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Benefits of Sarbanes-Oxley
The Sarbanes-Oxley (SOX) legislation may provide companies with unintended benefits to improve themselves. CFO’s
should use SOX to accomplish the following secondary benefits:
• Create a stronger tie between the Finance and IT Departments
• Use the documentation process to improve business systems and eliminate errors
SOX may be the most significant financial legislation that has been passed since the launching of the Securities
and Exchange Committee (SEC) in the early 1930’s. Recent events (Enron, Worldcom, Adelphia etc.) have prompted
congress to step in and enact legislation that puts teeth into the sanctions for violating the public trust. SOX
exacts a harsh penalty for non-compliance. CEO’s and CFO’s can spend as many as 5 years behind bars and pay fines
up to $20 million if they knowingly file misleading documents with the SEC. Those possibilities will get most
people’s attention.
There are three sections in SOX that require public certification by the CEO and CFO. These sections are 302, 404
and 906. Sections 302 and 906 are currently in effect and relate to a certification on the accuracy of the
reported financial information. These sections merely emphasize SEC requirements that have previously existed and
compliance has not been a significant issue. Certifying to the accuracy of financial information has long been
required of the CFO and CEO, although SOX has specifically defined penalties for non-compliance. The section that
is causing the most confusion is 404. This section requires management to assess the system of internal controls
and disclose all deficiencies. It also requires the documentation of a company’s systems of internal controls. The
vagueness of the language in this section has caused its implementation to be delayed twice. It is now effective
for year-ends starting after 11/15/2004.
When CIO’s installed ERP systems in the 80’s and 90’s, they took something away from the CFO’s – financial
controls. Manual audit trails and detailed accounting schedules necessarily were replaced by bits and bytes inside
CPU’s. Now that SOX requires the CFO to sign off on these financial controls there is a frantic effort to manually
document these bits and bytes. CIO’s are feeling that CFO’s are using SOX as a power play to regain some of their
lost authority and freeze them out of the process. A survey by Gartner showed that among 75 public companies
surveyed just 63% involved IT in the SOX decision-making process. CIO’s are people too and they are feeling that a
wedge is being created by the accountants to get control of the business again.
In reality, there has never been a time when CFO’s and CIO’s need each other more. While it is the CFO that is
specifically identified in SOX as the person that must certify as to the adequacy of a company’s internal
controls, it has become the practice in most companies that major department heads (particularly CIO’s) are
required to sign sub-certifications as to the adequacy of internal controls in their areas. While these
sub-certifications may not have SOX liability, they certainly can lead to consequences within the corporate
organization.
Both the CFO and CIO must also band together when dealing with outside consulting forces. In particular, the CFO
is being bombarded by outside accountants and other consultants about services the company must have (and pay for)
to comply with SOX. Since compliance with Section 404 is not required until later this year, nobody knows where
the safe-harbor exists. The CFO must evaluate the true needs of the company. While no one wishes to be among the
test cases for SOX, it is also important not to over-document since this might only result in opening doors that
are best left shut.
There is no question that systems of internal control will need to be more fully documented to comply with SOX.
Many companies are taking a shotgun approach and creating this documentation as if it were a necessary evil
without taking a more strategic approach. The results of these compliance efforts can be useful to not only meet
the requirements of SOX but can also be used to update and improve the internal control systems.
SOX is here to stay. Companies can either grudgingly make efforts to comply or use this as an opportunity to
create bridges between departments and improve their overall systems. It’s your choice.
– John Casey, IEM Group, Inc. |
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Avoid Losing a Solid Candidate!
Hiring managers are facing a more difficult challenge in identifying viable candidates. In the
recent past, a candidate who had several years of experience would often attempt to hide their age by eliminating
dates of employment and education from their resume. Now, they are often being coached to eliminate dates of
employment for jobs held greater than a mere 10 years ago. Many of these candidates are also removing early career
jobs (in their entirety) from their resumes. And if their career spans more than 10 years they are also frequently
removing dates of graduation related to educational milestones they have achieved.
Why does this trend make it more difficult to find a good candidate? Consider the following scenario. Picture
yourself as the CFO of a public company who each day is dealing with the reality of Sarbanes-Oxley regulation. You
need to hire a new Controller. You are ultimately responsible for the integrity of the financial statements, and
you need to hire a Controller that you can trust to deliver accurate and timely financial information. Failure to
do so can result in significant financial pain to you the Company, and its shareholders. A candidate for that
position submits a resume that you believe might not be representing the whole truth about his career. Would you
continue the interview process with that candidate?
Based on the historical presumption that a candidate who removed dates was trying to hide their age or significant
gaps in employment, most hiring managers would instinctively discount the candidate as not being forthright, and
discontinue the interview process. Although I believe that every candidate should take personal responsibility for
their work product (including the resume that they submit), there is not a single standard for the writing of a
perfect resume. Many people who claim to be experts in the art of resume writing create confusion in the mind of
potential employers. One way they do this is by creating resumes that eliminate reference points to the dates and
locations of specific accomplishments.
Before you consider eliminating candidates - consider an alternative approach. Post a resume format document on
your website. You are more likely to receive resumes formatted the way you like to see them, and you reduce the
risk of eliminating qualified candidates. During a time of increasing difficulty in identifying viable candidates
don’t disqualify a solid candidate because of differences in style of their resume advisor.
– Michael P. Levine, Robert Half Management Resources |
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Opportunistic Market for Tenants
During the last year, we have seen the Atlanta office market bottom out, then begin a slight
recovery in recent months. The positive absorption in the market is driving the vacancy rates lower, decreasing
the number of subleases available, and turning the tide on the lease rates. After long periods of decline, the
lowest rate was reached, and we are finally seeing a slight increase in the rental rates.
Vacancy rates are still at unusually high levels (20% for class A space, and 15.5% for class B space). In this
environment, significant concessions are necessary to attract new tenants. Here are some of the concessions we are
seeing:
Free Rent: 1 month free for every 1 year term of a lease. (5 months free on a 5 year lease). Large tenants with
excellent credit are receiving discounted rates and up to one year of free rent on longer term leases.
Build Out Allowances: Landlords are building out space to meet customer needs, rather than quoting specific
allowances. Credit worthy tenants can expect a turn key build out of office space.
Flexible Occupancy Dates: Landlords are more willing to be flexible on occupancy dates, therefore allowing tenants
to negotiate further in advance.
Opportunities
With rental rates beginning to rise, there are significant opportunities to lock in the low rates currently in the
market. Many companies have taken advantage of these low rates by renegotiating their leases (even though they
have one or two years remaining on their current leases). In some cases, companies were able to give back a
percentage of their space after renegotiating.
By taking a company into the market early, Benchmark Resources strengthens its bargaining position with the
existing landlord, as well as other potential landlords. We negotiate free rent components, build out allowances,
moving allowance, etc. If the company chooses to remain in the current space, we can use this information to
negotiate the best business terms with the existing landlord.
We recommend that our clients get into the market at least a year prior to the expiration of their current leases.
This provides plenty of time to see all the opportunities in the market, compare various proposals, build out the
space, and to ensure that each company gets the best-negotiated deal possible. Some recent examples of how it
works:
Example 1:
Company A had 18 months left on their lease, and wanted to take advantage of the low rates. The company had been
paying $27.00 per square foot, and was able to negotiate a $21.00 per square foot rate on a 10 year deal. Company
A decreased its space by 35% to match its reduced needs, and received a check from the landlord for $20.00 per
square foot in build out allowance to enhance its space.
Example 2:
Company B had 30 months left on their lease and had grown so quickly that their offices were spread throughout the
entire building. They had 24,000 square feet and a need to grow. We were able to find a landlord who was willing
to buy out the liability on their existing lease (close to $1 million), offer them a $22.00 rental rate (which was
a $1.50 reduction per square foot) and provide a free rent component. The new space will accommodate their future
growth.
– David A. Payne, Benchmark Resources |
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Indirect Expense Management – So What?
We all know what indirect expenses are – basically any expense that does not fall into direct costs
of a product or service. The challenge is that many of these costs are considered “fixed cost” or “local
administrative cost” and no one has the responsibility to routinely review invoices or aggressively pursue cost
reduction efforts. Every function has pockets of this expenditure and assumes someone else is controlling the
total cost.
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Finance |
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Technology |
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Human
Resources |
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Sales &
Marketing |
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Taxes
A/P Recovery
Insurance
Leasing
Treasury
Consultants
Outsourcing
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Telecom
Hardware
Software
Data Center
Technology
Consultants
Outsourcing
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Travel
Benefits
Temps
Training
Legal
Consultants
Outsourcing |
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Advertising
Printing
Call Center
Trade Shows
Collateral
Consultants
Outsourcing
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Real
Estate |
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Procurement |
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Logistics |
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Utilities
Leasing
Development
Management
Furniture
Consultants
Outsourcing
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MRO
Supplies
Capital Goods
Copiers
Fleets
Consultants
Outsourcing
Procurement |
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Audit
Pre-Pay
Warehouse
Distribution
Freight
Consultants
Outsourcing |
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Aberdeen Group reports as much as 50% of a company’s total expenditures are in the indirect category. Consider:
- How much is 50% of your payables?
- Are you over-paying?
- Are processes documented and controlled?
- Are you in compliance with SOX?
According to CFO Research Services, reducing indirect expenses is tied with revenue generation for improving the
financial health of your business.
Source: CFO Research Services, August 2003 |
The challenge is how to manage these expenses and the ongoing process. We believe the process of Indirect Expense
Management™ is a discipline within itself. This requires special business knowledge and expertise. Areas to start?
Are healthcare cost increases creating serious issues? We have identified how it is possible for 30-50% cost
reductions while improving employee participation.
Are your telephone and data bills correct? In eleven years of experience, 86% of corporate telecom invoices were
erroneous. Aberdeen Group cites that “7-12% of telecom services charges are in error.”
Are you over-paying for IT Services, Software, Utilities, Telecom…? We have uncovered annual savings from 10-30%
in these categories.
Do you qualify for the Georgia Job Tax Credit Program? If so, 50 new employees could exceed $650,000 in tax
credits.
– Jim Villwock, IEM Group. Inc. |
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