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What do EPM and Sarbanes-Oxley Have in Common?

Published
  • August 05 2004, 1:00am EDT
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Hearing senior executive talk today about the requirements brought upon them by the Sarbanes-Oxley Act is both interesting and discouraging at the same time. On the one hand, as an individual investor, there's certainly part of you that would like to believe that companies are changing because they see it as something that's good for them and good for their stockholders. And in some cases, that's certainly true. But more often then not, our experience has been that these same executives don't see any benefits to this legislation; only pains in the rear when it comes to how to implement.

And really, who can blame them? While we'd submit that the corporate scandals in the early 2000s are kind of the second wave of the hangover of the 90s, they did unleash a new strain of pressures on both the IT and business sides of the house - that of corporate accountability. What good were management representation letters in the annual report? They didn't stop the off-balance sheet companies or lavish spending by executives from Adelphia to Enron. What good were the auditor attestations? It turned out that in many cases, they were in tight with the ones defrauding the company in the first place. But the problem, as many executives see it, is that they weren't doing anything wrong in the first place! And what they're left with is a whole lot more scrutiny, without the money or resources to necessarily pay for the new overhead.

Now we're dealing with the fallout from these scandals, and the imposition of new standards, accountability and regulations on the rest of us. And while we may be off a bit here, we're not seeing a lot of passion for using compliance as a competitive tool in the marketplace, and that strikes us as an opportunity. Let us state the obvious - there's NEVER been a better time to initiate a performance management project in your organization than right now. Interested in compliance? Want to gain a competitive advantage over the next guy in the market? The public market demands are tailor-made not just to play defense and comply, but to play offense and take market share. We'll explain.

Learn this Number - 404

Section 404 of the Sarbanes-Oxley Act is where most companies have had to start in their long slog to get into compliance. 404 is one of the 11 distinct sections of the law (which we promise we won't bore you with as much as we can) and deals with creating an internal controls environment that produces timely and credible financial information to people inside and outside the organization. Of the two main areas that companies are working on for Sarbanes-Oxley compliance, this one is the more qualitative of the two areas, since it deals with processes. So let's take our green eyeshades off and put our performance management hats back on. What do you have in your BI and systems arsenals that can help this process? What has your financial team not asked you for but probably needs? What functionality are they looking for from outside vendors - because they don't think you have it? Do you know the answer? Well, we don't either. Actually we do, but it is highly dependent on what you already have in your IT house today. New analytics are coming to market that measure things such as how efficient your quote-to-cash and purchase order-to-cash processes are. You can see who is writing off balances to vendors, track credit memos and payment discounts, and examine your processes now. That's what 404 is all about; and while it's not readily apparent to everyone, it provides a great chance for the IT folks to approach finance and see what they're using today, and what they can be taking advantage of that you already have.

409 - The Kicker

The other major section of Sarbanes-Oxley currently bearing its teeth is Section 409, which deals with the timeliness of reporting material events. This is generally the section that sends us performance management geeks into overdrive. Having the ability to aggregate disparate events into a trend and alerting someone as the trend goes negative in time to take action is the holy grail of performance management for most companies. And yet, it is not a dream, but a requirement of the law that you be able to do it. How the heck is that supposed to happen, you might be asking? Another good question. Here's where a good business intelligence strategy can come into play. Has your CEO or CFO ever heard of business intelligence? We didn't think so either. Have they heard of a real-time alert on a dashboard? Have they ever been able to drill down from a red blinking light on that dashboard all the way through to the individual check causing the blinking red light? OK, that's better. This part of the law goes into effect for more companies at the end this year and first quarter of 2005. Now is the time, if you haven't already, to get an audience with your line-of-business executives and show them the power of BI, show them what performance management can do for them; first, to keep them out of jail and next, to go on offense and start running the business better.

Regulations and bureaucracy are a pain for everyone these days, and Sarbanes-Oxley is no different. It's a typically rambling and long-winded law, with a lot sections in there that are important to hear, but not as relevant as the two sections we've mentioned here. If you haven't already, get an appointment and find out what your executives are doing about 404 and 409, and then put your performance management hat on and see how you can help - there are some great opportunities for those who are willing to move fast.

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