Enterprise resource planning (ERP) integrates an organization’s core functions, from finance to accounting to HR, under a single, unified system. If poorly managed, ERP systems can inflate operational, financial, and compliance risks for public sector organizations. But when properly configured and continuously monitored, ERP can serve as a critical defense against these risks, allowing organizations to continue to deliver effective services, maintain compliance, and promote transparency. We examine six strategies to mitigate common ERP risks — and how to turn risk into strategic advantage.
ERP risk management is paramount
Whether you’re currently evaluating ERPs or you’ve recently upgraded your system, you recognize the importance of optimizing your ERP to streamline processes and enhance day-to-day operations. But once you’ve upgraded, the work isn’t over. A successful ERP strategy for the public sector is ongoing and evolves with government regulations, public expectations, and your mission.
A continuous improvement approach can help you not only minimize ERP risks but use your ERP system as a risk defense. Agencies should regularly review and refine internal controls, automate routine reconciliations (such as fund balance with Treasury or grant expenditures), and solicit feedback from staff and auditors. This proactive approach ensures that ERP systems remain aligned with agency missions, compliance requirements, and the needs of the communities served.
The spectrum of risks
ERP systems are at the heart of operational excellence and strategic growth. Yet, they carry inherent risks if not managed properly:
- Operational risks. ERP systems that rely on outdated workflows can stall processes and reduce your team’s productivity. For example, when you operate outside of your ERP and solely rely on manual data entry, you risk exposing your team to errors and inefficiencies that require additional review and increase labor costs. Teams also face operational gridlocks when ERP requirements aren’t aligned with mission objectives, such as unnecessary layers of approval that don’t add clear value to the process. Using automation, you can support real-time, consistent data across your organization and streamline processes like approvals or invoicing.
- Financial risks. In a disjointed system, your financial data is often spread across multiple fragmented spreadsheets. This opens the potential for human error, increases time spent extracting financial insights and making decisions, and puts you at risk for compliance violations with delayed reconciliations. These risks are often intensified for public sector organizations with limited budgets and resources. An optimized system creates a unified data environment that supports consistent, accurate financial information across your organization.
- Compliance and regulatory risks. It’s crucial that your system, and the processes that support it, evolve with changing regulations like GAO and privacy acts. Failing to do so may expose your organization to compliance failures and increased audit scrutiny. A streamlined ERP simplifies processes without eliminating them, supporting necessary internal controls and operational needs to meet compliance demands.
- Strategic risks. Does your current system offer you real-time visibility across your operational functions? A poorly integrated ERP system impedes cross-departmental collaboration and interagency initiatives, and it can expose your agency to incomplete audit trails.
Strategies for comprehensive ERP risk management
To fortify your ERP system against these risks, adopt strategies aimed at continuous improvement. Internal controls, automation, and segregation of duties (SoD) are a few key elements agencies should review to support a holistic risk management strategy.
1. Conduct a comprehensive audit of internal controls
Start by mapping out your existing internal controls, including access controls, approval workflows, audit trails, and exception reporting. Identifying redundancies, manual processes that could be automated, and gaps in control is critical. An independent evaluation of these controls can provide an objective assessment of your blind spots and provide a clearer picture of which areas need improvement.
2. Seize automation opportunities
Automation can help you maximize the value of your ERP investment through enhancing accuracy and reducing cycle times. By integrating ERP systems with grant management, human resources, procurement, and case management platforms, agencies can save time, streamline operational processes, and enhance decision-making. Set up automated, rule-based workflows to streamline procurement and payment approval levels. Schedule the delivery of automated reports to executive leadership through AI-powered dashboards. Establish alerts for budget overruns. Schedule compliance checks so they don’t sneak up on you. There are countless automation opportunities for public sector organizations once a sound ERP foundation is established.
Additionally, you can configure your ERP system to automate a three-way match within the procure-to-pay process, comparing the purchase order, goods receipt, and invoice. This automation can help prevent fraud by ensuring payments are only made for items that were ordered and received and ensure your controls are consistently applied.
3. Set up real-time financial dashboards
Automation can play a particularly powerful role in financial management. Real-time dashboards provide management with a centralized and interactive view of financial data, enabling them to monitor key metrics, identify control gaps, and track remediation efforts as they evolve. Integrating these dashboards into financial and control environments equips agency leaders, program managers, and finance officers with analytics and forecasting tools tailored to government operations. This level of transparency supports more accurate and informed reporting, enabling agencies to better monitor program outcomes, forecast budget requirements, and respond proactively to regulatory changes or emerging risks.
4. Implement segregation of duties
SoD remains a cornerstone for risk mitigation. SoD divides critical business tasks into distinct elements: custody, authorization, recordkeeping, and reconciliation. Define and enforce these roles through role-based access controls to ensure no single individual controls all steps of a transaction. Next, continuously monitor for conflicts of interest.
Utilize ERP systems equipped with SoD analysis tools or plug-ins to proactively monitor, identify, and resolve these activities efficiently. A third-party provider can also perform an independent analysis to help you identify conflicts and recommend solutions.
5. Strengthen compliance and regulatory frameworks
Staying compliant isn’t just about ticking boxes. It’s about taking proactive measures against evolving regulations. An ERP system strengthens compliance and regulatory frameworks by enforcing role-based access, maintaining automated audit trails, and integrating real-time monitoring, ensuring that sensitive tasks are performed only by authorized users and that all actions are traceable. This helps agencies improve response times to policy mandates and legislative changes.
6. Enable audit trails and role-based controls
Inadequate audit trails and controls can increase your exposure during audits. Implementing clear roles and comprehensive audit trails can support compliance efforts and act as a deterrent against fraudulent activities. Additionally, employing compliance monitoring tools that seamlessly integrate within the ERP to ensure continuous tracking and promote greater public accountability.
Adopting a continuous improvement approach
There isn’t a one-step solution to ERP risk management. Given the dynamic nature of government regulations and public expectations, a continuous improvement approach is necessary to meet the evolving needs of your constituents and stakeholders. Regularly review internal controls, automate reconciliations, and solicit feedback from auditors and staff. Use ERP analytics to identify trends, bottlenecks, and threats, enabling timely interventions.
Start by asking your teams: How confident are you that your ERP system is protecting your agency from the spectrum of risks? If you’re unsure, it may be time to revisit your ERP risk management strategy.
