February 06, 2009
SOX 404 Delays Caused Increased Fraud in Smaller Public Companies
My experience as a Certified Internal Auditor and working with clients on SOX 404 and the Canadian equivalent NI 52-109 over the past six years, has made me a firm believer that fraud exists in most companies. It is just a matter of how big the fraud, how pervasive and whether it will be detected. A study that was released just today from the firm Lord & Benoit supports this conclusion.
An excerpt is here:
"Lord & Benoit, a Sarbanes-Oxley (SOX) research and consulting firm, just released The Tipping Point: Collision of Relaxed Regulation, Small Business and the Economy, a White Paper snapshot of the current economic, ethical and political environment for small business SOX compliance in the new Obama Administration. The Tipping Point provides a sobering post-mortem case study of a small, high technology public company that, according to a well-informed financial insider, "could have been saved if it had been complying with Section 404." The company, which received millions of dollars in investor capital during years of SOX deadline extensions, filed for bankruptcy and left a painful trail of financial destruction among investors, employees and suppliers."
The other interesting point the article makes is that fraud tends to increase in times of economic decline, for a lot of reasons. The new SEC Chair Susan Shapiro is a believer in the increased regulations of public companies and intends to push through SOX 404b this year. Makes sense since the original regulations were enacted in 2002. With all of the delays, many companies have not been taking the regulations seriously.
When I hear ( and I do frequently ) that these types of regulations are garbage and just busy work, this makes me think that the people uttering these remarks do not take the regulations and their implementation seriously. The regulations in fact try to have the issuers take responsibility for ethics as well as financial controls. So if ethics are "crap" then we are all in trouble.
In this prescriptive world of regulations, the business leaders need to take back the high ground and re-institute an ethical culture and stop the habit of complaining about regulations that are supposed to assist in high ethics and transparency. These business leaders need to truly embrace high ethical standards. This current cynical world of "nothing matters unless you get caught" is eroding our markets and the faith of many in business leaders. This lack of faith has a direct impact on faith in stock markets and share prices.
So let's get back to basics in business, honesty and integrity and it might be surprising how fraud will decrease and faith increases as does the share price.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada at http://www.issuescentral.com/. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Reuters. For IFRS Transition products, see http://www.ifrspartner.com/ from Issues Central.
An excerpt is here:
"Lord & Benoit, a Sarbanes-Oxley (SOX) research and consulting firm, just released The Tipping Point: Collision of Relaxed Regulation, Small Business and the Economy, a White Paper snapshot of the current economic, ethical and political environment for small business SOX compliance in the new Obama Administration. The Tipping Point provides a sobering post-mortem case study of a small, high technology public company that, according to a well-informed financial insider, "could have been saved if it had been complying with Section 404." The company, which received millions of dollars in investor capital during years of SOX deadline extensions, filed for bankruptcy and left a painful trail of financial destruction among investors, employees and suppliers."
The other interesting point the article makes is that fraud tends to increase in times of economic decline, for a lot of reasons. The new SEC Chair Susan Shapiro is a believer in the increased regulations of public companies and intends to push through SOX 404b this year. Makes sense since the original regulations were enacted in 2002. With all of the delays, many companies have not been taking the regulations seriously.
When I hear ( and I do frequently ) that these types of regulations are garbage and just busy work, this makes me think that the people uttering these remarks do not take the regulations and their implementation seriously. The regulations in fact try to have the issuers take responsibility for ethics as well as financial controls. So if ethics are "crap" then we are all in trouble.
In this prescriptive world of regulations, the business leaders need to take back the high ground and re-institute an ethical culture and stop the habit of complaining about regulations that are supposed to assist in high ethics and transparency. These business leaders need to truly embrace high ethical standards. This current cynical world of "nothing matters unless you get caught" is eroding our markets and the faith of many in business leaders. This lack of faith has a direct impact on faith in stock markets and share prices.
So let's get back to basics in business, honesty and integrity and it might be surprising how fraud will decrease and faith increases as does the share price.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada at http://www.issuescentral.com/. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Reuters. For IFRS Transition products, see http://www.ifrspartner.com/ from Issues Central.
