| |
 |
Newsletter - Spring 2008
Private Companies Benefit from
SOX-type Controls
Michael Curto, Principal, Assurance Services |
|
In response to a number of large-scale corporate accounting scandals, the Sarbanes Oxley Act of 2002 (SOX) was introduced to help rebuild trust in the accounting and reporting practices of public companies.While many argue that the financial burden of implementing SOX is too great, most acknowledge the act was necessary to rebuild public trust.
Though private companies are not required to adhere to the rules and regulations in SOX, they often can reap benefits from implementing certain SOX-type internal controls. Some SOX-inspired measures that can Inexpensively strengthen internal controls in a manner where the benefits outweigh the costs include:
DEVELOP AN ACCOUNTING PROCEDURES MANUAL - The manual should include wellwritten procedures, instructions and assignments of duties to prevent or reduce misunderstandings, errors, wasted efforts and duplicated or omitted procedures that can result in inaccurate or untimely accounting records.
DEVELOP AN ORGANIZATION CHART AND JOB DESCRIPTIONS - An organization chart represents the structure of an organization in terms of rank; job descriptions spell out job duties and responsibilities.
DEVELOP A CODE OF CONDUCT - An effective code of conduct should be well communicated to, and understood by, those expected to adhere to it. Training should be provided to ensure all employees understand how the code applies to them.
DEVELOP MONTH-END AND YEAR-END CLOSING PROCEDURES - Well-documented month-end and year-end closing checklists help facilitate successful closing. Completion of each procedure should be signed-off by both the preparer and the reviewer.
Regardless of a company's size, certain practices can be implemented to improve existing internal control without impairing efficiency. Studies show that strengthening a company's control environment is one of the most important factors in detecting existing fraud and preventing future fraud. In fact, according to the 2006 Association of Fraud Examiners (ACFE) "Report to the Nation on Occupational Fraud & Abuse," a typical organization loses an estimated 5% of its annual revenues to occupational fraud. And, upon examining more than 1,100 cases of occupational fraud, the ACFE found that median dollar loss caused by these schemes was $159,000.
In a relatively short period of time, a professional review of a company's processes and procedures can provide results-oriented suggestions to improve inefficiencies and strengthen internal controls. Such a review may even provide immediate savings such as reduced insurance premiums, borrowing opportunities, better interest rates and bank terms as well as fraud reduction.
So while the specific provisions of SOX do not apply to private companies, the benefits of implementing SOX-type controls may provide a number of advantages. Certainly, it's something worth considering.
|
|
|
|
