Software sidelined in cooking the books
As the fallout from the Steinhoff accounting scandal grows, one of the most commonly asked questions about its shadowy external company structures is: “How did they get away with it for so long?”
Many people assume that accounting software and the enterprise resource planning (ERP) software systems that run most large companies make it impossible to cook or even mildly broil the books.
The problem is that machines only do what they are told. If a rule can be ignored because one has the right level of seniority or access to the system, then the rule is mere salad dressing, rather than the recipe.
“You can draw a line, but that doesn’t help if you draw it in pencil,” is the marvellous way the issue is summed up by Dan van Eck, director of strategy at EpicERP, the South African partner of international ERP developer Epicor.
“When people realise how much control and visibility ERP creates inside the company, and that they can’t get away with what they did before, they often back-pedal on implementing the full functionality.”
EpicERP MD Stuart Scanlon points to two massive benefits that such systems bring to governance.
“First, once you have governance and compliance embedded in the system, you can’t have grey areas in ethics. You either did it, or you didn’t do it.
“Second, having a good ERP system enables transparency throughout an organisation. This auditability encourages accountability and prevents wrongdoing.”
Aside from the accounting function itself, there are modules within ERP systems that can be used to encourage employees to live the ethical culture of a business.
“It’s not only about accounting,” says Scanlon. “Take a functionality like Epicor Social. Its purpose is facilitating real-time communication across the organisation, including suppliers and customers. But it can go beyond that, if the company is committed to ethics.
“We have seen it being used as a mechanism to enable whistle-blowing on suspicious transactions — by employees or suppliers.”
The key to this option is that it provides a ready mechanism for anyone in the supply chain to raise red flags around transactions. Where such mechanisms don’t exist, the whistle-blower has to find a way around an unethical gatekeeper, or use channels that are already compromised.
Scanlon warns: “The system in itself doesn’t make the company more ethical, but it makes unethical behaviour much harder to hide. Issues like these are as old as business itself, but the more connected world of digital business should result in them coming to light faster, and being resolved more quickly than in the past.”
That clearly wasn’t the case at Steinhoff, which has now revealed that its 2016 results have to be restated — and the rot may have started even earlier. It suggests that ERP should be implemented in a way that imposes both regulatory requirements and ethical behaviour on a business.
Scanlon believes that governance in itself is not enough. “Corporate governance is mainly focused on ensuring employees and managers behave in the best interests of their shareholders. Cynics could argue that there is a difference between this and acting ethically. So the culture of the business has a significant role to play.”
The problem is that machines only do what they are told