Home Africa and the Middle EastAfrica and the Middle East II 2003 Corporate Governance- Pivotal to NEPAD Initiatives

Corporate Governance- Pivotal to NEPAD Initiatives

by david.nunes
Sergio Giacoletto Issue: Africa and the Middle East II 2003
Article no.: 12
Topic: Corporate Governance- Pivotal to NEPAD Initiatives
Author: Sergio Giacoletto
Title: Executive Vice President
Organisation: Oracle Europe. Middle East and Africa
PDF size: 104KB

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Article abstract

NEPAD considers good economic and corporate governance to be essential to reducing poverty and economic growth in Africa. Good governance depends upon a company structuring its accounting and control systems to guarantee the control and consistent treatment of financial information throughout the organisation. Companies typically have multiple systems, making it difficult to integrate information and institute effective controls. Centralized accounting systems go a long way towards reducing errors, standardising financial information and providing management with the information needed for good governance.

Full Article

“The New Partnership for Africa’s Development (NEPAD), very early in its existence, identified corporate governance as a fundamental requirement for the success of its efforts to help the African continent realise its full potential. The Declaration goes on to say that identified codes of governance accepted the world over “have the potential to promote market efficiency, to control wasteful spending, to consolidate democracy, and to encourage private financial flows – all of which are critical aspects of the quest to reduce poverty and enhance sustainable development. These codes and standards have been developed by a number of international organisations through consultative processes that involved the active participation of, and endorsement by, African countries.” The commitment to corporate governance is not one which has been confined to African heads of state. Companies the world over, still reeling from the shock of corporate scandals in 2002, have taken a fresh view of corporate transparency and reporting of information. Information accuracy, executive accountability and responsibility to shareholders are now factors taken seriously into consideration when investors look for opportunities. As the NEPAD initiative has so correctly identified, corporate governance plays an even more important role in the development of economies and the ability to deliver a blueprint for sustainable growth. It is no surprise, therefore, to see corporate governance featuring so prominently in the development plans for those countries in eastern Europe acceding to the European Union. The technology employed by an organisation to record, collate and publish its financial data is of fundamental importance. Apart from anything else, this data provides the information that independent auditors analyse and that credit providers use to make lending decisions. It is this same data that is rationalised each year, or each quarter, into a consolidated balance sheet for investor scrutiny. Yet, in spite of all the recent turmoil, I wonder how many chief executives have sat down with their chief information officer and actually looked at the nuts and bolts of how their company’s financial data is produced. If they haven’t, it’s about time they did, because it is highly likely that the new emphasis on fast and accurate disclosure will require an overhaul of old or badly-designed accounting systems that cannot keep up with today’s requirements for good corporate governance Many companies’ accounting systems are not currently equipped to cope with these new pressures. This is not to say that there is necessarily anything wrong with individual accounting systems. Rather the problem lies in the number of accounting systems typically used by a company, and the way in which information is extracted from each one and consolidated with data from the others. Independent research conducted by PricewaterhouseCoopers in April 2002 revealed a number of problems associated with multiple accounting systems. These problems often include the need to re-key financial data, to reconcile inter-company balances and manually correct errors, the late delivery of results to group headquarters, the inability of existing consolidation tools to consolidate data quickly and accurately, and the difficulty of stating results according to multiple reporting standards. As the PwC report concludes, many of these issues can be resolved by ensuring better integration between the accounting systems deployed at headquarters, divisional and local entity level, and a greater level of process automation to avoid error-prone re-keying of data and manual reconciliation of balances. Indeed, those companies that have simplified, standardised and automated their reporting processes were found to “achieve much faster and higher quality reporting with less resources.” If standardised and automated financial reporting help achieve one aspect of good corporate governance – fast and accurate disclosure – it is no less of an aid when applied to the problems of creative accounting and outright fraud. While no software can eliminate financial risk completely, especially when that risk derives from a deliberate human intent to deceive, a standardised, integrated accounting system can dramatically reduce the risk of improper accounting. For example, 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. Such policies are much easier to apply when a company that has a single central system, rather than multiple disparate 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. Local policy changes can still be made, but they must be approved centrally first, so all exceptions are immediately known. A further advantage of a single centralised system is the possibility of automating approval processes. Workflow technology can automatically route items such as expense claims and purchase order requests to the appropriate level of signing authority. This reduces the risk of non-compliant, fraudulent or “creative” accounting at subsidiary level, and it means that requests can be processed much more quickly. It also means that any “unusual” entries into the system can be automatically flagged at CFO level, and investigated straightaway. Daily operations monitoring is also achievable in a centralised system. If companies are using multiple different accounting systems, overall monitoring can only be retrospective. As results are often calculated using different principles and procedures, it is very hard to achieve any kind of transparency. With a centralised system, however, companies are much better able to get the latest status of their operations on the fly. Business intelligence tools are now becoming available to give senior executives a view of what is happening right across the company. Until now they have had to plough through stacks of paper, which is out of date as soon as it is printed, and finding any anomalies was like looking for a needle in a haystack. Now, as long as all information is being entered into the same system, anomalies can be automatically flagged as soon as they enter the system.” Conclusion The need to develop Africa’s economies today is more than urgent, and the minds that drive and support NEPAD have to dedicate their 24-hour day to strategic thinking, planning and execution. When it comes to management, information technology has already proved that it can play a vital role in ensuring that information on these efforts is delivered to decision-makers in good time, is accurate and is reliable.

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