On or about August 14, 2002, hundreds of CEOs and CFOs submitted their representations to the US Securities and Exchange Commission (SEC) that their company’s financial filings were, to their knowledge, fair and correctly stated. This ushered in a new era with profound implications for CFOs and CEOs, creating an urgent need to upgrade the professional competencies of their organizations to operate effectively within newly defined bounds. In response, Accenture has developed an innovative approach to help companies better meet these challenges. The SEC made its ”voluntary” request for certification in June of 2002. Most companies complied. At the end of July, President Bush signed into law the Sarbanes-Oxley Act, making the SEC’s certification request effective as Federal law. More recently, (effective August 29) the SEC issued even more stringent directives regarding future certifications (see Rules 13a-14 and 15d-14, as well as Rules 13a-15 and 15d-15, of the Exchange Act). These have the effect of eliminating much of the “I didn’t know” bush that some may have been tempted to hide behind. CEOs and CFOs, in a substantial way, must now stand up and be personally accountable for the actions of their subordinates, as well as for their own. One significant element of the new directives is that the CEO and CFO must personally (1) design what are called ”disclosure controls and procedures” (these are different from “internal controls”); (2) evaluate their integrity and soundness; and (3) vouch for such, as well as their internal controls, in writing along with their certification. Thus, the SEC and business advisors are now calling for companies to implement much stronger ”bottom up” control systems that insure accuracy and integrity. The Ultimate Internal Control: Your Professionals Internal controls, to a greater or lesser degree, have been around for years. They are essential tools in assuring basically sound accounting and financial reporting. ”Separation of duties” is one of the classic tenets of strong internal control. But how far does separation of duties go in catching the following instances of questionable accounting and integrity? - A division president of a Fortune 500 chemicals concern decides to hold the fiscal year-end closing open ”until December 36” to allow a big order, placed by a customer who had no budget available until January 1, to get on the books so that he and his staff (including the division controller) could make their profit plans.
- A country general manager of a non-US business unit of a Fortune 500 company is ”unaware” that his sales manager bundles a sale of equipment with a five-year contract for maintenance and supplies and reports it as a lump-sum sale in the current period.
One way Congress has chosen to safeguard against such behavior is to include whistleblower protection provisions in the Sarbanes-Oxley compliance bill. Whistle blowing by your employees is one way to catch such behavior. But it’s probably not the best approach. What if the employees are just not competent in that particular area or lack the confidence to blow the whistle on a strong superior? And how do you protect yourselves from the malcontents who hold back sounding the alarm until after certification has been signed? There is a better way. To be sure, companies need strong policies, processes, and programs, all of which bring some comfort of having high levels of internal control and disclosure control. But what matters more is having finance and accounting professionals who are so competent (know their stuff) and are so capable (proactively apply it) and are so committed to integrity (high levels of self-confidence) that nothing “funny” could get through their screen. It’s not just your finance and accounting, treasury, legal staff, or public accountant’s staff who should be involved. It’s all of the operating personnel in other functions who have significant input to financial decision-making. Yet not all financial missteps are motivated by unethical behavior. Professional staffs—business and financial—in most large companies today, while very competent in their specialties, often lack a sound end-to-end view of how shareholder value is created, slowing the business decision-making process and yielding decisions that are often less than optimal. Many are hunkered down in ”functional foxholes” driven only by the needs of their immediate environment. Companies can no longer afford this. Management must ensure all decision-makers see the broader business perspective, and take a real interest in how value is created and accounted for properly. Effective internal control programs, as well as sound disclosure controls and procedures, demand that anybody in a position to make financial and business decisions have such a perspective and apply it vigorously, competently, and with integrity in their day-to-day work. Performance Simulation This is a quote from a large financial services company that Accenture teamed with to build a risk management application for their finance professionals. Several years ago, Accenture combined advanced technology with goal-based learning theory to develop cost- effective tools to instill essential business behaviors in mission critical workforces (finance, sales, manufacturing, engineering, etc.) across large global corporations. These technologies are covered by some 60 patents, and offer a truly novel approach to effective learning that is highly scalable across large organizations. Performance simulators have many parallels to flight simulators, especially in their ability to rapidly instill high levels of know-how (point skills combined with the judgment to know how and when to use them) as well as broad business perspective. Clients such as GE, Sprint, Siemens, and other global players use financial learning simulators to rapidly disseminate new skills and to assimilate new or acquired staff into their global operations. In another example, British Telecom has used performance simulation to increase sales revenues by over 100 percent within a six-month period, scaling up the capabilities of their solution selling sales force in months rather than years. Accenture’s Financial Integrity and Risk Management Initiative Accenture recently launched an initiative called Financial Integrity and Risk Management to help CFOs and CEOs address the challenges of the Sarbanes-Oxley Act, as well as to achieve broader strategic objectives, including: - Improving productivity of the finance and accounting function, including their shared services organizations (“…be able to run a company double its present size with the same F&A headcount while reducing risk”).
- Becoming “champions of change,” rather than being viewed as obstacles to progress.
- Becoming better business partners with their peers in other functions (“become engines of productivity, not just gauges measuring it”).
- Keeping their staffs current with the rapid pace of change caused by product proliferation, diversity and globalization.
- Enabling their accounting staffs to gain “hands on” simulated experiences not otherwise available in a world of highly automated information systems.
- Ensuring the overall integrity of its accounting and financial reporting.
The FIRM program focuses on four key elements– policies, practices, people and programs—to ensure a company’s workforce is ready to play by the new rules. In certain instances, Accenture is teaming with major public accounting and law firms to deliver an end-to-end program of advisory services and eLearning. Such programs combine assistance in policy development and organizational design (Policies) with the design of processes and best practices (Practices), along with specific Programs to assure ongoing financial integrity. But the ”glue” that makes it all effective is the upgrading of professional staffs’ capability and confidence accomplished through the development and delivery of integrated simulator-based learning programs (People). Lastly, these efforts must be ongoing (Program) to continually build and maintain the employee capabilities and confidence needed to mitigate risk. About the author: Len Sherman is a senior partner at Accenture, heading Strategy and Business Development for Accenture Learning, and holds a PhD in economics from M.I.T. Talk to someone about this topic  To Top
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