Ask FERF (financial executives research foundation) about ... private company compliance with section 404.

• Author: de Mesa Graziano, Cheryl
• Position: Resources

In the article "Defining Moment for Good Governance," on page 48, Financial Executives Research Foundation (FERF) spoke with Constance E. Lund, senior vice president of Corporate Finance at American United Life Insurance Co. (AUL) about Sarbanes-Oxley compliance for private companies. In the following, Lund provides numerous lists that document the process her company is using to assure its internal controls.

Much of AUL's work focused on compliance with Sarbanes-Oxley Section 404, Management assessment of internal controls, to which it initially chose to be in compliance by the end of 2004. Coincidentally, this date became the revised deadline for many public companies.

The company identified these steps in its 404 Implementation Assessment:

* Inventory all financial classes of transactions/accounting processes by business unit (premiums, claims, etc.)

* Determine significance of transactions/processes based on materiality and risk

* Determine objectives for all significant cycles, accounting processes (completeness, accuracy, valuation, presentation, existence)

* Evaluate design of controls and test controls' operating effectiveness to achieve objectives

* Determine and correct gaps

* Test remediated areas

* Institute an ongoing monitoring program

* Provide report on internal controls

AUL also conducted a pilot 404 project that achieved the following:

* Completed documentation of process and controls

* Established preventive measures, improved monitoring and accountability

* Increased understanding and awareness of controls and control points by all individuals in the unit

* Boosted morale and provided a sense of challenge and accomplishment

* Promoted ownership of business processes

Before deciding on a consulting firm to assist in implementation, AUL used selection criteria to identify vendor advantages and disadvantages and rated vendors that include:

Degree of independence

Perception of audit committee

Brings a fresh perspective

Expertise and cost

Company/industry knowledge

Approach and scope

Flexibility to work with people

Ability to work with external auditor

Commitment of resources within the company's implementation timeframe

Technology and ongoing capabilities

After identifying a consultant, a project team was organized. The team included representatives from the consulting company, project sponsors from corporate management and representatives from operations, IT, financial reporting and the external audit firm. The timetable...