Accounting software and corporate fraud (page 2 of 2)

This type of functionality could maybe have prevented some recent alleged fraud....

Are there measures that can be built within the software that would increase the threshold against manual/human abuse?
Corporate annual reports and accounts are governed by legislation and have to be prepared in accordance with the relevant accounting standards. In order to do this, management need to establish policies and procedures which cover how transactions should be recorded and ethical and legal guidelines on what is acceptable. It is the existence and strength of these internal controls that external auditors assess and use to direct their efforts.

An essential element of these internal controls is 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. Without common and up-to-date information, management will not be alerted to potential problems or frauds being perpetuated.

What Oracle has therefore done with its E-Business Suite software is to have it run on a single database that records every transaction processed in the entire company. 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.

So 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.

If unethical practices happen in the most closely regulated economies, what should the public expect from less regulated markets?

Oracle is no more qualified than anyone else to predict when and where the next accounting scandal will arise. What we can say is that 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 the honest companies to regain the trust of their shareholders.