Five ERP best practices for corporate governance

Businesses may not realise that their accounting system holds the key to good corporate governance.

When running a business, pretty much everything that you need to do is impacted by good governance. For example, if you want access to finance, you need to be able to prove that you have adequate controls in place that mitigate both risk and contingent liabilities.

What many businesses may not realise is the vital role their accounting system plays in good governance and, indeed, compliance, says Stephen Corrigan, Managing Director at Palladium Business Solutions.

He says: “Good corporate governance is a massive benefit to the business. Instead of viewing it as red tape, businesses should regard it as money in the bank, as financial institutions will be more open to dealing with you if your processes and controls are in order.”

The perception around corporate governance is that it is just more legislation put in place by bureaucrats designed to make doing business even tougher than it actually is. Corrigan says businesses need to turn this perception on its head and see governance as a process that can actually aid the business.

  1. Proof of delivery (POD) management

Corrigan cites the example of being able to manage PODs. “If you can attach PODs to the related invoices and generate a report on the unattached documents, you can proactively find the documents before they are required by your clients. The ability to identify outstanding PODs also allows you to manage and even quantify the risk or contingent liability associated with these missing documents.”

This is just one way in which accounting software has a much-underrated role in protecting the business from risk and liabilities that could exist.

  1. Creditor reconciliation

He says: “Another example is the ability to manage and control all creditors and related invoices. Businesses need to be able to run a creditor reconciliation, starting with the system balance, highlighting all the reconciling differences, and ending with the creditor statement balance. The ability to show zero balance reconciliations means that there are no unrecorded invoices anywhere. The fact that these reconciliations are stored electronically adds immense credibility to the business and its related stakeholders.”

This is important for the business’s cash flow and forces the creditor’s department to practice good financial hygiene. It also allows auditors to see how you manage your creditors and their impact on the business’s cash flow.

The ability to demonstrate a good audit trail when called upon to do so is essential to any compliant business.

  1. Outdated technology

Corporate governance is more than just process and also extends to the technology used in the software itself. Yet most accountants and auditors are oblivious to the technologies used in their client solutions and aren’t aware that they’re responsible for damage in the form of data corruptions and the like.

Corrigan explains: “Some accounting software solutions are based on dated technology, such as the Visual Basic Programming language, which was last updated in 1999 and that hasn’t been supported since 2007. With all of the viruses that abound, this is a disaster just waiting to happen.”

  1. Database protection

Another area of importance is the database itself, where old databases are simple flat-file structures by design, and don’t hold much data and manage what they have poorly. There is no data integrity in the form of roll-back capabilities, with data corruption being the order of the day. A simple tell-tale sign is if the software tells you to backup the data before you update a transaction. If this is the case, you should be concerned.

It’s important to note the role that accounting software has to play in compliance with data protection legislation such as GDPR and POPIA. Tamara Lemos Ebersohn, Marketing Manager at Palladium Business Solutions, explains: “While the local POPIA has yet to be implemented, the General Data Protection Regulation comes into force in May and may apply to South African businesses too. GDPR applies to any data processing activities that are done by a controller in the EU, but it also applies to all processing of personal data of data subjects residing in the EU, even if the entity processing the data is not in the EU. So, if any entity is offering goods and services to EU citizens or monitoring their behaviour, they will be required to comply with the GDPR.”

You need to be able to restrict user rights, who can access the data, and you need to be able to track who accessed it and the changes that they made. Flat file technology simply doesn’t permit this level of security, says Corrigan.

  1. Document storage

Businesses need to ensure their documents are stored in accordance with requirements imposed by SARS and the Companies Act, says Ebersohn. “SARS requires that documents be kept for five years from date of submission, essentially rendering it as six years, whereas the Companies Act requires businesses to keep their documents for seven years. Many accounting software solutions comply with the SARS requirement only, which means if the business is audited after seven years, it may not be compliant.”

“Ultimately, good corporate governance is about doing the right thing to protect the business and its related stakeholders in the form of shareholders, directors and employees. And in doing so, it is important to select the right business software that will aid this process, not hinder it. At the end of the day, your accounting software should be a sail, not an anchor, to the business,” concludes Corrigan.

This article was written by Allison Job and was originally published on ITWeb, you can read it here.

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