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Sarbanes Oxley : Technology : Financial Controls
Communications Expenses are an Internal Control Issue
By
Fred Lizza
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Fred Lizza
CPA, President and CEO, Avotus Cor
Avotus Corporation
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In July 2002, the Sarbanes- Oxley Act of 2002 was signed into law, bringing sweeping changes to financial reporting, corporate governance and the regulatory landscape. Section 404 of the Sarbanes-Oxley Act requires public companies to include in their annual report to the SEC a separate report on the assessment of the effectiveness of the entity?s internal controls. In addition the entity?s external auditors must attest to the report on the assessment made by management.
The entity?s CEO and CFO further have the overall responsibility for assessing and reporting on internal controls. The annual report must further identify the framework used by management to evaluate the effectiveness of the company?s internal control over financial reporting. The existence of one or more material weaknesses precludes management from concluding of that its internal control is effective.
Although not widely recognized, the control of communications costs as part of the overall financial reporting can be a compliance problem. Communications costs are typically one of the top five expense lines for companies. They present a major oversight challenge since, for large companies, the expense category is made up of literally thousands of bills for hundreds or thousands of locations. Depending on the size of your company it could be a significant expense item that if material misstated could have an impact on the company?s overall assessment of fair presentation of the financial statements and assessment of the effectiveness of the entity?s internal controls
Further, research has shown that companies? communications bills are filled with errors resulting in overpayments to the carriers of 7-12%. Errors run the gamut from misapplied tariffs to invoiced rates that do not comply with the contracts to expensive trunk lines and circuits that continue to be billed after service has been canceled. It seems hardly worth it to find a 7-12% error on a bill of a few thousand dollars but when you are talking about an aggregate in the millions each month it adds up to a significant amount.
Communications is an incredibly complex expense line and internal staffs don?t have the necessary tools or expertise. Unlike virtually any other major expense line, staff generally can?t even compare what the company is paying against what it is actually using. New technologies like mobile communications and Voice over IP (VoIP) further add to the complexity. For multinational organizations which receive and process invoices in multiple currencies communications management is exponentially more complex. Most companies simply look for variances from the norm, but if the basis is flawed, the conclusion is flawed.
The answer to the problem is to implement a technology-based telecommunications expense management (TEM) solution that is centered on communications best practices to continually manage and monitor all communications expenses as part of an overall financial control environment to improve the timely financial reporting effectiveness of the company.
My company, Avotus, is in this business. Our Intelligent Communications Management (ICM) solution highlights errors and implement business processes to help CEO?s and CFO?s ensure that internal controls of telecommunications are effective. We have both the expertise and the technology to provide a comprehensive communications expense management solution. Depending on the customers? requirements, we offer onsite software, a hosted ASP solution or take over the entire management of their communications environment via a value added Managed Service.
There are many other benefits of effective communications management beyond Sarbanes-Oxley compliance such as reduced costs, better asset management and the elimination of abuse. It can also help with other SEC record keeping requirements and compliance with other regulatory mandates, such as HIPAA (Health Insurance Portability and Accountability Act). Communications management typically pays for itself in a few months and takes a major oversight burden off management?s shoulders.
Fred Lizza
CPA, President and CEO, Avotus Cor
Avotus Corporation
Fred Lizza, CPA is president and CEO of Avotus Corporation. He has more than 22 years of experience in the software and high technology industry in senior executive positions. During his career, he has proven his abilities to define strategic direction, position and launch new products.
He has also succeeded in raising venture capital, leading public offerings, driving growth through internal development and acquisition, building and managing strategic alliances, and recruiting and developing high-performing management teams.
Fred joined Avotus from Idiom Technologies, Inc., a leading provider of enterprise web globalization software and services to the Global 2000 and leading e-commerce enterprises. During his three years at Idiom as president and CEO, Fred led the company as it grew from a pre-revenue start-up to a market segment leader.
He developed the go-to-market strategy for the company and was instrumental in raising several rounds of private financing. Prior to joining Idiom, Fred was president and CEO of Infinium, a publicly-held ERP software company that was named as one of Business Week's "Top 100 Hot Companies." As a leader of Infinium, he was successful in increasing revenues from $50 million to over $130 million, leading the company's IPO and secondary NASDAQ stock offerings while also expanding the business globally.
Fred holds an MBA in Marketing from Harvard Business School and Bachelor of Science from Boston College. He is a member of the High Growth CEO Forum and a member of the Massachusetts Software Council.
Thanks to Buks Moolman CPA, MBA, CA(SA), principal at Tofias PC who reviewed and commented on this article before publication. Tofias PC, located in Cambridge, Mass. with offices in New Bedford, Mass. and Newport and Providence R.I., with approximately 200 employees, is the largest New England-based accounting firm.
For more information about Avotus go to www.avotus.com.
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