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Tuesday, April 11, 2006
The Real Value in Sarbanes-Oxley
Fear can be a powerful generator of upstanding conduct, say Stephen Wagner and Lee Dittmar. But business runs on discovering and creating value. In this month's Harvard Business Review, the co-authors discuss how smart companies are finding unexpected benefits in Sarbanes-Oxley compliance. Wagner, who is the managing partner of the U.S. Center for Corporate Governance at Deloitte & Touche, and Dittmar, who leads the enterprise governance consulting practice at Deloitte Consulting and co-leads its Sarbanes-Oxley practice, talked with Kathleen Melymuka about how your company can use compliance requirements to its advantage.
What were some of the big control gaps that early Sarbanes-Oxley compliance efforts uncovered?
WAGNER: One of requirements of internal controls is maintenance of records in reasonable detail that reflect transactions. We found [that] in many instances, control documentation was way behind or didn't exist. A second issue was "tone at the top" -- the communication that comes out of the boardroom and the CEO suite that sets the stage for the organization, including how it deals with ethical standards. We found that there was often very little communication across organizations around the importance of maintaining good controls. In some cases we found duplication of control activities that created inefficiency and less-than-effective controls. Lastly, we ran into the notion of unnecessary complexity in the extreme. Many companies are far more complicated than they need to be. In the IT area in particular, there was duplication of systems, multiple instances of ERP -- one division of a company had 200 financial accounting systems.
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