How Will Your Company Deal with Sarbanes-Oxley?

By Corey Jordan, American River International

Global supply chains for public companies and those who follow high standards of accounting have significant exposures in compliance and security related to managing Sarbanes-Oxley (SOX) risks.

These financial and security exposures would be significant if SOX procedures are not incorporated into supply chain operations for imports and exports.

Areas such as: Valuation, transfer pricing, classification, record-keeping, origin, marking and labeling are but a few of the issues that need to be addressed between compliance and SOX.

When the federal government witnessed such “bad” corporate accounting practices and lack of responsibility by corporate officers, they stepped in with legislation: Sarbanes-Oxley, which requires very strict lines of communications and better fiscal accounting practices within a public corporation.

These regulations have had a huge impact on American public corporations because of the need to create SOX operating guidelines and procedures. These extend into global supply chains."

With SOX now in place, the chief executive and chief financial officer will be held accountable and responsible. The law states that
both must sign off on and can be held accountable for:

• All financial statements, both internal and external, such as those published and distributed to shareholders, the Securities and Exchange Commission and analysts. These include quarterly and annual forecasts, 10(k) and 10(q) filings, and other statements.
• Accounting practices and standard operating procedures, or SOPs.
• Certification from internal and external auditors, validating that SOP documentation and practices are legal and accurate.

The company must make itself available for scrutiny by outside auditors, the SEC and government investigators. If wrong-doing is uncovered, company officials can trade their pinstripe suits for a striped uniform of another kind. They will no longer be permitted to say, “I didn’t know about it ... it was his responsibility!”

This increased scrutiny goes beyond the boardroom. For years, while senior management strategized upstairs, working with MBAs and high-priced analysts, the “grunts” toiled down in the warehouse, making sure products got in and out on time. Not only did the chief executive or chief financial officer not know this was taking place, most of the time they couldn’t even find the dock!

For years, Customs and Border Protection, the Bureau of Industry and Security, Census and other governmental agencies have required companies to submit import-export documentation that includes: Entry Summary forms - 7501 and 3461 (for imports); Automated Export System - electronic version of the shipper’s export declaration (for exports); commercial and pro-forma invoices; certificate of origin; correct HTUS/Schedule B classifications to determine duty rates and taxes; letters of credit and money transfers; applicable licenses or permits; quota documentation; and packing lists.

This documentation and related shipping-receiving SOPs authenticate a company’s trustworthiness in conducting international business. It’s only natural that these processes be infused into the SOX Act’s requirements. With millions of dollars expended daily in this area, you can bet it will ultimately be an audit point and as ripe for prosecution as misleading financial statements.

One can easily see a dotted-line progression of the Customs-Trade Partnership Against Terrorism into the SOX arena. As the fallout continues from the 9/11 Commission report, one might contemplate that if the new information czar heads all these related programs, SOX and C-TPAT will result in a new era of self-audit and overall business compliance and scrutiny.

Keep in mind that in December of 2004, a new intelligence agency was authorized by Congress - and signed into law by President George Bush - which will have ramifications, not only in compliance and security, but also for applications to administer the new SOX regulations.

Companies have found that C-TPAT participation has helped them with their supply-chain management. Many corporations are creating import-export compliance departments that usually report directly to corporate counsel or internal audit departments, and have an important say in supply-chain, manufacturing and risk-management decisions. These professionals have become the de facto watchdog over the entire supply chain.

Many companies with limited staff retain consulting firms to manage their compliance programs. Not only does the consultant monitor supply-chain, manufacturing and risk-management issues, that person can also be responsible for brokering service provider relationships.

Corporations are discovering the importance of a safe, competitive and secure global supply chain. Operating within the SOX guidelines has become another skill set that must be mastered by logistics, traffic and warehousing managers as well as chief executives and chief financial officers.

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Working with the public sector

How will your company deal with Sarbanes-Oxley

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