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Business Performance Management: Sarbanes-Oxley Considerations

Originally published February 7, 2005

 

The Sarbanes-Oxley Act, signed into law in 2002, mandates compliance in a number of areas related to the financial regulatory requirements of corporations. Whether you’re about to deploy a new business performance management (BPM) system, or you’ve been using one for years, it’s time to evaluate how well your business performance management system will help you address compliance with this legislation.

 

The Act consists of three key sections (in addition, the SEC has published rules for each section):

  • Section 302—Executive Certification of Financial Condition;
  • Section 404—Disclosure of Reporting Controls and Procedures; and
  • Section 409—Accelerated Reporting.

The good news? If you’ve built a professional business performance management system yourself, or if you’ve purchased a solution from a major vendor, then you’re likely to be well-positioned to comply. The bad news is that you’re still likely to have a significant amount of work and cost awaiting you, once you dig into the details. 

If you’re about to deploy business performance management, pay close attention to features that can be easily implemented and configured to address compliance. When you review an existing business performance management system supplied by a major vendor you may uncover that, while the product may have the feature set to facilitate compliance, your organization has neglected to implement or configure these capabilities.

Section 302—Executive Certification of Financial Condition

With senior executives personally liable for the financial information being reported, the CEO/CFO will require additional visibility into financial statements. Demand for data accuracy, transparency and timeliness are all enhanced. Certainly the technology is now available to help ensure timely deployment of summary reports to management. Does your organization have a corporate intranet that makes financial information available to these executives on a timely basis? Hopefully the answer is yes. 

Does your business performance management system support “drill-through” (the ability to review more granular levels of detail than offered by the business performance management system)? Too often, while the business performance management system supports drill-through, system developers haven’t made the effort to implement such features. Sometimes, the complexity of implementation makes drill-though a “back-burner” issue. Of course, choosing a solution that simplifies both relational and cube-to-cube drill-through, as the Applix TM1 solution does, makes a complex issue simple.

Business performance management solutions lead the pack when it comes to analytical techniques in support of financial analysis. Features such as “slice-and-dice” and “drill-down” have empowered the financial analyst for years. The problem with such technology today is that, while these features have vastly improved the productivity of analysts, they fall short of meeting the needs of executives who have to comply with Sarbanes-Oxley. There is simply too much data for any financial staff to properly analyze using such techniques on a monthly basis. Alerts, on the other hand, can programmatically notify personnel on a pro-active basis. These types of proactive notification help management broaden their base of knowledge regarding the condition of the financial statements. Business performance management systems that support pro-active alerts and controls, to continuously monitor the accuracy and performance of a company, should be considered.

Section 404—Disclosure of Reporting Controls and Procedures

While all business performance management systems are likely to have certain levels of reporting controls and procedures, they are often not well defined, documented or maintained. Many times, business performance management systems are implemented or created by individuals who are not familiar with proper accounting procedures or internal controls. The thought of exposing these controls and procedures to both internal and external personnel could be problematic, to say the least! Obvious things like proper security, auditability and documentation that the IT professional takes for granted as part of a transactional system are often left out of business performance management systems that end-users create or manage. The reasons for such oversight vary: lack of time, expertise and, many times, the lack of a robust business performance management feature set. A few features and functions come to mind, including:

  • Ability to maintain an audit trail of changes to the system and data;
  • Role-based security, perhaps integrated with the corporate network; and
  • Ability to track a review process, including managing signoffs and system workflow.

Some business performance management systems include the ability to integrate unstructured data along with numeric information. Documents, images and voice are also part of the equation.

Section 409—Accelerated Reporting

If you’ve been using a batch reporting or batch consolidation system, you may soon be in real trouble. Section 409 mandates disclosing to the public on a “rapid and current basis” material changes to an organization’s financial condition. Hopefully, it didn’t take government legislation for you to realize that this type of business performance management system is going to have problems meeting future business requirements. Coming soon is real-time disclosure of material events that may affect corporate performance. To meet this future requirement, firms are going to have to perform consolidations faster, more frequently and with less effort. Reporting is going to have to be faster and more flexible. While there are a myriad of enterprise business performance management reporting and consolidation systems on the market today, very few of them can meet this mandate. Only time will tell if the majority of business performance management solutions address this void.

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