Centralised payroll – another step toward achieving good corporate governance

To improve the risk profile of a company, organisations have to look at the processes and systems that pose a threat and then mitigate them. One such system is payroll.

January 21, 2010

By Peter Ibbotson, CEO of Praxima Africa Payroll Solutions

The recent release of the King Code of Governance Principles and the King Report on Governance (King III) emphasises the importance of mitigating risk, particularly with regard to auditing and ICT processes and systems. In particular, it places the spotlight on the fact that sustainable business can only be achieved if it is supported by effective management of risk.

To improve the risk profile of a company, organisations have to look at the processes and systems that pose a threat and then mitigate them. One such system is payroll.

Today, many corporates have decentralised payroll systems with various subsidiaries running their own systems in a disparate fashion. This has come about as a result of the continuous expansion of organisations. Where growth has taken place by means of acquisitions, for instance, this has led to disparate ICT infrastructures and payroll systems with HR and financial departments using different systems to pay employees.

This poses a risk to the organisation as disparate payroll systems do not lend themselves to a healthy organisational risk profile, preventing proper controls and transparency being achieved.

The answer is a centralised payroll based on an enterprise system. To drive the implementation of good corporate governance throughout the organisation – including all subsidiaries – it is ultimately up to the board to ensure that a single solution is implemented company-wide. This will enable all subsidiaries to report into one system, while simultaneously creating a transparent, reliable, structured and lower-risk system.

This enterprise system can, for example, be set up to include passwords, ensuring that confidential information is safeguarded. The system should feature a centralised database that enables head office to draw reports and interrogate the system to ensure procedures are running optimally and within the company’s risk profile parameters.

A single payroll solution for a group means that everything is accounted for, statutory payment requirements are adhered to, and governance issues are simplified. Overall accountability is improved, which in turn mitigates negligence and ensures that board members are not exposed to possible liability and heavy penalties.

This said, it is important to have a payroll system that runs optimally, ensuring employees are paid efficiently and effectively. Choosing the right system is therefore critical. It should allow an organisation to carry on with its daily payroll activities while also gaining access to, and controlling systems that are integral to risk mitigation.

A centralised payroll system is undoubtedly an enabler of good corporate governance. Simply put, it strengthens financial controls. It forms an important part of the company’s integrated reporting and disclosure endeavours and brings organisations one step closer to delivering a holistic and reliable view of a company’s financial results, and accurately reporting them to stakeholders.