Transaction error rate
/What is the Transaction Error Rate?
The transaction error rate is the percentage of processing errors that an accounting department generates. It is critical to avoid processing errors, since the cost of correcting them is several multiples of the cost of initially completing them correctly. Consequently, one of the better metrics is to monitor the transaction error rate. The error rate should be monitored in conjunction with the total number of transactions processed by each person, in order to ascertain whether any efficiency improvements under a lean accounting program are actually causing additional errors. The measurement can be further refined by focusing on those transaction errors that require the most time to fix.
The transaction error rate is useful as a free-standing measure of performance in any department, since the time of senior staff in any department may be required to correct transactional errors. The junior staff cannot be tasked with this activity, since they may not yet have sufficient knowledge to ensure proper correction of an error.
Transaction Error Correction
The starting point in correcting transaction errors is to track the location of these errors - both by person and by process. It is quite likely that just a few people will be responsible for most of the errors, so you will need to identify them, retrain them, and monitor their ongoing performance. Tracking errors by process will likely identify certain points in a process where the error rate is highest, which can be dealt with by installing a revised process that is targeted at eliminating these errors.
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How to Calculate the Transaction Error Rate
To formulate the transaction error rate, add up all transaction-related errors in a reporting period and divide them by the total number of transactions completed within the same reporting period. This calculation should match transactional errors to the pool of the same types of transactions completed, which will result in a separate error rate for each general type of transaction.
Example of the Transaction Error Rate
The senior accounting clerk of the Divine Gelato Company wants to reduce the amount of staff time spent on correcting transactional errors. She has derived the following information for the last reporting period:
Processes |
No. of Errors |
No. of Total Transactions |
Transaction Error Rate |
| Billing transactions | 175 | 1,390 | 12.6% |
| Cash receipt transactions | 28 | 3,010 | 0.9% |
| Payable transactions | 200 | 1,720 | 11.6% |
In the table, the most egregious error rate is in the billing transactions area, with payable transactions coming in a close second. The senior clerk realizes that the effort needed to correct errors in the payables area is much greater than in the billing area, so she elects to focus her process improvement efforts in the payables area in order to most rapidly reduce the total amount of staff time spent on error corrections.