Accounting software and corporate fraud (page 1 of 2)

What role do financial or accounting packages play in avoiding fraud?

However, Oracle believes that a good accounting system, when 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. Here's how:

Control
A 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 that 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. 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 operationg region, Oracle recommends a single centralised system, which, in addition to cutting IT costs, is the best tool for internal control and security.

Monitor
The same principle applies when it comes to monitoring daily operations. If companies are using multiple 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.

Using Oracle's latest Daily Business Intelligence technology, however, companies can get the latest status of their operations on the fly. A comprehensive set of KPI's can be calculated on demand and even a draft consolidated Profit and Loss statement or draft consolidated balance sheet (excluding month-end journals) can be available in minutes.

Compare
Another way for management and the financial community to ensure that a company is not going out of line, is to make some industry comparisons. Rating agencies already do this to a certain extent, but they can only do it in a manual way and in most cases without sufficient data. One major reason is that there is no defined standard for the automated exchange of detailed financial information. After all, all companies have customers, suppliers, fixed assets, inventories, cash and debts, even if the actual way in which these are presented differ from company to company.

Oracle believes that enabling the exchange of such financial information would play a crucial role in making financial statements and practises more transparent. This is why Oracle is an active member of the XBRL (eXtensive Business Reporting Language) initiative and will incorporate the technology in our products when it is finalized. As an example, XBRL will enable analysts to make detailed analyses of fixed assets between telecommunications operators, possibly even down to the asset type.