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News < Back Sarbanes Oxley : Technology : Thought Leader SOX May Have Missed A Key Area Of Corporate Mismanagement Paid Time Off
The purpose of Sarbanes-Oxley Act of 2002 was to put controls in place to ensure that there was no mismanagement of company assets by the employees. Although much has been achieved over the last couple of years by companies and their auditors, there remains a significant gap in most company's controls. Specifically related to employee time off, otherwise known as PTO. Paid Time Off (PTO) is an important benefit provided to employees for planned vacation and illness and can be critical to maintaining productivity and employee morale. Not having adequate checks and balances in place can cost companies 2-3% of their total operating cost. A report published by the Applications Marketing Group in May last year stated that employee time off in knowledge-centric industries could be as much as 8-15% of a company's total operating cost. According to Peter Bergman, a corporate and securities lawyer with Hayden Bergman LLP in San Francisco, California, "Because of Sarbanes-Oxley and other needs, a lot of money is being spent by companies now to improve and regulate their processes for the collection of financial information. Paid Time Off often represents a significant balance sheet item although it probably hasn't received as much attention as other parts of a company's financial statements." Ankesh Kumar, President and CEO of appMail(TM), a software company in San Mateo, feels that most companies use an honor system for the employees. "This in our experience allows for sub-conscious abstention on behalf of the employees, essentially, no checks or balances. The amazing thing is that auditors are not enforcing any control mechanism for their client companies. We are seeing more companies that are now beginning to examine this area of financial liability that was until recently ignored. Companies are realizing that the liability of Paid Time Off (PTO) is 'real money' and that by managing this process and their human capital investment more efficiently they can obtain critical data and retain more of these assets. In our estimation this could be costing US Businesses around 70 Billion per year. The point being the exact number is not really known since there are no adequate checks and balances in place." AON Consulting estimates that companies that "get serious about sick leave and abuse" can expect to see a 4% improvement in payroll costs. Personneltoday.com reports that companies that have put in an automated system to track PTO have achieved 40% reductions in absenteeism. Personneltoday.com also reported that a U.K. company that recently automated their PTO system, and linked it directly to the payroll system, was able to reduce the time it took managers to capture and report PTO by 85%. The Sarbanes-Oxley Act has prompted many companies to extend their new systems of financial and regulatory reporting to also include many previously unexamined operational practices such as Paid Time Off (PTO). By volunteering to extend the Sarbanes-Oxley Act model from managing and regulating business reporting to also include managing business processes more efficiently, companies will benefit and will reap significant financial rewards. 
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