SOX compliance shouldn’t just be a box-checking exercise – we all have an important part to play

The Key to SOX complianceEnacted in the wake of several large corporate accounting scandals, the Sarbanes-Oxley (SOX) Act was signed into law on July 30, 2002 by President Bush and it was the US government’s response to financial fraud. Sponsored by Senator Paul Sarbanes and Representative Michael G. Oxley, it sets out regulations that publicly traded companies must adhere to, and it’s considered to be the most significant change to federal securities law in the United States.

In almost every major case of corporate fraud during the late 1990s, management hid the true business performance from the public, shareholders, banks and employees. For example, those at Enron created partnerships which enabled them to move things on and off the balance sheet, making it look healthier than it truly was; Xerox counted sales when they shouldn’t have, giving a false picture of their actual business achievements.

The SOX act was designed to protect investors by improving the accuracy and reliability of corporate disclosures, such as financial statements. It focuses on key areas such as finance, accounting and IT, and places increased responsibility (and liability) on management.  It requires the use of controls to prevent or detect fraud, including segregation of duties, and reliable oversight to check the effectiveness of the controls. These controls provide detailed information about the flow of transactions to identify where material misstatements due to error or fraud could occur.

In summary, SOX is about financial transparency.

An investor, shareholder or employee should be able to review an organization’s quarterly reports, including financial statements, and obtain a clear and accurate picture of the company’s financial standing.

All companies should strive for financial transparency; making things clear leads to a stronger business.

How can you and your team contribute to financial transparency and SOX compliance?

We all contribute to building a stronger business. Employees at all levels need to understand why transparency is important and how their roles and actions can affect the business, both positively and negatively.

When it comes to promoting financial transparency within your company here are some helpful tips:

  • Know that leading and managing have a direct impact on success. Transparency is part of an ethical organizational culture, which needs to be driven from the top
  • Develop clear roles and responsibilities for employees within your department
  • Outline clear accountability
  • Create effective and efficient processes
  • Discuss the company’s financial results with your staff on a regular basis
  • Educate staff on how their efforts directly impact the company’s goals
  • Consistently educate and train your staff to reinforce the control environment
  • Share information – in both good times and bad
    • In good times, paint a clear picture of success so that everyone knows how they participated
    • In bad times, encourage employees to pitch in and make them aware of the impacts to their job
  • Investigate and purchase technology to make compliance easier.

Compliance is often perceived to be a cumbersome, long-winded process that places yet another burden on busy people – but it doesn’t need to be that way. You can find out more about SOX compliance tools for your ERP here.

The company and your employees will benefit greatly from understanding the Sarbanes-Oxley Act and the importance of financial transparency.  When you understand your company’s financial situation and its goals, you tend to make better decisions. If they understand their contribution and the impact that it has, your team members will work better and be more focused on what’s important.  As you do your part, others will follow.