Embedded controls boost Sarbanes-Oxley compliance: companies are installing treasury systems that automate financial activities and embed controls, as well as audit trails. Such systems can help ensure compliance without extensive manual reviews.

• Author: Alarcon, John
• Position: Treasury

All the angst and uncertainly created by the Sarbanes-Oxley Act has

given public corporations in the U.S. a powerful reason to consider using sophisticated software to automate much of their treasury operations and to embed controls, as well as clear audit trails, right in the software. Systems like these can go a long way toward assuring Sarbanes-Oxley compliance without extensive manual reviews and double-checking.

For years, companies turned to treasury software primarily to automate manual processes and achieve operational efficiencies. For a couple of years, they upgraded to new treasury software to be Y2K-compliant. Now, they are doing it for the additional reason of improving and verifying the financial controls required by Sarbanes-Oxley.

In fact, many public companies are significantly redesigning their financial operations around the new standards. If they need another reminder of how serious these issues are, they need only glance at daily newspapers, which are full of stories about the criminal trials of once-respected CEOs and CFOs who failed to uphold the standards now embodied in Sarbanes-Oxley.

Treasury Impact

Three sections of the act have direct impact on treasury operations:

* Section 303, which requires the CEO and CFO to sign off personally on all required financial statements and disclosures, attesting that the statements are complete and accurate and comply with all relevant regulations and accounting standards. They are personally liable for willful violations of the requirements of this section. That responsibility and liability cannot be delegated or outsourced.

* Section 404 adds to the required financial disclosures a written assurance that management has designed and tested adequate financial controls, that it regularly measures the effectiveness of those controls and that they are working. A management pledge is not enough: The controls must be audited by the company's outside auditor, meaning that a whole new, expensive component of the audit process has been created by Sarbanes-Oxley.

* Section 409 requires companies to disclose promptly any material changes in financial condition or operations that occur between reporting periods.

The emphasis is firmly on control. Companies that were the subject of recent scandals were out of control. Such surprises and large losses should not be allowed to happen, so Sarbanes-Oxley places a high duty on management to tighten controls in their enterprises.

Spreadsheet Shortcomings

Until recently, even some large, sophisticated companies did fairly well by exploiting the power of inexpensive spreadsheets, downloading bank...