Put Your SOX On
When accounting fiascos damaged or destroyed a number of well-known companies at the turn of the century, Congress responded by passing tough regulations to strengthen corporate governance and improve the integrity of financial reporting.
While compliance with the new standards from the Sarbanes- Oxley Act of 2002 (SOX) continues to be neither cheap nor easy, experts say savvy growing businesses should consider how various SOX provisions might serve as a springboard for substantial business improvements. “Big companies have been thinking about ‘better, cheaper and faster’ for years, and most have streamlined their business processes to accommodate that thinking,” said Mark Salamasick, a former Bank of America finance executive now serving as professor of accounting and information management at the University of Texas at Dallas. “But one of the things SOX has helped many mid-sized businesses discover is a need to rein in the variability in how specific finance functions are performed.”
Salamasick’s view is echoed by an October 2006 CIO Insight survey in which 83 percent of senior executives said it was vital for IT departments to deliver critical financial information to employees while they worked on key business processes. Unlike large companies, which identified regulatory compliance as their most important business process issue, leaders of midsized organizations said improved financial processes to boost productivity and reduce cost were vital to help their companies perform at a higher level. A closer look at key SOX provisions reveals a number of areas that naturally flow into business process improvement. For example, Section 302 requires that a company certify the accuracy of its financial results, a task that can be much easier with clean, repeatable data-gathering processes that minimize human involvement. Further, Section 404 requires companies to report on the effectiveness of their internal controls. That goal is aided by the use of automated tools ranging from full-blown business performance management (BPM) systems, which can provide real-time tracking of compliance with internal control procedures, to basic modules available in most business accounting software packages. When it comes to the latter, experts say mid-sized companies often don’t fully use resources in enterprise-level accounting software.
Randy Johnson, a nationally known consultant and trainer on accounting software systems, says companies tend to use only about 20 percent of the available functions in any given software package. For example, he notes that many systems provide automatic document imaging capabilities that will scan an invoice, match it to a purchase order for preapproval and record the transaction in accounts payable. That step alone would strengthen internal controls in many mid-sized businesses. Is your company looking for ways to link SOX requirements into an ongoing strategy for business process improvement? If so, consider the following tips:
Identify your weaknesses. Since every company is different, experts suggest the best way to approach SOX-based business process improvement is to examine current practices. In his own consulting work, Salamasick has worked with privately held mid-sized companies that have virtually no documentation or procedures on internal controls and at public firms where outdated financial reporting systems can delay month-end closing cycles by up to three weeks. By taking a clear view of your company’s weak points, you can use process improvement to add real value. “Many small to mid-sized companies are still running financial processes by the seat of their pants,” Salamasick said. “A lot of the elements behind SOX regulations boil down to basic blocking and tackling in areas like documentation, procedures, standardization and reporting. By using SOX as a baseline, a company can pretty quickly figure out the opportunities for improvement in those areas.”
Evaluate your tools. After identifying a list of targeted process improvements, it’s a good idea to determine if your existing accounting software can deliver increased value. If you’re unsure about how to proceed, contact your software provider, who can assess whether the system has untapped customization features that can meet your needs. Many times, a relatively small investment in user training can yield surprisingly large benefits. On the other hand, if the required tools aren’t available in the software’s current release, ask when—or if—updated versions will address the issue.
Consider new tools. If your company’s existing accounting software is outdated or otherwise lacking the capability to deliver substantial business process improvements, take a deliberate approach toward investing in a new solution. Salamasick suggests that companies judge prospective software vendors on several factors, including:
• Experience. Look for a vendor who has been in business for a number of years and has a track record of successfully meeting the specific needs of mid-sized businesses. Probe the vendors’ understanding of SOX regulations, and ask for specifics on how their products deliver process improvements related to those requirements.
• Applicability. Look for a vendor who will listen to your specific process improvement needs and deliver a solution that directly addresses those requirements (with some scalability to address future needs). A package should also be relatively simple to integrate within your current IT systems. Ask for references and follow up with those contacts to gain a real feel for how the software delivered promised results.
• Training and support. When evaluating an investment in process improvement technology, look closely at what each vendor offers for initial user training and ongoing technical support. As part of an overall price assessment, experts say it is vital to budget for ongoing user training to ensure your company reaps the full benefits.
Seek good advice. The purchase price of an average enterprise- level accounting software package can run from $40,000 to $100,000, plus a similar amount for implementation. Full BPM software solutions can come with a much higher price tag. Salamasick says it’s wise to find a trusted third party to help ensure your company doesn’t pay for more technology than it needs. “The important thing to remember is not to reinvent the wheel,” he says. “Getting an objective outside view can help a company uncover best practices and better determine what they really need to achieve desired process improvement targets.” IBI
While compliance with the new standards from the Sarbanes- Oxley Act of 2002 (SOX) continues to be neither cheap nor easy, experts say savvy growing businesses should consider how various SOX provisions might serve as a springboard for substantial business improvements. “Big companies have been thinking about ‘better, cheaper and faster’ for years, and most have streamlined their business processes to accommodate that thinking,” said Mark Salamasick, a former Bank of America finance executive now serving as professor of accounting and information management at the University of Texas at Dallas. “But one of the things SOX has helped many mid-sized businesses discover is a need to rein in the variability in how specific finance functions are performed.”
Salamasick’s view is echoed by an October 2006 CIO Insight survey in which 83 percent of senior executives said it was vital for IT departments to deliver critical financial information to employees while they worked on key business processes. Unlike large companies, which identified regulatory compliance as their most important business process issue, leaders of midsized organizations said improved financial processes to boost productivity and reduce cost were vital to help their companies perform at a higher level. A closer look at key SOX provisions reveals a number of areas that naturally flow into business process improvement. For example, Section 302 requires that a company certify the accuracy of its financial results, a task that can be much easier with clean, repeatable data-gathering processes that minimize human involvement. Further, Section 404 requires companies to report on the effectiveness of their internal controls. That goal is aided by the use of automated tools ranging from full-blown business performance management (BPM) systems, which can provide real-time tracking of compliance with internal control procedures, to basic modules available in most business accounting software packages. When it comes to the latter, experts say mid-sized companies often don’t fully use resources in enterprise-level accounting software.
Randy Johnson, a nationally known consultant and trainer on accounting software systems, says companies tend to use only about 20 percent of the available functions in any given software package. For example, he notes that many systems provide automatic document imaging capabilities that will scan an invoice, match it to a purchase order for preapproval and record the transaction in accounts payable. That step alone would strengthen internal controls in many mid-sized businesses. Is your company looking for ways to link SOX requirements into an ongoing strategy for business process improvement? If so, consider the following tips:
Identify your weaknesses. Since every company is different, experts suggest the best way to approach SOX-based business process improvement is to examine current practices. In his own consulting work, Salamasick has worked with privately held mid-sized companies that have virtually no documentation or procedures on internal controls and at public firms where outdated financial reporting systems can delay month-end closing cycles by up to three weeks. By taking a clear view of your company’s weak points, you can use process improvement to add real value. “Many small to mid-sized companies are still running financial processes by the seat of their pants,” Salamasick said. “A lot of the elements behind SOX regulations boil down to basic blocking and tackling in areas like documentation, procedures, standardization and reporting. By using SOX as a baseline, a company can pretty quickly figure out the opportunities for improvement in those areas.”
Evaluate your tools. After identifying a list of targeted process improvements, it’s a good idea to determine if your existing accounting software can deliver increased value. If you’re unsure about how to proceed, contact your software provider, who can assess whether the system has untapped customization features that can meet your needs. Many times, a relatively small investment in user training can yield surprisingly large benefits. On the other hand, if the required tools aren’t available in the software’s current release, ask when—or if—updated versions will address the issue.
Consider new tools. If your company’s existing accounting software is outdated or otherwise lacking the capability to deliver substantial business process improvements, take a deliberate approach toward investing in a new solution. Salamasick suggests that companies judge prospective software vendors on several factors, including:
• Experience. Look for a vendor who has been in business for a number of years and has a track record of successfully meeting the specific needs of mid-sized businesses. Probe the vendors’ understanding of SOX regulations, and ask for specifics on how their products deliver process improvements related to those requirements.
• Applicability. Look for a vendor who will listen to your specific process improvement needs and deliver a solution that directly addresses those requirements (with some scalability to address future needs). A package should also be relatively simple to integrate within your current IT systems. Ask for references and follow up with those contacts to gain a real feel for how the software delivered promised results.
• Training and support. When evaluating an investment in process improvement technology, look closely at what each vendor offers for initial user training and ongoing technical support. As part of an overall price assessment, experts say it is vital to budget for ongoing user training to ensure your company reaps the full benefits.
Seek good advice. The purchase price of an average enterprise- level accounting software package can run from $40,000 to $100,000, plus a similar amount for implementation. Full BPM software solutions can come with a much higher price tag. Salamasick says it’s wise to find a trusted third party to help ensure your company doesn’t pay for more technology than it needs. “The important thing to remember is not to reinvent the wheel,” he says. “Getting an objective outside view can help a company uncover best practices and better determine what they really need to achieve desired process improvement targets.” IBI
