Technology & compliance: looking at the big picture of Sarbanes-Oxley.

• Author: Braun, William

Welcome to the age of compliance, governance and risk management initiated by the demands placed on publicly traded companies, and in many cases private firms, to comply with the Sarbanes-Oxley Act.

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For most companies, initial compliance has focused on Sec. 404, which places responsibility on management "for establishing and maintaining an adequate internal control structure and procedures for financial reporting."

The tools companies use vary from Excel spreadsheets to Word documents to specific SOX compliance tools that are too numerous to list. The cost for these specialized compliance tools can range from $1,500 to more than $100,000.

The majority of the technology, regardless of the cost, has a static-point compliance focus for a given reporting cycle. Most companies have had key concerns and have focused on documentation requirements and accuracy to meet initial compliance.

To this end, any and all of the compliance tools have some value. However, there are company management teams that believe the costs incurred for SOX compliance have been excessive, and considerably greater than the benefits received.

This conclusion can be attributed partially to a nearsighted focus on SOX implementations employed by many of these management teams, which--per published polls and interviews conducted for this article--still seem to hold the view that internal controls and related governance activities are little more than a necessary evil.

Further, there has been little confidence placed in technological solutions leading the charge.

A recent CFO Research Services study titled "The Convergence of Compliance and Performance Management" states: "Compliance efforts may well strengthen business processes, but the cost of such initiatives--both in dollars and in managerial attention--makes some senior finance executives very reluctant to endorse compliance as a source of performance improvement.

"One senior finance executive among our interviewees worries that regulatory compliance may actually hurt his company's performance, due to its high costs. 'Overall, compliance probably does help us manage performance,' he says. 'But it may also hurt our financial results, because the costs of compliance are so high.'"

In the article "Unintended Consequences" in the January/February 2005 issue of CEO Magazine, several CEOs voiced complaints about SOX, including:

* Time CEOs spent on compliance issues, when it should be focused on customers and company strategy;

* Fear of board members to serve; and

* Board members' apprehension to approve strategic risk-taking.

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