Is Sarbanes-Oxley Really Having An Effect On Fraud?
Financejobz.com has the facts on Sarbanes-Oxley; you decide if its worth it.
by Becky Mease 9/9/09
When Sarbanes-Oxley regulations were created, their sole purpose was to restore the integrity and faith back with corporations and executives that were caught up in the many fraud scandals brought on by Tyco, Enron, and such. Yet, surprisingly to learn, many companies have done little to change their prevention and monitoring of fraudulent acts. This makes many wonder, “Is Sarbanes-Oxley an effective tool where fraud prevention is concerned?”
One of the policies under Sarbanes-Oxley is to create a paper-trail illustrating how and what a company does in regards to financial operations and data. This costly and time consuming exercise is efficient with tracking data; however, it does little to prevent fraud itself.
It may be said that Sarbanes-Oxley was in short immediate gratification to a problem whose answer is more long-term. This legislation allowed for investors and common folks to feel better about their financial statements after the many corporate fraud scandals became apparent. Our government tried to put a band-aid on the panic that would inevitably cause severe damage to our economy by insisting that public companies become more vigilant in the fight against fraud. And although the concept of Sarbanes-Oxley is successful on legislature paper, it does little to deter fraud as it actually only requires a detailed account of procedures taken by a company.
While documentation of a company’s financial coming’s and going’s is vital to any business, in the end it costs a company millions of dollars to implement each year. Consultants who ensure these companies are in compliance with Sarbanes-Oxley are busier than ever, raking in the money from overseeing the regulations being carried out; but will corporate stakeholders ever see any value in its purpose?
It is not being said that Sarbanes-Oxley is a completely worthless exercise; it does have some value and worth. Many companies who wish to be proactive in complying with Sarbanes-Oxley see the benefits from doing so and have enhanced their standard internal controls in reconciliations, securing digital data better, and generating a larger segregation of duties. You will even find some companies that have improved period-end closing procedures voluntarily, and some that have made related accounting processes more formal. In all, the requirement of documentation that Sarbanes-Oxley insists upon helped some companies see that they needed a more standardized set of procedures in place. The key here is to specifically design internal controls to eliminate or deter any further fraudulent acts. This will allow companies to have a better chance of winning against fraud, than by complying with regulations. By incorporating company, and government policies and procedures while becoming a more ethical corporate culture, fraud doesn’t stand a chance.