The Sarbanes-Oxley (SOX) law was passed in 2002 in response to corporate accounting scandals. SOX requirements for explicit reporting and internal controls over corporate financial transactions are designed to bring transparency to financial accounting and prevent future Enrons and WorldComs. While the purpose of the law is to ensure compliance, it should also be recognized as a catalyst for transforming your company’s internal operations.

One of the key provisions of the Sarbanes-Oxley law is Section 404, which requires an annual assessment of a company’s internal controls. Many companies are responding with reams of paper documentation, at significant cost. According to a recent study by AMR Research, annual compliance costs can reach $1 million for every $1 billion in generated revenue. Another study, by PricewaterhouseCoopers, found that a majority of executives surveyed expect compliance expenditures to increase by an average of 23 percent over the next 1–2 years.

Viewing the Sarbanes-Oxley law as an opportunity to improve operations, companies can leverage technology to streamline their documentation processes and decrease compliance costs significantly.

Automation of internal control systems can improve transparency across global accounts while reducing the potential for fraud and human error.

The following example demonstrates how one company is leveraging Internet technology to enhance their compliance with SOX requirements — and vastly improve their internal controls at the same time.
  Wind River Systems – A Case In Point

Wind River Systems, a global software company headquartered in Alameda, California, was already in compliance with SOX. In getting to that point, the company saw the opportunity to further strengthen its internal controls. With subsidiaries in over 15 countries trading in 11 currencies, Wind River needed a clear picture of its global accounts as well as streamlined payment, collections, and reporting systems.

A team of Wind River’s corporate treasury specialists and Wells Fargo bank representatives was established to analyze Wind River’s financial operations and better understand where they could enhance their controls. As a result, processes have been implemented to provide the company greater control over their global financial operations.

Segregated Accounts. The company established a series of collections and payment accounts across their international locations. To accommodate local customers, payments are collected through in-country local currency accounts. Funds can be transferred from these collection accounts to a disbursement account, clearly segregating money collected and money paid out.

Centralized Monitoring. All accounts are monitored centrally online, in real-time, through Wells Fargo’s corporate business Commercial Electronic Office® portal information reporting service. Wind River can view their foreign cash positions worldwide, sorted by currency, regardless of the financial institution housing the account(s).

Automation. To reduce the number of people handling transactions, the company set up a central, automated electronic payment system. International subsidiaries simply transmit a single file of foreign payments, in almost any file format, to Wells Fargo; the payments are automatically parsed to pre-established disbursement channels — whether for wires, ACH payments, or check payments. The company receives automatic confirmation of all outgoing payments, and payment and collections data is automatically uploaded into the company’s ERP system for reconciliation. This allows Wind River to keep a close rein on what their subsidiaries are paying out, as well as ensure that excess cash is invested efficiently and wisely.

“Our partnership with Wells Fargo has allowed us to take an already functioning treasury operation to a completely new level. Using a single online reporting and payment platform we can easily view, manage and better protect our assets. Plus, we can easily set up and turn off user access across all our international locations, instantly, online. Documenting our SOX compliance has become much easier.” (Bryan Wilson, Treasury Manager, Wind River Systems, Inc.).

Beyond Compliance – Combatting Fraud

Beyond complying with SOX, automating and strengthening internal and external controls makes business sense. The American Bankers Association reports that in 2003, the total amount of attempted check fraud against commercial bank deposit accounts amounted to $5.5 billion — and 88 percent of those attempts were discovered by risk reduction systems within banks before any losses were incurred. Companies are expanding their reliance on anti-fraud tools, including positive pay, stop payments, and real-time access to online check images and financial reporting. One of the most effective means of fighting fraud is reducing, if not eliminating, paper-based payments. A recent study† found over 68% of sensitive information obtained by fraudsters was secured through offline channels, versus only 11.6% obtained online.

Companies can also increase control by establishing discrete authorization levels for their account users. Wells Fargo’s online CEO® Self Administration service allows companies to set limits on the accounts their employees can access online, as well as on the type of transactions they perform and dollar amounts they handle. The Self Administration dual-authorization feature strengthens internal controls by requiring approval from two authorized individuals before funds can be released.

Instituting the controls envisioned by SOX will patently require a concerted effort. Over time, however, your initial investment should be amply compensated by the benefits of increased transparency and control.

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