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Sarbanes Oxley : Technology : Business Process Management
Sarbanes-Oxley Compliance: How Web-Based Workforce Management Solutions Can Help Ease Compliance Pains
By
Robert Farina
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Robert Farina
CyberShift
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The early 2000 accounting scandals prompted a national outrage against corporate America's accounting and reporting practices. The U.S. Securities and Exchange Commission reacted quickly and placed a bill into Congress, who overwhelmingly passed the accounting reform and investor protection legislation known as the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act is a monumental piece of legislation that regulates how companies report financial results and disclose executive compensation. Further, the law is designed to protect the interests of all parties, holding both company executives (CEOs and CFOs) and external auditors personally responsible for the accuracy and representation of company performance. The new accounting and public-disclosure rules take aim at discouraging corporate reporting dishonesty that costs shareholders billions of dollars. Additionally, the act seeks to protect, thus encouraging, employees who report suspected fraud within their organizations.
The aftermath of this act that was signed into law in July 2002 has been the ongoing challenge of implementing new practices and procedures in order to ensure compliance with the legislation. Specifically, the most significant setbacks have been experienced with one seemingly small section of the act, Section 404. Publicly owned U.S. companies reporting year-end numbers after Nov. 15, 2004 must include this special report in their annual reports.
Sarbanes-Oxley Challenges ? Section 404
Section 404, called Management Assessment of Internal Controls, requires each annual report issued to contain a special ?internal control report.? These internal reports require companies and third-party auditors to document company procedures in minute detail to ensure the accuracy of financial statements. This includes a statement of management?s responsibility for establishing and maintaining ?adequate? controls, management?s assessment of the effectiveness of internal controls and a statement identifying the framework used by management to evaluate the effectiveness. Further, the report must contain an auditor?s report on management?s evaluation of internal controls and companies must identify any material weaknesses in the structure of these reporting procedures or ?internal controls.?
Essentially, Section 404 is a system of checks and balances. The section is designed to ensure that the power of financial reporting, or as equally important, the legal consequences of inaccurate reporting, is uniformly distributed between those who report and those who provide third-party verification. CEOs and CFOs can no longer claim innocence that something was inaccurately reported in a smaller division of the company and likewise, accounting firms are held to the same degree of scrutiny on reporting they provide.
In addition to accurate reporting, Section 404 addresses the effectiveness of controls and the internal structure in which a company generates data. Any back-end solution used to generate auditable data requires documentation and testing of each process in order to validate the accuracy of information.
A Monumental Task
While many agree that these controls may present the greatest long-term benefit in the history of financial reporting, companies right now are just beginning to realize the monumental task they pose. Many industry experts forecast that individual U.S. companies are expected to spend anywhere from approximately $1 million to more than $4 million dollars a year on compliance initiatives.
This substantial amount is attributed to the level of auditing that runs much deeper than many expected. Just some of the problems arising include a lack of specialized accounting expertise or access to financial systems, difficulty in determining what warrants write-offs and problems in tracking and reporting varying costs — from IT costs down to human capital costs.
While companies are battling it out and the debate continues between corporate executives and governance groups, executives are still looking for answers relative to how to adhere to these new rules. Some are looking at hiring external firms and/or implementing systems to calculate the long laundry list of requirements, some companies are seriously thinking about taking their public companies private and finally many executives have turned to their existing technology infrastructure to help streamline and ease compliance requirements of the federally mandated regulation.
The HR Department?s Role
A significant portion of Section 404 compliance begins at the core of an organization, within its workforce. Human resource departments have long dealt with various government mandates protecting employees against overtime abuse, fair-labor laws and compliance with union rules. Regulations like Fair Labor Standards Act, Family Medical Leave Act, Health Insurance Portability and Accountability Act (HIPAA), Occupational Safety and Health Administration (OSHA), Executive Order 11246 (Affirmative Action) and Title VII of the Civil Rights Act of 1964 (Discrimination in Employment) are just some of the requirements tracked by various workforce management software systems.
With myriad federal and state laws, union agreements and regulations such as Sarbanes-Oxley to adhere to, the accurate tracking and recording of employee time becomes increasingly critical to ensure that employees are paid properly and movements tracked, all within the confines of the law. Accurate tracking, recording and accounting for employee time is also critical to financial reporting. Companies must accurately account for everyday activities within an organization, providing exact and instant employee cost and accrual data that can impact quarterly financial reporting. At the end of the day, these activities must be able to withstand audit scrutiny of internal controls and processes involved in financial reporting from payroll changes and medical leave to vacation accrual time and union rules.
A Workforce Management Solution
Workforce management applications are becoming increasingly important to companies looking to document their processes and establish appropriate regulatory controls. A workforce management system optimizes the deployment and management of people, increasing workforce performance, reducing costs and coordinating the complete process of managing data throughout an organization. Fully integrated applications enable a company to focus on workforce optimization along with service and productivity, all while knowing that actionable and auditable data that impact quarterly numbers can withstand the audit of internal controls and processes involved in financial reporting.
However all workforce management systems are not the same. Many elements should be considered when evaluating current systems and seeking out new solutions for Sarbanes-Oxley compliant methods of capturing time and attendance, payroll and employee scheduling information. Some of the key elements include:
Accurate Recording of Time and Costs
Accurate tracking and recording of time is critical to ensuring employees, contractors and contingent workers are paid properly and within the parameters of the law and that the costs are accurately distributed. Manual time-keeping methods such as older time-clocks or paper-based recording are more susceptible to error, fraud and omissions due to the heavy human intervention required. The accounting or payroll staff must re-enter time and cost data into the payroll system or internal accounting spreadsheets. Companies that are looking to validate their records and ensure auditable information is being documented turn to manual reviews, which consume considerable amounts of employee and managerial time and do not eliminate the potential for human error. As such, many executives are turning to technology solutions to help streamline and ease compliance requirements.
Accurate tracking of employee time and attendance and scheduling also has a direct impact on an organization?s bottom line and ensures reliable financial reporting as mandated by Sarbanes-Oxley. Web-based workforce management systems can eliminate these problems by automatically capturing employee cost, time, attendance, scheduling and other labor-related activity.
Some workforce management technology platforms are built on a user-configurable work rules engine. Coupled with industry-specific knowledge repositories they allow organizations to automate some of the most difficult pay, leave and union rules, and provide a simple way for managers to make changes as company policies, rules or regulations change ? information required for accurate financial reporting.
Real-Time Reporting and Analysis Capabilities
Workforce management solutions offer real-time reporting capabilities that contribute to the overall management of data throughout an organization. Interoperable with business-critical applications like human resource applications and payroll systems, workforce management solutions capture complete and auditable employee data. Furthermore the information captured contributes to the flow of information across the enterprise vulnerable to internal rules that control how data is generated, managed, recorded and reported, allowing an organization to address compliance and other labor issues with confidence.
In addition to accuracy, data must be easily and instantly accessible to the proper managers, supervisors, auditors and regulators charged with keeping up-to-date on even some of the most minute details of an organization, ensuring that the information is accurately reflected in the final financial statements for auditing purposes.
Workforce management solutions must offer real-time reporting capabilities that extend across an organization in order to be truly helpful with compliance issues. For example if there is an increase in union pay, this information must be easily retrieved to reflect the history of union changes for auditing purposes.
Advanced Scheduling and Rules Engines
Advanced scheduling capabilities provided by Web-based workforce management systems allow the optimization and fit of employees and contractors to expected workloads, ensuring the right person is in the right place at the right time and, ideally, at the lowest possible cost. Any solution must leverage a business-rules based engine to achieve complete automation of payroll policies. Rules-based engines apply business rules, pay rules, scheduling and other work standards to time data captured by a system in order to meet compliance standards, like Sarbanes-Oxley.
Security, Version Control and Identity Management
In addition to auditable data, companies must comply with the provision of Section 404 in regards to the documentation and installation of software and version control. Any system must ensure that a company is in compliance with all necessary standards and requirements as they pertain to auditable IT information.
This can be achieved through strict identity management, allowing only people with certain authorizations to make changes within the system and authorization time stamp tracking for all system changes. Proper identification of users significantly reduces the possibility of fraud and identification theft. Additionally, key security features of a workforce management system provide the ability for management to grant access to critical information on an as needed basis. This added level of security allows only approved personnel to view and edit specified information.
Furthermore, Sarbanes-Oxley guidelines state that information from all systems
within an organization be reconciled, additionally calling for companies to assign different IT workers to administer program changes, test changes and then move the changes into production. To prevent error and fraud, these tasks require a different person to perform each activity. Using advanced scheduling capabilities within the workforce management system guarantees reconciliation and accountability because the solution enforces and applies scheduling rules to ensure the right skilled worker is assigned the right task at the right time.
In Conclusion
Companies have discovered that Sarbanes-Oxley compliance has an important relationship with information technology. Control points managed through technology solutions support audit and compliance initiatives. Workforce management solutions arm decision-makers with the tools needed to better monitor and manage worker productivity and performance, assist with corporate governance initiatives, drive down costs and provide management with up-to-the-minute information on resource availability. More importantly, a Web-based workforce management solution provides a business vantage point to workforce movement and metrics across the enterprise to align the workforce to business goals and ultimately to the success of the organization
Sarbanes-Oxley has changed the way many companies conduct and report on their business. It started out as something to worry about and has evolved to a catalyst for change. Sarbanes-Oxley has brought a sense of urgency and incentive to review day-to-day business operations. Web-based workforce management solutions can help ease the compliance pains while helping companies better manage business operations by optimizing the single greatest influence of business performance: the workforce.
Robert Farina
CyberShift
Robert Farina is Chief Executive Officer of CyberShift Inc., a New Jersey-based provider of workforce management software and services focused on helping large, complex organizations optimize and manage the deployment of their people. CyberShift delivers a fully-integrated solution for the management of all aspects of time and attendance, scheduling, self-service functions and workforce reporting and analytics. The enterprise-class workforce management suite reduces costs and improves processes for a variety of industries, including retail, media and entertainment, manufacturing, transportation, financial services, healthcare and the public sector. CyberShift is the workforce management solution provider of choice for more than 100 major organizations throughout the United States and Canada.
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