Can company software police potential fraudsters?

While no software can claim to be able to eliminate financial risk completely, especially when that risk derives from a deliberate human intent to deceive, a good accounting system, judiciously implemented, can reduce the risk of improper accounting and increase the business transparency that all companies must now seek if they are to retain the trust of their shareholders.

Michelle Beetar, director, service and commercial industries at Oracle South Africa, says companies can use their software and IT practices to improve their financial reporting efficiencies.

"One simple way of reducing risk is to limit the number of people who define and apply business rules. If a CFO leaves it up to his company`s local finance directors to enforce local and group practices, the risks are quite significant. Companies understand this and usually have strict group policies that must be applied by local finance directors, and a regular internal audit makes sure this happens."

Such policies are much easier to apply when a company has one single central system, rather than a typical set-up of four or five regional systems or a host of individual local accounting systems.

"A centralised system will act as a watchdog, ensuring that global policies are applied, rather than relying on internal auditors to carry out checks," says Beetar.

"With the centralised system, local policy changes can still be made, but they must be approved centrally first, so all exceptions are immediately known."

While some accounting software vendors strongly encourage their customers to have separate systems for each geographical operating region, Oracle recommends a single centralised system, which, in addition to cutting IT costs, is the best tool for internal control and security.

"The same principle applies when it comes to monitoring daily operations," says Beetar. "If companies are using many different accounting systems installed on different databases around the globe, monitoring can only be retrospective. This kind of IT set-up is the reason why companies typically need more than two weeks to consolidate their results. Often, results are calculated using different principles and procedures, so transparency is very hard to achieve in such an environment."

Opportunities for abusing the system can be minimised if financial reporting was simpler and more accurate. The legislation and relevant accounting standards may be in place, but internal control can only be consistently maintained with up-to-date management information.

"For most companies it is a hugely difficult and time-consuming process to provide centralised reports and analyses from a variety of different and often unconnected financial systems," says Beetar. "Without common and up-to-date information, management will not be alerted to potential problems or frauds being perpetuated."

Having all the relevant data in a single location, and stored in an integrated, standard format, means that management can access this information whenever they need to. They can do this passively, through the use of portals that display the key reports and exceptions, or proactively by using the software`s workflow engine to highlight and notify exceptions.

"While accounting software can in itself do little to prevent a determined management from deliberately falsifying accounting entries, a single integrated system using reporting and analysis tools, such as that provided by Oracle, can make it a lot more difficult," says Beetar.

"Situations like those at Enron and WorldCom have shaken the business world and rocked the underlying principle of investment - the trustworthiness of publicly-disclosed financial information.

"One of the things listed companies need to do now is look at their accounting systems and see how they can be streamlined or tidied up to ensure that in future, they can be faster and more accurate in their financial disclosures, and spot any discrepancies as soon as they occur. This isn`t going to stop improper accounting, but it will help honest companies to regain the trust they deserve."