Friday, April 29, 2005

White Paper: SOXA - The Why's, When's and How's

An excellent history of corporate governance in both the US and UK, and a fresh look at SOX.

This white paper is a part of the Risk and Risk Regulations module, taught by Professor Gautam Mitra during the academic year 2004– 2005. It was prepared by students of the MSc Modelling and Management of Risk course being run by the PG Info Systems
Computing & Mathematics Department at Brunel University, West London.

The purpose of this paper is to provide a brief but clarified and consolidated view of what SOXA is about, as well as how and why it can provide assistance to a company in managing its risks and enhancing its corporate governance policies.

SOXA - The Why's, When's and How's

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Thursday, April 28, 2005

Sarbanes Oxley Drives Up Large Companies' Audit Costs by $1.4 Billion

Fortune 1000 companies' auditing costs have increased by $1.4 billion collectively so far, and much of this increase is in response to the corporate governance act known as Sarbanes-Oxley, according to University of Nebraska at Omaha researchers.

The insurance industry has seen its audit fees escalate this year by more than 70 percent, while retailers have faced a 180 percent jump, the researchers found.

With the latest figures reported, as of April 27, a total of 633 Fortune 1000 firms have reportedly paid more than $3.6 billion for their 2004 audits, compared to $2.2 billion in 2003, according to accounting professors Susan Eldridge and Burch Kealey, who helped develop an automatic text-mining and data extraction technique that makes hundreds of hours of data-collection manageable.

Sarbanes Oxley Drives Up Large Companies' Audit Costs by $1.4 Billion

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Wednesday, April 27, 2005

Defense Witness Damaging to Scrushy

A defense witness proved more useful to the prosecution in the corporate fraud trial of fired HealthSouth Corp. CEO Richard Scrushy, providing some of the most damaging testimony to date with descriptions of Scrushy's powerful management style.

Former HealthSouth vice president Jim Whitten winked at Scrushy several times and glowingly described him as the brains behind an aggressive marketing machine. He said Wednesday that Scrushy brainstormed ideas for TV programs and a magazine produced by HealthSouth, plus the company's defunct "Go For It!" road show featuring appearances by pro athletes.

"We wanted to create a branding for HealthSouth that was as well known as Coca-Cola," said Whitten.

Defense Witness Damaging to Scrushy

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Tuesday, April 26, 2005

Lawyers Try to Distance Scrushy From Fraud

Defense lawyers literally tried to distance Richard Scrushy from a huge earnings overstatement at HealthSouth Corp. on Tuesday by showing his office wasn't near those of lower-level workers who made thousands of fraudulent accounting entries. Going through a list of 11 one-time HealthSouth executives implicated in the scheme, defense attorney Jim Parkman repeatedly asked FBI agent Gerry Kelly whether their offices were on the fifth floor, where Scrushy's suite was located at headquarters.

With each name, Kelly either said the workers' offices weren't on the fifth floor or he wasn't sure where they had been located.

The 11 were "doing the dirty work of the conspiracy, right?" Parkman asked.

"They were the mechanics," Kelly said.

Lawyers Try to Distance Scrushy From Fraud

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Monday, April 25, 2005

IT Productivity Center is Launched with Sarbanes Oxley Compliance Kit by Janco

The Information Technology Productivity Center (ITPC) Web site (www.itproductivity.org) is officially open with Janco's Sarbanes Oxley Compliance Kit. The IT Productivity Center is the information portal for business executives who have information technology they need to manage. Victor Janulaitis, Janco's CEO, said, "We have the best information technology available to executives and IT professionals on www.itproductivity.org. The portal has tools for everything from Sarbanes Oxley to information technology service management and disaster recovery planning."

Janco is recognized as one of the premier sources for IT productivity tools. Janco's tools have been used by a majority of the Fortune 500, as well as enterprises from all of the major growth markets from Asia to Europe. As true movers in the productivity arena, the ITPC distributes all of its products electronically. In that way the ITPC carries no inventory on its intellectual property, and quickly modifies its tools as new advances and solutions become available. To facilitate this process ITPC offers electronic update services to keep its clients current.

Janulaitis said, "With the ever-improving economy and the need for documentation of processes for the SEC and Sarbanes Oxley, ITPC is positioned to be the leader in the provisioning of productivity tools to meet these goals. A new generation of business leaders is looking at brickless and borderless operations that will need to have rules put in place to meet these requirements. That is the focus of ITPC. With ITPC's help, Information Technology functions are able to do more without having to expand internal staff infrastructure."

IT Productivity Center is Launched with Sarbanes Oxley Compliance Kit by Janco

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Ex-HealthSouth CFO dates fraud to '80s

There's a side to Richard Scrushy's corporate fraud trial that the public isn't seeing -- one in which allegations of fraud at HealthSouth Corp. date back years earlier than anyone has told jurors. The defense last week released previously unseen transcripts of private sessions held between attorneys and U.S. District Judge Karon Bowdre as she considered whether jurors should be allowed to hear certain testimony about the fired CEO.

"The very first conversation was in, I believe it was early 1988, probably February, February or March of 1988," said the former finance chief, among 15 one-time HealthSouth executives who pleaded guilty and agreed to help prosecutors.

Ex-HealthSouth CFO dates fraud to '80s

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Sunday, April 24, 2005

Investor Guidance - Understanding 404 for Market Participants

Internal Control Over Financial Reporting: An Investor Resource
Designed as a broad overview of Section 404 of the Act, this brochure explains the background and rationale for the new reports, provides a brief description of what the new reports will include, and explains the meaning of control deficiencies, management’s report and the independent auditor’s opinion.

Perspectives on Internal Control Reporting: A Resource for Market Participants
More detailed and in depth, this publication, in question and answer format, is designed for investors and other market intermediaries including brokers, analysts and rating agencies interested in additional information on specific topics related to internal control reporting, material weaknesses, and the potential marketplace implications of the new reporting.



Investor Guidance - Understanding 404 for Market Participants

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What 404 Means for Investors - Webcast from the Big Four

On Jan. 25, 2005, the four firms Web-cast a briefing for personal finance reporters on Section 404 of the Sarbanes-Oxley Act and what it means to investors.

To assist investors – individual and institutional, small and large -- in understanding the new internal control reporting, Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP have developed two resource guides to address many of the questions that may arise.

What 404 Means for Investors - Webcast from the Big Four

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Saturday, April 23, 2005

The Need for Continuous Controls Monitoring

Most enterprise business processes extend past multiple business applications, and firms often struggle with ensuring that the data has been consistently accurate throughout the end-to-end process. This capability becomes even more critical as firms wander further into outsourcing and understand the full impact of regulatory compliance initiatives (e.g., Sarbanes-Oxley, Bill 198) that require firm financial controls in enterprise business processes. Recently, a set of applications that has its roots in traditional auditing processes presents an opportunity to provide this capability. Business assurance analytics (BAA) is an emerging application space that may provide a solution to ensure accountability and ultimately reduce risk, which is proving to be an important business requirement given the focus on financial controls due to regulatory compliance.

The Need for Continuous Controls Monitoring

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Friday, April 22, 2005

Sarbanes-Oxley rollback 'unjustified': SEC

The top U.S. markets regulator told Congress on Thursday it is "unjustified" to call for a broad weakening of 2002's Sarbanes-Oxley business reforms due to concerns about the costs of one part of them that is aimed at strengthening companies' internal financial controls. At the same time, U.S. Securities and Exchange Commission Chairman William Donaldson said regulators "must be sensitive to the need to recalibrate and adjust our rules and guidance to avoid unnecessary costs or unintended consequences."

His remarks came amid a push by some corporations to roll back Sarbanes-Oxley's Section 404 rules, which force companies to disclose more about their financial control methods and outside auditors to pass judgment on those methods.

Sarbanes-Oxley rollback 'unjustified': SEC

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Wednesday, April 20, 2005

AIG places chief administrative officer on leave

American International Group said Tuesday that it placed Chief Administrative Officer Michael Castelli on leave amid an accounting scandal at the giant insurer. AIG (AIG) put Castelli on leave Friday, said Joseph Norton, a spokesman for the company, on Tuesday. He declined to say why or comment further.

Efforts to contact Castelli and track down a lawyer representing him weren't successful.

Regulators including New York Attorney General Eliot Spitzer and the Securities and Exchange Commission are investigating whether AIG used reinsurance to manipulate its financial statements.

The probes forced longtime Chief Executive Maurice "Hank" Greenberg to step down and the company to admit to a series of accounting improprieties that could wipe more than $1.7 billion off its net worth.

A spokesman at Spitzer's office declined to comment.

AIG places chief administrative officer on leave

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Tuesday, April 19, 2005

Execs rip Sarbanes-Oxley's costs, regulations

A group of Pittsburgh business executives took no issue yesterday with the intent of the Sarbanes-Oxley law -- 2002 federal legislation aimed at ending corporate accounting scandals -- but a number of them complained that the costs of complying with it were too high and some of its provisions amounted to regulatory overkill.

Sen. Rick Santorum, R-Pa., agreed with some of the criticism but told the group it was unlikely that Congress would change the provisions of the law, known as "SOX," that they cited as most burdensome. The executives gathered at the Rivers Club, Downtown, for a panel discussion on SOX organized by Pittsburgh's chapter of the National Investor Relations Institute.

Execs rip Sarbanes-Oxley's costs, regulations

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Monday, April 18, 2005

The Spitzer Effect

We don't have to wait for the outcome of the battle between American International Group (AIG) and its regulators to predict that it will affect how public companies can be governed in a world in which prosecutors are unconstrained by rules designed to protect the rights of the accused.

Maurice "Hank" Greenberg built AIG from a small insurance operation into a $100 billion powerhouse, taking him to the pinnacle of America's financial and philanthropic establishments and becoming one of the "high flying, adored," to borrow from Tim Rice's Evita lyrics. From which perch he has fallen, and is now an unemployed executive scrambling to transfer over $2 billion in assets to his wife to shield them from prosecutors and private litigants.

In rapid order: Greenberg was labeled "a CEO who did not tell the public the truth" and charged with "fraud" on a television broadcast by New York attorney general Eliot Spitzer; was defrocked by his board; and was forced to invoke his Fifth Amendment rights against self-incrimination when hauled before a regulatory inquisition before he had time to study the thousands of documents underlying the charges against him.

The specific issue involves a complicated transaction that may or may not have illegally shored up AIG's earnings. But the way the game is now played, it matters little what the truth will prove to be. Spitzer threatened to destroy AIG by charging the company with criminal violations unless its board fired Greenberg--as he had earlier forced the board of Marsh & McLennan to unseat
Hank's son, Jeff, as CEO, and replace him with a long-time Spitzer friend and former associate.

The Spitzer Effect

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Changing the DNA of IT: Sarbanes-Oxley and Service Management

As organizations work toward compliance with the immediate deadlines of the Sarbanes-Oxley Act of 2002 and prepare to meet other requirements within the act, they are discovering the dollar cost of compliance. Organizations need to spend wisely on tools that will meet the basic tenets of Sarbanes-Oxley -- including improved transparency and accountability in business processes and corporate accounting -- while providing the foundation for future compliance. IT service management -- a fundamental tool set for weaving transparency, control and risk mitigation into the fabric of IT -- can help organizations achieve regulatory compliance while promoting IT governance and improved business operations.

Changing the DNA of IT: Sarbanes-Oxley and Service Management

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UK Sarbanes-Oxley is just a matter of time warns Venesis

Whilst businesses in the US prepare for the implementation of Section 404 of the Sarbanes-Oxley Act on the 15th July, the UK must brace itself for similar levels of accountability, predicts Adrian Giles, Senior Partner of UK business venture specialists, Venesis.

The Sarbanes-Oxley Act was implemented to improve the transparency with which Public companies in the US conduct their business, by imposing strict levels of corporate governance.

As the UK moves towards similar levels of corporate governance, a Sarbanes-Oxley style regime may be implemented in this country if the Company Law Reform 'White Paper' is any guide. UK businesses will be subjected to penalties tougher than the US Sarbanes-Oxley for breach of accounting offences.

UK Sarbanes-Oxley is just a matter of time warns Venesis

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Sunday, April 17, 2005

Sarbanes-Oxley Is Not Bad

But "there's no silver bullet" to prevent another Enron or Tyco, says United Technologies Chairman and CEO George David. George David, chairman and CEO of United Technologies (UTX ), has strong views on his role and his company's in a climate of tightened corporate governance. He's the only inside director on his company's board and also sits on the board of Citigroup (C ).

Sarbanes-Oxley Is Not Bad

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Saturday, April 16, 2005

Here It Comes: The Sarbanes-Oxley Backlash

Last week, business representatives gathered in Washington at an all-day roundtable discussion held by federal regulators and complained about the cost of complying with a provision of the Sarbanes-Oxley corporate reform law. Not one business leader asked to repeal the law, which was passed in 2002 after a wave of financial scandals, or to gut it. Nearly every executive, however, lamented the costs of compliance.

The criticism is striking, given that it comes against a backdrop of continuing revelations of potential fraud, criminal prosecution of fraud and convictions on fraud charges. Bernard J. Ebbers, the former chief executive of WorldCom, is awaiting sentencing after being convicted last month of fraud, conspiracy and filing false reports. Trials of former Enron executives are set to begin this week. Arthur Andersen, audit firm to both WorldCom and Enron, is still fighting to save its reputation and its few remaining assets in a lawsuit brought by WorldCom shareholders.

"There've been so many companies that have gotten in trouble, none of them want to come out now and say we oppose" the law, said Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission who now works at Glass, Lewis & Company, an investment research firm in San Francisco. "It just leaves people with a bad feeling about that company."

Here It Comes: The Sarbanes-Oxley Backlash

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Report: SOX Compliance Should Not Rest Solely With CFO

Companies that involve much of the organization in their Sarbanes-Oxley review process are experiencing lower costs and increased profits, according to a new report by AberdeenGroup. By contrast, companies who limit SOX reviews to a small group of senior management have the worst performance records.

"The Automating SOX Compliance Benchmark Report" found that companies can achieve greater results from their SOX review process by using a combination of business process analysis, project management, and changes to technology to go beyond the minimum requirements imposed by SOX to significantly improve operating results while introducing continuous business improvements.

Report: SOX Compliance Should Not Rest Solely With CFO

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Friday, April 15, 2005

Scrushy team tries to discredit testimony

Lawyers for ousted HealthSouth chief Richard Scrushy tried to discredit the government's analysis of his vast riches Friday with a dizzying blitz of questions about accounts and computer databases. The judge in Scrushy's corporate fraud trial even got into the act, once questioning a prosecution witness in a skeptical tone. Prosecutors, meanwhile, filed papers indicating they would appeal a ruling dismissing three of the 58 total counts from Scrushy's indictment.

A day after prosecutors displayed photos of Scrushy's luxury cars and big boats in an attempt to show he bought them with millions of dollars made from a huge fraud at HealthSouth Corp., defense lawyer Art Leach attacked William Bavis, an expert whose firm analyzed more than 34,000 transactions while reviewing Scrushy's personal accounts.

Scrushy team tries to discredit testimony

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Why Should Private Companies Implement Sarbanes-Oxley?

While public companies must comply with provisions of the Sarbanes-Oxley Act, that's not the case for private companies. Financial Executives Research Foundation (FERF) looks at whether private companies are complying anyway - voluntarily.

Publicly held companies are now reporting on the effectiveness of their internal controls over financial reporting, as required by the Sarbanes-Oxley Act of 2002. They have expended considerable time and effort to document and test their internal controls, and have paid their auditors significant sums to test these controls. Some companies have had to disclose material weaknesses that must now be remediated.

Why Should Private Companies Implement Sarbanes-Oxley?

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Assessing Awareness and Impact of Sarbanes Oxley Section 404 in the Global Capital Markets

Investors and analysts outside the US are not well informed about Sarbanes-Oxley 404 and are concerned about the potential impact of negative disclosures, according to a new PwC survey. As these findings suggest, ensuring that the marketplace correctly assimilates the information in the new 404 reports is still an uphill battle.

Assessing Awareness and Impact of Sarbanes Oxley Section 404 in the Global Capital Markets

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Star panel re-evaluates Sarbanes-Oxley one year in at SEC headquarters

A full house packed the Securities and Exchange Commission headquarters on Wednesday for a public forum to discuss the most onerous section of The Sarbanes-Oxley Act of 2002 (or Sarbanes-Oxley), Section 404. The event was a roundtable of public companies, auditors, investors, and members of the legal community to discuss the pros and cons of the section now that many large public companies have completed their first year of compliance. Section 404 requires companies who report to the SEC under the Securities Exchange Act of 1934 to evaluate and report upon their internal controls over financial reporting. The company's external auditor must then render an opinion on management's report, as well as another opinion on the effectiveness of those controls.

It was a "who's who" list of panelists, as well as all SEC commissioners and board members of the Public Company Accounting Oversight Board. PCAOB is the organization created by Sarbanes-Oxley to register and monitor the performance of audit firms.

Panelists included top executives or board members from the NYSE, NASDAQ, CalPERS, GAO, the Big-4 accounting firms, and some of the biggest names in corporate America, including General Electric, Microsoft, Dow Chemical, Lockheed Martin, Eli Lilly, and Aetna. SEC Chairman William Donaldson said the roundtable is "an opportunity to hear how the process really works."

Star panel re-evaluates Sarbanes-Oxley one year in at SEC headquarters

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Thursday, April 14, 2005

Acctg Bd Staff To Give Internal Control Guidance Mid-May

WASHINGTON -- The staff of the Public Company Accounting Oversight Board will issue guidance in mid-May to help auditors bring more balance to internal-controls reviews now mandated for U.S. public companies, PCAOB Chairman William McDonough announced Wednesday.
McDonough said the staff guidance will be released May 16, and he promised the PCAOB also would consider revising its rule on internal controls reviews. Rule changes could take up to six months, which might come too late to offer much help this year, he acknowledged.

(wsj.com subscription required)

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Senate Committee Approves Greater Protections for Whistle-Blowers

These are tough times for federal employees who blow the whistle on waste, fraud and abuse. Their cases take months to investigate; they often face reprisals from bosses, and once in court, they find that the protections granted by Congress are not all that strong. In an effort to strengthen those protections, the Senate Homeland Security and Governmental Affairs Committee approved a bipartisan bill that supporters hope will encourage employees to step forward when they spot wrongdoing in government offices.

"Strengthening whistle-blower protections is more than just an employee protection issue. It promotes good government," Sen. Daniel K. Akaka (D-Hawaii), a chief sponsor of the bill, said in a statement.

Senate Committee Approves Greater Protections for Whistle-Blowers

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Wednesday, April 13, 2005

SEC Roundtable on Implementation of Sarbanes-Oxley 404, Internal Control Reporting Provisions

The SEC hosted a roundtable discussion regarding registrants' and accounting firms' experiences implementing the new reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002. The roundtable will include representatives of the Public Company Accounting Oversight Board (PCAOB), issuers, auditors, investors and other interested parties.

Section 404 and rules adopted by the Commission require all entities, both US and non-US, that file annual reports with the Commission to report to investors on management's responsibilities to establish and maintain adequate internal controls over the company's financial reporting process. Each report must include management's assessment of the effectiveness of those internal controls, and Section 404 and the PCAOB's auditing standards require the accounting firm that audits the company's financial statements to report on management's assessment.

SEC Roundtable on Implementation of Sarbanes-Oxley 404, Internal Control Reporting Provisions

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Chamber urges SEC to fix financial reporting rules

A leading corporate lobbying group Wednesday urged the Securities and Exchange Commission to loosen part of the 2002 corporate governance law it says is threatening the health of U.S. businesses. In a letter to the SEC, the U.S. Chamber of Commerce said Section 404 of the Sarbanes-Oxley Act "has been costly, onerous and threatens U.S. capital markets and business competitiveness." The letter comes on the same day the SEC held a roundtable discussion about the rules.

Chamber urges SEC to fix financial reporting rules

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The Forrester Wave: Sarbanes-Oxley Compliance Software, Q1 2005

Sarbanes-Oxley (SOX) compliance is a rapidly maturing software category that combines enterprise content management, analytics, and enterprise applications. Three criteria provide significant differentiation among the SOX offerings evaluated: integration, collaboration, and reporting and monitoring. The user interfaces also vary widely in capability and ease of use. OpenPages emerged as the leading vendor, with IBM, Paisley Consulting, HandySoft, and Oracle close behind. Enterprises seeking a single platform for enterprise risk management should give preference to IBM, OpenPages, and Paisley Consulting because they provide a broader focus beyond SOX that encompasses additional compliance categories, including integrated enterprise risk management.

The Forrester Wave: Sarbanes-Oxley Compliance Software, Q1 2005

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Ernst & Young survey reveals Sarbanes-Oxley impact on non-US companies

Four out of ten foreign private issuers (FPIs) questioned, many of which are based in the UK, said they had anticipated being compliant with Section 404 of the Sarbanes-Oxley legislation with only one or two months to spare before the deadline was extended. This would have left little or no contingency for unexpected issues or delays in completing important remediation work.

Paul Kennard, lead partner for Sarbanes-Oxley at Ernst & Young, said, “If foreign listed companies had been relying on an extension from the SEC and an extension was not forthcoming, many of them would have had no room to manoeuvre so now is not the time to ease off; companies must still keep a foot on the gas and can learn from their US counterparts.” Indeed, earlier US surveys referenced throughout this FPI report revealed that the number of US companies expecting a close finish actually increased after a similar extension was provided by the SEC to accelerated filers. Kennard continued, “FPIs now have the benefit of referencing this peer data, as well as earlier US accelerated filer surveys, to help identify and address likely challenge areas that could slow progress, impact quality and increase cost.”

For example, FPIs should consider placing significant and early focus upon information technology (IT) – an area that caused significant resource, remediation and timeline challenges for accelerated filers, and will likely be even more challenging for FPIs given the heavy reliance on IT-based controls, disparate system environments, and heavy IT outsourcing revealed in the survey.
Ernst & Young survey reveals Sarbanes-Oxley impact on non-US companies

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Sarbanes-Oxley Exposes Missteps as Audit Costs Spur Gripes

Yellow Roadway Corp. says it spent almost $10 million last year in a dash to meet new federal audit rules. The biggest U.S. trucker hired 10 employees, added another 20 consultants and had to write new software. Fees to its auditor more than doubled to $4 million. For its effort to meet the mandates of the 2002 Sarbanes- Oxley Act, Yellow Roadway got a clean bill of health from its auditor, KPMG LLP. Others were less fortunate. Auditors required more than 360 large companies to declare ``weaknesses'' in their financial controls, and as a result 400 companies filed annual reports late. Average audit fees for the 100 largest U.S. companies last year jumped 45 percent to $13 million.

Congress probably won't change Sarbanes-Oxley. Instead, when executives gather today at a U.S. Securities and Exchange Commission hearing on the law, they'll take aim at the implementing regulations they say are causing an excessive burden in money, time and stress. They may also target their accountants.

"There were benefits, but the benefits were greatly exceeded by the costs of the law," says Donald Barger Jr., 62, chief financial officer at Yellow Roadway, based in Overland Park, Kansas. "These costs have to be cut."

Sarbanes-Oxley Exposes Missteps as Audit Costs Spur Gripes

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Tuesday, April 12, 2005

Sarbanes-Oxley Protects Growth

Robert D. Novak argued against the Sarbanes-Oxley Act on the basis that it will take $35 billion this year for publicly held corporations to comply. That, he said, will have a deleterious effect on economic growth.

WorldCom stockholders saw the capitalized value of their assets fall from $180 billion to less than $7 billion in the past four years. That loss would take five years to recover at the rate of $35 billion per year, and that ignores fraudulent accounting operations and stock scams at Enron, Adelphia, HealthSouth and other companies.

Sarbanes-Oxley Protects Growth

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Room at the Top

The current regulatory environment represents a double-edged sword for finance executives who seek to elevate their career to the next level. The accounting scandals and ensuing regulations have heightened the visibility of the CFO and other finance executives, but the spotlight's glare does not necessarily translate to more calls from CEO headhunters.

"In the post-Enron environment, companies are very risk averse," notes Nancy Keene, a director in the Dallas office of executive search firm Stanton Chase International. "In almost all cases, they look for a been-there, done-that person." Boards that are searching for CEOs, she adds, typically want to hire a current or former CEO.

Stern notes that swelling compliance workloads have limited the time CFOs can invest in value-added activities, such as strategic planning, that make them more attractive CEO candidates. CFOs at small to midsize companies that cannot afford to hire staffs dedicated to compliance are particularly hard-hit.

Yet there may be a silver lining in the compliance cloud. Finance executives can leverage time-consuming compliance activities to improve organizational performance -- and their career prospects, notes Stephanie Woodruff, Minneapolis-based executive vice president of the corporate governance practice at Accretive Solutions Inc., a professional services firm. "If a finance executive treats their year-two and year-three compliance efforts as an opportunity to deliver process improvements and run the business better, I think they will turn some heads," she explains.

Room at the Top

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SOXing It to Small Businesses

Although many SOX provisions impact small business, the worst offender appears to be Section 404, which requires inclusion of internal control disclosures in each public corporation's annual report. This disclosure statement must include: (1) a written confirmation by which firm management acknowledges its responsibility for establishing and maintaining a system of internal controls and procedures for financial reporting; (2) an assessment, as of the end of the most recent fiscal year, of the effectiveness of the firm's internal controls; and (3) a written attestation by the firm's outside auditor confirming the adequacy and accuracy of those controls and procedures.

Study after study confirms that Section 404 has imposed huge costs on American business.

SOXing It to Small Businesses

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Employee Morale Threatens Sarbanes-Oxley Compliance, Driving Companies to Automate Manual Processes, Reports New Oversight Systems Survey

Oversight Systems Inc. today announced the results of the 2005 Oversight Systems Financial Executive Report on Sarbanes-Oxley, a survey of more than 200 financial executives. Nearly half of financial executives feel the biggest issue related to SOX compliance is the need to maintain the morale of the employees responsible for compliance. Reducing internal and external costs ranked as the second most frequently cited challenge to ongoing compliance.

The survey also reveals that most financial executives say that after implementing SOX requirements to remediate control deficiencies, most companies have seen bottom-line business benefits. Nearly half, 49 percent, say SOX compliance resulted in reduced risk of fraud and errors; 48 percent say they now have more efficient financial operations; and 31 percent say error rates have declined. Of the group, only 14 percent said that remediating control deficiencies has had no real effect on financial operations; and a handful, 12 percent, report less efficient financial operations after complying with SOX.

"Obviously, complying with Section 404 of Sarbanes-Oxley has been extremely expensive," said Joseph V. Carcello, co-founder & director of research for the University of Tennessee's Corporate Governance Center. "However, stronger controls lead to real benefits in the form of eliminating waste, eliminating abuse and better information for improved decision making." Carcello is also an advisor to Oversight Systems.

Employee Morale Threatens Sarbanes-Oxley Compliance, Driving Companies to Automate Manual Processes, Reports New Oversight Systems Survey

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Fed's Guynn Says Sarbanes-Oxley Act Has Helped Restore Trust

Jack Guynn, president of the Federal Reserve Bank of Atlanta, said the 2002 Sarbanes-Oxley Act has helped restore trust in U.S. corporations at a "very substantial" financial cost to some businesses.

"Today's boardroom culture seems to be changing," Guynn, 62, said in a speech being delivered today at Bridgewater College in Bridgewater, Virginia. "Corporate governance has weeded out some of the most egregious conflicts of interest."

Congress enacted Sarbanes-Oxley to tighten accounting standards and require public companies to disclose more after Enron Corp.'s Chapter 11 bankruptcy filing. The U.S. Securities and Exchange Commission brought about 1,300 civil cases against businesses from 2002 to 2004, resulting in more than $5 billion in penalties, Guynn said.

Fed's Guynn Says Sarbanes-Oxley Act Has Helped Restore Trust

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Monday, April 11, 2005

Ex-boss of AIG will 'take the Fifth' with regulators

Maurice “Hank” Greenberg, the former chairman and chief executive of AIG, will today invoke his Fifth Amendment right to silence when he is questioned by regulators over a $500 million transaction that forced him to resign from the world’s biggest insurer. The decision comes after Eliot Spitzer rebuffed requests by Mr Greenberg’s lawyers to delay the deposition, his lawyers said yesterday.

David Boies, Mr Greenberg’s lead lawyer, said Mr Greenberg was not given access to documents relating to the transactions in question. He also said that the sheer volume of transactions done, some up to 20 years ago, meant it was impossible for Mr Greenberg to have prepared his testimony in time.

In a statement, Mr Greenberg sought to distance himself from a $500 million transaction between AIG and General Re which investigators believe he initiated, by saying that he was “familiar with many, but certainly not all, or even a significant percentage of, the literally millions of transactions each year in approximately 130 countries” undertaken by AIG.

Ex-boss of AIG will 'take the Fifth' with regulators

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Business Performance Management

Managing performance within an organization requires that effective processes and supporting systems be employed. Optimum processes should be rational, cost-effective, flexible and transparent, and the technology on which a given set of procedures relies should also support these procedures and enable them to be more effective. It’s critical to understand not only the processes and systems within your organization, but also the relationship between them when designing and implementing a business performance management solution.

The term business performance management (BPM) can describe an array of functions. In general, it can be described as a set of integrated operational and analytic processes which facilitate the creation of strategic goals and the subsequent management of performance to those goals. In order for performance to be managed, it must first be measured. Meaningful strategic goals are created and defined in terms of specific objectives and key performance indicators. These indicators then are related to operational metrics and linked to performance incentives throughout the organization.

It’s not the most glamorous work, and perhaps that’s why appropriate attention isn’t usually paid to it. But during the past year, Sarbanes-Oxley 404 requirements have caused many companies to dust off their old flowcharts and take another crack at documenting processes currently in use.

Business Performance Management

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SAS 70 Standard Helps Bankers Evaluate Outsourcers

SAS 70, or the Statement on Auditing Standards No. 70, was developed by the New York-based American Institute of Certified Public Accountants. It can be used to ensure internal compliance and that vendors abide by the rules, executives said.

Chicago-based Northern Trust Corp. uses the SAS 70 format to evaluate whether large outsourcing vendors are compliant with various government regulations, such as the Sarbanes-Oxley Act and the Gramm-Leach-Bliley Act, said Katy Hurst, global disaster recovery director at the bank.

Northern Trust has beefed up its effort to scrutinize current and potential outsourcing partners because regulators have made it clear that "outsourcing relationships are subject to the same risk management practices" as those used in-house, Hurst said at the American Bankers Association's Bank Outsourcing Forum here last week.

SAS 70 Standard Helps Bankers Evaluate Outsourcers

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Independent Research Firm Names OpenPages as a Leader in Newly Released Sarbanes-Oxley Compliance Software Report

OpenPages announced today that Forrester Research named the company the leading Sarbanes-Oxley compliance software provider in its recently released "Forrester Wave™: Sarbanes-Oxley Compliance Software, Q1 2005." The report compared OpenPages to eight organizations that provide enterprise application, enterprise content management and specialty compliance software products, rating each company on the following focus areas: current product offering, strategy, and market presence. The technology providers were graded on a total of 58 types of criteria based on questionnaires, supplemental information, customer deals, market visibility, and Forrester knowledge gathered from product demonstrations, briefings and ongoing research. Within each of the three main focus areas, Forrester deemed OpenPages as a strong performer having "achieved solid product maturity as a result of multiple product releases and significant customer adoption."

Of the three key areas of interest, OpenPages proved to be a leader in terms of strategy -- ranking high in terms of technology strategy and vision and product development. In comparison to competitive vendors within the Sarbanes-Oxley compliance space, OpenPages was recognized for its strong usability across enterprise companies through a well-designed graphical user interface, reporting and collaboration differentiators. In addition, OpenPages was cited as expanding to support broader enterprise risk management (ERM) strategies. Forrester believes that this expanded functionality "will be important going forward, not only to support the broader compliance and management needs of enterprises, but also to ensure the ongoing viability of the specialized vendors."

Independent Research Firm Names OpenPages as a Leader in Newly Released Sarbanes-Oxley Compliance Software Report (Forrester Wave PDF)

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Sunday, April 10, 2005

Sarbanes-Oxley Act makes annual reports better late than sorry

There was a time when big companies wouldn't dare be late filing their annual report with the Securities and Exchange Commission. As the heavy season for these filings comes to a close, lateness has become almost commonplace.

"It's not the exception any more," Jonathan Schiff, a professor of accounting in the graduate school of business at Fairleigh Dickinson University in Teaneck. "Four years ago, if a company missed the filing, all sorts of red flags go up."

Already this year, 1,769 companies have formally asked the SEC for an extension in filing their annual reports, according to John Heine, an SEC spokesman.

Sarbanes-Oxley Act makes annual reports better late than sorry

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Saturday, April 09, 2005

Can compliance-challenged Veritas sell compliance

Can you sell regulatory compliance software and services when your own company has trouble meeting regulatory demands? That's the question Veritas CEO Gary Bloom must be asking himself this week.

Veritas yesterday delivered its much-anticipated 10-K filing to the US Securities and Exchange Commission (SEC). The software maker had twice delayed this fiscal year-end summary as it struggled to meet the first deadline of Sarbanes-Oxley (SOX). In particular, Veritas limped to meet Section 404 of SOX - the part dealing with internal controls and procedures for financial reporting.

Can compliance-challenged Veritas sell compliance

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Friday, April 08, 2005

Scrushy Fights Use of His Testimony to S.E.C.

Richard M. Scrushy, the founder of the HealthSouth Corporation, has asked the judge in his fraud trial to exclude testimony he gave federal regulators that prosecutors contend proves he committed perjury. The trial is in recess until Tuesday. The government on Tuesday sought to introduce Mr. Scrushy's deposition to the Securities and Exchange Commission about his stock sales before the company announced a $175 million earnings charge that caused the share price to plummet.

Neal Seiden, an S.E.C. accountant, testified that he took the deposition and later interviewed HealthSouth executives who were cooperating with prosecutors in the criminal investigation into possible insider trading.

Mr. Scrushy told the S.E.C. that he signed financial statements because lawyers and accountants told him to, not because he knew they were accurate. Five former finance chiefs testified at his trial that he ordered them to falsify the books and that he got revenue reports showing HealthSouth earned far less than it claimed.

Scrushy Fights Use of His Testimony to S.E.C.

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Logical Apps® now offering HR and payroll controls for its Sarbanes-Oxley solution

Logical Apps, a leading developer and provider of application control software, announced the availability of pre-bundled HR and Payroll controls for its compliance software solution. The software enables CFOs and CIOs to quickly enforce internal control policies and automate critical processes within Oracle E-Business Suite – at the application level. The pre-bundled controls address close to 100 Segregation of Duties conflicts and monitor close to 300 change controls related to HR and Payroll – while also providing a full audit trail.

“Because of government regulations, there is a recent trend that company boards and executive management are more frequently demanding assurance that critical information in enterprise resource systems is secured from either accidental errors or intentional manipulation,” said Chris Capdevila, CEO and co-founder of Logical Apps. “Our pre-bundled solution enables IS management to hide sensitive data, like employee social security numbers and salary history from users that do not need the information, as well as prevent unauthorized access to job duty conflicts, like entering a new employee into the system and processing the employee’s paycheck.”

Logical Apps® now offering HR and payroll controls for its Sarbanes-Oxley solution

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IT Security and Compliance Seen Key in Outsourcing Relationships

In an era of increased accountability, companies that outsource some portion of their internal processes have to be more alert than ever in securing partners who provide deep expertise in information technology (IT) security and compliance monitoring, advised Russ Owen, president of Global Infrastructure Services (GIS) for Computer Sciences Corporation, speaking at a conference on outsourcing this week.

Owen, along with other industry executives at the Gartner Outsourcing Summit held in Los Angeles April 4-6, participated in a keynote panel session that addressed sourcing and security compliance.

"The relationship between the company and outsourcer is more than a contract; it's a marriage," he said. "Trust is essential." Other characteristics he cited include cultural compatibility, communication, openness and the flexibility to adjust to change both as a result of business change and new compliance legislation. "The customer needs complete visibility, and the process must be collaborative with a shared risk management approach," he added.

IT Security and Compliance Seen Key in Outsourcing Relationships

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Sarbanes-Oxley (SOX) and IAM white paper

According to the white paper published by Evidian SOX compliance can bring in benefits for an organization in terms of investor confidence and rationalization of financial business processes.

The part of SOX that most directly concerns IT security is Section 404, which aims at strengthening internal control over financial reporting, and in so doing, minimizing material weaknesses in the reporting process. Section 404 requires that audited reports which concerned companies file yearly at the SEC, known as 10K, include a section on the status and effectiveness of internal control over financial reporting.

The Securities and Exchange Commission issued its final rule in August 2003 and specified the content of this section, as well as the general procedure to be used in this management assessment. As most financial activity is performed on IS resources, Identity and access management (IAM) plays a significant part in helping maintain the integrity of a company’s reporting process. Of course, IAM is just one piece of the overall SOX compliance process, but it can help make that process significantly easier to implement, maintain and audit.

Sarbanes-Oxley (SOX) and IAM white paperSarbanes-Oxley (SOX) and IAM white paper

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Thursday, April 07, 2005

NPC Morning Newsmaker Program to Feature Chairman of PricewaterhouseCoopers US April 28

Dennis Nally, PricewaterhouseCoopers U.S. chairman and senior partner, will discuss the impact of the Sarbanes Oxley Act Section 404, which requires public companies to report on the adequacy of their internal financial controls. This provision has stirred passions. Many companies say implementation costs outstrip public benefits, while supporters contend the provision is restoring public confidence in financial reporting. Nally will address how investors should assess these reports, what companies need to do to ensure public understanding, and what PwC sees as the real benefits.

NPC Morning Newsmaker Program to Feature Chairman of PricewaterhouseCoopers US April 28

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SOX Compliance - Cutting Through the Static

The Sarbanes-Oxley deadline is finally upon us—and public companies with early fiscal year-ends are feeling the heat. Over the past 3 years, endless headlines have preached about the consequences of not abiding by the Act. A bit of additional education never hurts. This is not intended as the end-all column on compliance, but rather a piece to examine some of the top SOX storage considerations at a high level. Remember that the best compliance strategy begins with thoroughly studying the Sarbanes-Oxley Act, as well as any other regulations affecting your industry.

SOX Compliance - Cutting Through the Static

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Threat of the auditors

Ask nearly any business executive to name the biggest menace facing corporate America, and the answer is apt to be a number: "404." That refers to Section 404 of the Sarbanes-Oxley Act, which requires massive reporting by publicly held companies to prevent recurrences of WorldCom, Enron, Tyco and other scandals. For honest corporate officers, this is classic governmental over-regulation -- a dagger aimed at the heart of the U.S. economy.

The implementation of 404 by the Securities and Exchange Commission (SEC) has created painful demands that drain corporations, large and small, of funds.

Threat of the auditors

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Directors face change in Europe

As American companies struggle to comply with all the new rules imposed by the Sarbanes-Oxley law, some cast an envious look across the ocean, where European companies face a far gentler set of rules. In fact, calling many of them "rules" is deceptive. Things like corporate disclosures about executive compensation or the state of internal controls, or even the makeup of boards of directors, are typically governed by corporate codes that may be published by regulators but for which compliance is voluntary.

So while the code may say it is a bad idea for the chief executive to also be chairman of the board, or that independent directors should not be paid with stock options - as the British code does - companies that disagree can do so with impunity. The phrase is "comply or explain," and companies are merely expected to tell shareholders why they don't think complying is a good idea. Sometimes they fail to do even that.

Directors face change in Europe

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Act drains public firms' time, money

It cost Milacron Inc. 1 percent of its sales and 15 percent of operating cash flow. It cost Regent Communications Inc. $800,000.

"It" is the Sarbanes-Oxley Act's internal control requirement. And it has public companies shelling out cash, chief financial officers complaining and accounting firms working overtime.

"For us, it could be the difference between being profitable or not," said Milacron spokesman Al Beaupre.

Act drains public firms' time, money

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Wednesday, April 06, 2005

Robert D. Novak: Regulatory overkill by SEC auditors may stifle economic growth

Ask nearly any business executive to name the biggest menace facing corporate America, and the answer is apt to be a number: “404.” That refers to Section 404 of the Sarbanes-Oxley Act, which requires massive reporting by publicly held companies to prevent recurrences of WorldCom, Enron, Tyco and other scandals. For honest corporate officers, this is classic governmental over-regulation — a dagger aimed at the heart of the U.S. economy.

The implementation of 404 by the Securities and Exchange Commission (SEC) has created painful demands that drain corporations, large and small, of funds. This is springtime for auditors, with requirements for more of their number to perform the investigations. The most dangerous aspect of this regulatory overkill is a further inclination by corporations to hold onto money rather than put it into productive investment, thereby threatening to stifle economic growth.

Robert D. Novak: Regulatory overkill by SEC auditors may stifle economic growth

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Does regulation work? 'Don't ask me,' says former SEC chief

Many of the speakers at the Sun event echoed that last comment. If you think Sarbanes-Oxley is the end of the regulatory parade, you're probably wrong. Expect more and more overhead, not less. Of course, these messages came from vendors selling compliance software and the like, including Pitt whose firm Kalorama Partners provides corporate governance services. How handy.

Large companies have been forced to deal with these compliance issues via a series of new laws that place tighter controls on privacy, record keeping and executive responsibility.

At times Pitt did sound McNealyian. He conceded that federal regulators may have gotten a bit zealous during their quests to seem anti-Enron or anti-Worldcom to the public. There are "burdensome laws," he said. But where does admitting failure get us?

Does regulation work? 'Don't ask me,' says former SEC chief

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Association asks SEC to clarify compliance measures

The American Bankers Association is asking the Securities and Exchange Commission to rework and clarify certain compliance measures required by recent regulatory reforms that have shot costs to corporations, including small banks and businesses, sky high.

ABA released contents of a letter sent to SEC chairman William Donaldson on April 4 that proposed updating the shareholder threshold that determines which businesses are subject to SEC reporting requirements and re-examining the role of the external audit in internal control testing required by the Sarbanes-Oxley Act. ABA also proposed that the SEC, the Public Company Accounting Oversight Board and industry work together to improve guidance clarifying that the external auditors' role is to test work done by companies own auditors, not to replicate the internal audit step by step.

Association asks SEC to clarify compliance measures

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UK version of Sarbanes-Oxley in force today

New rules are in force today that place companies under stricter auditing controls, similar to the issues addressed by the Sarbanes-Oxley Act in the US. They aim to ensure that company directors provide auditors with correct information, and allow the government to investigate suspected breaches.

The new UK regime, set out in the Companies (Audit, Investigations and Community Enterprise) Act of 2004, has obvious knock-on effects for records management. This may require companies to adopt more stringent information security measures to ensure the accuracy and integrity of their records.

Included in the sections of the Act brought into force today is a requirement that directors issue a statement in the auditor's report, confirming that they provided the auditors with all of the relevant information needed to properly prepare the report. Directors who fraudulently or negligently make this statement – or other directors who fraudulently or negligently allow the statement to go into the report – commit an offence under the Act punishable by fine or imprisonment.

UK version of Sarbanes-Oxley in force today

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Small banks seek waiver from new SEC rules

The trade group Independent Community Bankers of America is asking the Securities and Exchange Commission to excuse banks with assets of less than $1 billion from complying with detailed internal financial controls recently set by federal law.

The average community bank would have to spend more than $200,000 to meet the internal financial control standards of the Sarbanes-Oxley reform law, according to a survey by the community bankers group, which has nearly 5,000 members.

The new requirements also are prompting small banks with publicly traded stock, including some in Wisconsin, to go private to avoid the expense of financial reports required by the SEC.

Small banks seek waiver from new SEC rules

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Analyst resumes testifying at Scrushy's fraud trial

The on-again, off-again fraud trial of former HealthSouth Corp. CEO Richard Scrushy resumed Tuesday with testimony from an analyst who lowered his rating on the stock after an announcement that prosecutors say was linked to a huge fraud. Frank Morgan, who follows health service companies for Jefferies & Co. Inc., said he advised shareholders to dump HealthSouth stock after the company said in August 2002 that earnings would fall $175 million short of projections because of a change in Medicare reimbursements.

HealthSouth shares plunged more than 40 percent the day of the announcement and sank further once fraud allegations were made public seven months later.

Analyst resumes testifying at Scrushy's fraud trial

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Tuesday, April 05, 2005

SEC Sets Agenda for Internal Controls Roundtable

The Securities and Exchange Commission has unveiled the agenda for next week's day-long meeting on internal controls compliance. The April 13 roundtable will include a series of six panels comprised of representatives of public companies, auditors, investors and attorneys.

Section 404 of the sweeping Sarbanes-Oxley Act mandates that public issuers assess the effectiveness of their internal controls over financial reporting. For large companies, compliance became mandatory last year. For smaller companies with a market cap under $700 million and over $75 million compliance becomes mandatory in 2006.

SEC Sets Agenda for Internal Controls Roundtable

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Lessons learned on the road to compliance

So, it’s too early to know exactly how the feds will deal with executives who don’t bring their enterprises in line with all the new mandates. (Sarbanes-Oxley is indisputably the 800-pound gorilla, but it shares the zoo with HIPAA, the Patriot Act, and SEC 17a-4, to name a few.)

But it’s never too soon to learn from the experience of IT implementers who have been grappling with regulatory compliance issues for years. They’ll tell you the road to compliance is fraught with nonbudgeted expenses, steep learning curves, and plenty of gotchas. To better navigate around the worst pitfalls, here are some major considerations to bear in mind. After all, why learn the hard way?

Lessons learned on the road to compliance

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Software Sector Slumps on Warnings

Investors fled software stocks Tuesday as more than a dozen industry leaders warned of disappointing quarterly results, with some companies saying sales trends declined because customers were focused more on accounting issues than capital spending.

Smaller business software makers - including SeeBeyond Technologies Corp., BindView Development Corp., and Visual Networks Inc. - said orders failed to materialize during the first quarter because customers were consumed with accounting compliance imposed under the Sarbanes-Oxley Act. Other players in the market, such as Mentor Graphics Inc., Altiris Inc., and RSA Security Inc. listed reasons such as higher-than-expected legal costs and a general slowdown in sales

"With the advent of Sarbanes-Oxley, all organizations are reviewing and revising their processes," Chairman, President, and CEO Lawrence Barker told analysts during a conference call. "This combined with most of service providers focussing on the efficient use of their capital brought significant adjustments to how purchases were made."

Software Sector Slumps on Warnings

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3rdwave Global Commerce Management Removes Sarbanes-Oxley Compliance Concerns for Companies That Source Globally

Blinco Systems Inc. announces that its 3rdwave Global Commerce Management ("3rdwave GCM") solution provides the framework needed for companies to establish, document, review and certify procedures required by Sections 404, 302, 401 and 409 of the Sarbanes-Oxley Act of 2002 ("S-OX"). While providing a solid foundation for Section 404 compliance procedures and documentation (management assessment of internal controls), 3rdwave GCM focuses on delivering a powerful value proposition by highly automating Sections 302 (corporate responsibility for financial reports), 401 (disclosures in periodic reports) and 409 (real time issuer disclosures) S-OX compliance. 3rdwave GCM is designed specifically to manage and provide visibility into global sourcing, asset and non-asset-based manufacturing and global distribution, and thus meets S-OX' requirements for not only Section 404, but also for Sections 302, 401 and 409. 3rdwave GCM clients regularly close their financial month and year ends within 48 to 72 hours - well within the optimal 35 day target as set out by S-OX.


Ned Blinick, Blinco Systems' V.P. Sales & Marketing, said, "Most of the focus and very high cost of S-OX compliance is on Section 404, which manages procedures and documentation. Organizations must establish documented internal controls and regularly evaluate how effective these controls are. However, the results and benefits of a successful Section 404 implementation should be on having better financial controls, reporting capability and transparency so CEOs and CFOs can make better strategic decisions, increase profitability and confidently certify their company's financial reports. Companies should focus on the real value of their S-OX implementation, which is delivered with Sections 302, 401 and 409 of S-OX."

Blinick added, "As companies go global, the complexity of doing global commerce, and the demands made on firms for S-OX compliance, requires systematization of processes that are very difficult to systematize. To be S-OX compliant requires tools that support: a) procedural integrity and total supply chain visibility; b) execution and integration tools that competently handle the complexities of cross-geography execution; and c) provides transparency into all activities that materially affect their organization's financials. Within a S-OX regime, companies can't have any gaping holes in their global processes (global or domestic) and resulting financial reporting. Senior management and Boards need to be absolutely confident whenever they sign off on their financial reports that their financial statements accurately reflect anything material that's taken place across their global supply chain."

Blinick explained, "Since 3rdwave GCM supports integrated process controls, execution of global commerce and creates true financial transparency in a real-time environment, being S-OX compliant is not an issue for 3rdwave's client CFOs. All 3rdwave clients, whether a +$2.0 billion global sourcing division of a major automotive manufacturer, or a $100 million import division of a multi-billion dollar specialty food distributor, can easily meet S-OX' requirements because 3rdwave GCM imposes procedural reliability and the financial integrity required for reporting all of their global commerce activities."

3rdwave Global Commerce Management Removes Sarbanes-Oxley Compliance Concerns for Companies That Source Globally

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CFO Resignations Soared in 2004

How many times have we heard this: the CFO is no longer just a bean counter. The CFO is a business partner and strategist. Yet just when the job was getting fun, many finance chiefs seem to feel the party’s already over and it's time to call it a day, thanks to ever-increasing earnings pressure and—you guessed it—the demands of the Sarbanes-Oxley Act.

So suggests a new survey by search firm Russell Reynolds. Indeed, CFO resignations at Fortune 500 companies increased by 21 percent last year in comparison with the rate recorded in 2003, moving up from 18.2 percent to 22.2 percent of companies that changed finance chiefs, according to the study.

Overall, the CFO turnover rate increased by 23 percent. Specifically, 81 of the responding 491 companies changed CFOs in 2004, while 66 of the 497 companies that responded in 2003 shifted finance chiefs.

CFO Resignations Soared in 2004

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Monday, April 04, 2005

Small Business Trends: More Demand for Investor Relations Consultants

The passage of the Sarbanes-Oxley Act turned the world of publicly-traded companies in the United States upside down. A lot has been written about the increased compliance and reporting costs that smaller businesses now face.

There's another aspect to Sarbanes-Oxley. Small-cap publicly-traded companies in the United States are having a harder time getting analyst coverage. They are turning to skilled investor relations (IR) consultants to raise their visibility -- without running afoul of the law.

Small Business Trends: More Demand for Investor Relations Consultants

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So, You Want to Be on the Board

Last year, you were on the agenda to give a briefing on the CRM project, but it was late in the afternoon and everyone was distracted by the emerging requirements of something called Sarbanes-Oxley. Your 15-minute slot (far too brief) was shortened some more. Since only one question was asked, you were sure that making the afternoon flight was a higher priority to these gray hairs than what you had to say.

As more and more of the strategic issues your company faces have a direct or strong indirect IT component, the thought starts to form: "I should be on the board!"

That's probably not going to happen.

So, You Want to Be on the Board

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SOX Keeping You Awake At Night

Don't throw away the sleeping pills just yet. If you're a senior executive or manager with financial accountability, chances are, over the past year, you've had trouble sleeping because you've been worried about complying with the Sarbanes-Oxley law--especially the part that holds you personally responsible for attesting to the adequacy of your company's internal controls over financial reporting.

Unless you've been living under a rock, you know that SOX--passed in 2002--requires executive officers of public companies to annually attest to the effectiveness of internal controls over their financial reports. If you fail to establish and maintain appropriate controls, you can be fined and even sent to jail.

Fear of these penalties naturally prompted corporate leaders of publicly traded companies to scramble to meet the requirements of Section 404 for the first time at the end of last year. That's the part of the law that holds senior managers accountable for documenting and evaluating their internal controls.

SOX Keeping You Awake At Night

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Sen. Santorum to Highlight NIRI Panel Discussion On Sarbanes-Oxley Act April 18 in Pittsburgh

U.S. Sen. Rick Santorum, R-Pennsylvania, will speak about the landmark Sarbanes-Oxley Act to highlight an April 18 panel discussion sponsored here by the National Investor Relations Institute's Pittsburgh Chapter. Santorum is a member of the Senate Banking Committee, which shaped the Sarbanes-Oxley Act in 2002 to restore confidence in the U.S. financial markets after a string of financial reporting scandals.

"Since then, this legislation has drawn a great deal of both praise and criticism," said Thomas F. Hoffman, president of NIRI-Pittsburgh and vice president, investor and public relations at CONSOL Energy Inc. in Pittsburgh. "We're looking forward to an excellent discussion on how Sarbanes-Oxley has changed the way companies interact with the financial markets in Pittsburgh and across the nation, and any future legislative changes that might be considered."

In addition to Santorum, the expert panel will include: Joanne O'Rourke Hindman, Special Advisor to the Public Company Accounting Oversight Board; Joseph Diggins, Partner, Ernst & Young Business Risk Services; Michael Fox, Vice President Finance at Pittsburgh-based iGate Corp; and William Lyons, Chief Financial Officer at CONSOL Energy in Pittsburgh.

Sen. Santorum to Highlight NIRI Panel Discussion On Sarbanes-Oxley Act April 18 in Pittsburgh

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Message Archive Service From Sprint Enhances Email Security

Businesses that depend on email communications to securely transfer important data can benefit from a new message archive service from Sprint (NYSE:FON). Message Archive efficiently secures, preserves and retrieves crucial information assets to help meet business continuity, legal discovery and regulatory compliance needs. An off-site managed security service, Message Archive eases IT administration, reduces storage requirements and helps users quickly locate data, even with primary service disruptions.

Message Archive is the latest addition to the Sprint Managed Security(SM) Services portfolio and works in tandem with Sprint Email Protection(SM) service, a network-based solution for preventing spam, viruses and unwanted content from entering and compromising enterprise networks. Both services reflect Sprint's security leadership in protecting corporate resources. Message Archive from Sprint captures all incoming and outgoing email traffic and instant messages "in-stream" without latency, filters undesirable content, and then indexes and stores them in an off-site location for easy retrieval. Off-site storage eases capacity load and keeps messages intact for business continuity or regulatory compliance purposes.

Message Archive Service From Sprint Enhances Email Security

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Downtime Becomes Documentation Time

The past week wasn't extremely insane for a change, so I focused on completing some much-needed documentation and organization of some of our recent activities. The first area I tackled was the ongoing and tiresome Sarbanes-Oxley project.

At this point in this seemingly never-ending initiative, all of the IT security controls have been identified, tested, remediated and, most importantly, automated and made repeatable. Those last two items are key, since having automated and repeatable processes will save us time when we have to demonstrate compliance with Sarbanes-Oxley Act mandates again. In addition, having automated and repeatable processes will help with any other audits or attestations that we may be responsible for, since other regulations will most likely encompass the same activities covered by Sarbanes-Oxley.

Now it's just a matter of putting together some documentation about the processes so that in years to come we can quickly produce the information needed to ensure continued compliance. I'll explain with a couple of examples.

Downtime Becomes Documentation Time

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Brand Protection is Important to Sarbanes-Oxley Compliance Writes S. G. Hart & Associates

S. G. Hart & Associates, LLC, The Brand Equity Protection CompanyTM, writes about brand protection as an important element of compliance for public companies who must comply with The Sarbanes-Oxley Act of 2002 (SOX) in its April 2005 issue of BrandEyeTM. The current issue highlights the need for boards of directors and senior mangers to gauge the threat level of counterfeiting and product diversion to determine if damages require disclosure under Section 302 and whether proper disclosure controls are in place in this assessment. S. G. Hart & Associates also discuss Section 404 and its implication that the protection of corporate assets from fraud includes protection from the threat of counterfeiting and product diversion. Section 404 requires public companies to report on the effectiveness of internal controls designed to safeguard assets from fraud and have independent auditors attest to the effectiveness these controls.

Stanley G. Hart, President & CEO of S. G. Hart & Associates, explains the importance of highlighting Sarbanes-Oxley in the firm's BrandEyeTM newsletter, "the SEC's definition for internal controls makes it clear that safeguarding assets is an element of the internal control process. The implication for boards of directors and senior managers therefore goes beyond customary financial controls but includes the firm's ability to prevent, identify and detect fraud in all its forms, including fraud from embezzlement, payroll, external theft, procurement, counterfeiting and product diversion." Hart continues, "the difficultly of assessing damages from counterfeiting and product diversion make complying with SOX more of a challenge. Many companies are aware of the problem but have difficulty calculating the loss and damages. This lack of quantifiable data leads to organizational paralysis or to implementation of point solution(s) which fail to meet required business objectives because the program did not uncover root causes. The result is a poor return on investment, loss of confidence with protective measures and, more importantly, a loss of shareholder value."

Hart concluded his remarks by saying, "The opportunity to implement a sound brand equity protection program in light of SOX may be unfamiliar, but represents an opportunity for our clients to gain a competitive advantage while complying with the law. The regulatory mandate of SOX will undoubtedly identify outmoded or impractical brand protection practices and, in turn, allow clients to improve existing polices, procedures and systems. Yet, the real benefit is derived not from being in compliance but from the organizational knowledge obtained throughout the process of becoming compliant and using that knowledge for the greatest brand protection competitive advantage."

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Analysts and Investors Concerned About Potential Impact of Sarbanes-Oxley Section 404 Disclosures

Investors and analysts outside the U.S. are not well informed about Section 404 of the Sarbanes-Oxley Act and are concerned about the potential impact of negative disclosures, according to a new PricewaterhouseCoopers survey of investors and analysts in North America, Europe and Asia who cover U.S.-listed companies. Due in part to widespread publicity, 77 percent of respondents in the U.S. say they know "at least a little" about Section 404. That number falls to about 60 percent in Europe and 40 percent in Japan. The survey, taken in January, is the first to assess how Section 404 is perceived in the global capital markets.

Section 404 requires that the annual reports all SEC-registered companies include a statement by management and the external auditors on the effectiveness of the company's internal controls over financial reporting. The new standard became effective for most public U.S. companies on November 15, 2004 and will extend to smaller U.S. and non-U.S. SEC-listed public companies on July 15, 2006.

Analysts and Investors Concerned About Potential Impact of Sarbanes-Oxley Section 404 Disclosures

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Sunday, April 03, 2005

Company profits may be average but CEO pay packages are still big

Institutional shareholders, the corporate governance movement and tighter regulatory scrutiny mandated by 2002's Sarbanes-Oxley Act have prompted greater corporate oversight by directors and have emboldened more boards to oust CEOs over non-performance, malfeasance, even moral lapses. Despite new Nasdaq and New York Stock Exchange rules mandating board autonomy, directors remain largely beholden to management when it comes to compensation.

Compensation consultants say many boards are more diligent in linking pay for performance and sensitive to shareholder criticism, especially after several slow years on Wall Street. But ''there's still a culture that says any sort of positive performance has to be met with a significant increase in pay,'' says Pat McGurn of proxy adviser Institutional Shareholder Services. ''It's become an executive entitlement system.''

Since scandals at Enron, WorldCom and other companies, directors share the same liability for corporate collapses as the CEOs they oversee. So it's understandable that most spend more time scrutinizing management over finances than over executive compensation. Based on current proxy data, there's little apparent change.

Company profits may be average but CEO pay packages are still big

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Saturday, April 02, 2005

The great leap to flotation

Bell Lawrie is working on two US companies which want to float in the UK because of the tough new Sarbanes-Oxley listing rules in their home country. Cunningham says: "If we are working for a couple of US companies, then I’m sure a few of our rivals are as well."

New pan-European listing rules come into force in July, and could lead to another rush of market debuts before the end of June, he says. The introduction of new regulations is expected to make it difficult to open issues in the first half of the year and close them in the second half.

Companies testing the water for a float later this year include Infinite Data Storage, the Dunfermline CD technology company, and ProStrakan, the skin and bone drug developer based in Galashiels.

Much of the boom in market activity is down to greater enthusiasm for smaller firms. Investors’ attitudes to small companies have changed for the better over the past decade, according to Ben Thomson, the chief executive of finance house Noble Group. He says: "When people invested in technology companies in the late 1990s, they became interested in small companies. They were badly burnt, but in many cases they were inclined to try it again.

The great leap to flotation

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Friday, April 01, 2005

Grant Thornton to Sound the Alarm on Auditor Concentration; News Conference to be Held April 15 at NPC

Senior executives of Grant Thornton LLP, the U.S. member firm of Grant Thornton International, one of the six global accounting organizations, will participate in a Newsmaker event Friday, April 15 from 10 a.m. to 11 a.m. at the National Press Club, located at 529 14th St. NW, Washington, D.C. They will call for the need to have more than just the "Big Four" auditors in the post-Sarbanes-Oxley audit environment.

After decades of consolidation, the onset of the Sarbanes- Oxley Act, and the fall of Arthur Andersen, approximately 97 percent of public companies with sales greater than $250 million are audited by the Big Four. The GAO reports that 86 percent of Fortune 1000 companies would prefer more audit firm choices, yet the high level of concentration continues -- posing a serious threat to capital markets stability and investor confidence.

Grant Thornton to Sound the Alarm on Auditor Concentration; News Conference to be Held April 15 at NPC

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Analytics software flags iffy accounting

Financial policing software developed by Canada's ACL Services Ltd. is helping companies comply with tougher laws passed in the wake of the Enron Corp. accounting scandal. The technology, known as business assurance analytics, keeps close tabs on a company's business transactions. It ensures compliance with legislation such as the U.S. Sarbanes-Oxley Act, which lays out new specifications for accounting accuracy among publicly traded companies.

Sarbanes-Oxley, Canada's own Bill 198, and similar laws in other countries have broadened the market for Vancouver-based ACL, which develops audit and data analysis software. The 18-year-old company markets its technology to the government, auditors, controllers and compliance officers at Fortune 5000 companies.

Analytics software flags iffy accounting

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The Unhidden Costs of Sarbanes-Oxley

David Merkel understands that regulations have costs, and maybe the costs of Sarbanes Oxley are justified, but he's no longer so sure following a recent delisting.

The Unhidden Costs of Sarbanes-Oxley

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Sarbox: A Cure Worse than the Disease

Rumblings of despair about something known as Sarbox might lead one to believe a new disease threatens us from foreign shores. Short for the Sarbanes-Oxley Act of 2002, Sarbox is a set of regulations intended to prevent the next Enron or WorldCom by improving corporate governance. It is now entering its first year of enforcement, and by many accounts it is the worst affliction visited on public companies in the last 70 years.

In fact, the Act empowers the federal government in unprecedented ways by dictating areas of corporate governance previously left to states. Complying with Sarbox will levy $35 billion of additional costs on corporate America this year—twenty times more than the SEC originally estimated. Washington bureaucrats can now impose a one-size-fits-all approach to structure corporate boards, determine their duties and those of officers, and set the standards and processes for internal controls. In so doing, Sarbox defies common sense and the American tradition of competition to promote innovation and best business practices.

How did this happen? In the early summer of 2002 the Sarbanes-Oxley bill was seen as emergency legislation to correct accounting fraud and executive self-dealing and to stabilize the stock market, which was then in its third year of freefall—a $4 trillion loss—the depths of which had not been seen since the years of the Great Depression. Graphic media coverage of outlandish executive excess, the collapse of audit king Arthur Anderson and the bankruptcies of Enron and WorldCom—two companies once ranked among the ten largest companies in the S & P 500—were unprecedented and created an environment where Congress had to “do something.”

Sarbox: A Cure Worse than the Disease

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