowLedger, this is the exact principle we apply when translating complex Investment Book of Record (IBOR) data into pristine Accounting Book of Record (ABOR) journal entries.
What is a Suspense Account? 🤔
A suspense account (or clearing account) is a temporary holding account in the General Ledger. Think of it as an accountant’s “to-do list” or a sorting tray for financial entries. When a transaction occurs but its proper classification is unknown, it’s temporarily posted to the suspense account until it can be investigated and correctly categorized.
The ultimate goal for any suspense account is to have a zero balance. A lingering balance is a red flag, signifying that an item needs attention.
The Core Challenge: The “Unknown Other Side”
In double-entry bookkeeping, every debit must have a corresponding credit. But sometimes, automation only knows one side of the story.
Consider the process of converting IBOR data—which tracks investment activities like trades, dividends, and cash flows—into ABOR journal entries. The system can easily see cash movement. For example:
- Cash is withdrawn from a bank account. The system knows to credit the Cash account. But what was the debit? Was it a business expense, a transfer to another company account, or the principal withdrawing money for personal use?
- Cash is received. The system debits Cash. But was it revenue from a sale, a capital contribution from an owner, or a loan repayment?
- A distribution is received from a private equity fund. The system sees cash coming in. But is it a taxable return on capital (income) or a non-taxable return of capital?
Automating a guess for these transactions is dangerous. A wrong guess leads to inaccurate financial statements, flawed business insights, and difficult-to-untangle errors down the line.
Example: Clearing a Transaction
A $5,000 withdrawal is detected. What is it for?
| Account | Debit | Credit |
| ??? | $5,000.00 | |
| Cash | $5,000.00 | |
| Total | $5,000.00 | $5,000.00 |
The Solution: A Human-Powered Clearing Workflow ✅
Instead of guessing, a smart system directs these ambiguous transactions into a suspense account. This flags them for a professional who follows a clear, value-added process.
- Automated Posting to Suspense: The system records the known side of the entry and posts the unknown offset to the suspense account.
- Flagging for Review: The non-zero balance in the suspense account immediately appears on a review dashboard.
- Human Investigation & Client Collaboration: An accounting professional investigates the transaction. This crucial step often involves communicating directly with the client or principal. A simple question “What was this $5,000 withdrawal for on October 14th?”provides the missing context that no algorithm could deduce.
- Re-classification and Clearing: Armed with the correct information, the professional edits the initial journal entry in the accounting system (like Sage Intacct). They re-classify the amount from the suspense account to the proper GL account (e.g., “Owner’s Draw”) and apply the correct dimensions (e.g., department, entity). The suspense account balance for this transaction returns to zero.
The Strategic Benefits of Intelligent Automation 💡
This manual checkpoint for the critical 5% of transactions delivers four immense benefits:
- Unmatched Accuracy: It guarantees that every transaction is correctly classified according to its true business purpose. This prevents the “garbage in, garbage out” problem and ensures the integrity of the final financial statements.
- Focused Efficiency: It embodies intelligent automation. By automating the 95% of routine transactions, it frees up skilled professionals to apply their valuable time and critical thinking to the complex exceptions.
- Stronger Internal Controls: A suspense account serves as a natural control point. A policy that requires the suspense account to be cleared before closing the books ensures that all transactions are reviewed and verified, reducing the risk of error and fraud.
- Deeper Client Insights: The process of clarifying transactions becomes a regular, consultative touchpoint with the client. It demonstrates diligence and provides a deeper understanding of their business operations, strengthening the client-advisor relationship.
In the end, the path to perfect financial data isn’t about eliminating humans from the process. It’s about intelligently integrating them where they add the most value. The manual suspense account is a testament to this hybrid approach, creating a system that is not only efficient but also precise, controlled, and insightful.