One other new thing brought to the attention of companies by the Sarbanes-Oxley Act is the fact that, under this law, every public company is supposed to prove strong internal systems designed to catch an employee intending to commit fraud or flag accounting errors before a company has the opportunity to make its profits official. An addendum to this rule is the obligation of a company knowing about problems with its control systems to disclose what it has uncovered. This obligation generated what an author called the "current flood of mea culpas."
As mentioned above, many companies have faced serious difficulties during the last few years. Companies conducting their activity in Silicon Valley, for instance, such as Versant, Portal Software and Sipex, have acknowledged that they have encountered problems such as not having experienced accounting staff, lacking checks and balances in the case of employees handling corporate cash and the inability to demonstrate that their financial computer systems are tamper-proof or accessible only by authorized users.
In other cases, such Monolithic Systems, Asyst and Rita Medical Systems, other system weaknesses have been confessed, such as the impossibility to reliably balance the corporate books at a certain point in the recent past.
The example of the Sipex Company, based in Milpitas could be considered relevant According to its own description, published on the company's website, "Sipex Corporation is a semiconductor company that designs, manufactures and markets high performance, value-added analog integrated circuits (ICs). Sipex serves the broad analog signal processing market with interface, power management and optical storage ICs for use in automotive, portable products, computing, communications, and networking infrastructure markets. The company is headquartered in Milpitas, CA with additional offices in Belgium, Canada, China, Germany, Japan, Taiwan and the UK. Sipex sells products direct and through its distribution channels."
The company announced in March 2004 that its auditors have found problems that included errors in figuring out costs that were related to deferred sales, while also discovering an undesirable reliance on manual accounting work. As a consequence, the SEC has begun investigation relating to the company's past revenue recognition practices, considering especially the fact that the company's chief executive officer has resigned last year, following a series of disagreements with the board of directors, a fact which draws attention once again to the board.
The fact that Sipex is not the best example one could give regarding the correct application of the Sarbanes-Oxley Act became clear on April 6, 2005, when the company announced that it received a Nasdaq Staff Notification stating the Company is not in compliance with Nasdaq's Marketplace Rules. Sipex had the right to appeal, otherwise facing the serious sanction of delisting.
The company itself admits facing various difficulties. One of the risks it faces in the near future, as published on it website is, according to the company's own statements the failure to comply with Section 404 of Sarbanes-Oxley in a timely fashion or at all."
Since there is a tradition in choosing CEO, determining their pay and approving company strategies by the boards of directors, it would seem that "The spotlight on directors and their behavior isn't likely to dim." However, there are cases in which the tighter control imposed by the Sarbanes-Oxley Act has produced good results. For instance, reporters mention the case of Scott M. Tabakin, who "stepped down as chief financial officer of Virginia Beach-based Amerigroup Corp. In 2003, [and] was approached last summer by members of the Portfolio Recovery Associates Inc. board about becoming a director."
Tabakin wanted to see for himself how the company functioned, so he decided to spend a day with Portfolio Recovery's executives in order to discuss about management and internal controls and how the organization monitors its assets, prevents fraud and checks the reliability of the accounting data. Tabakin was impressed. He declared that he "felt very comfortable with the management and felt that, for a young company, they had very strong controls," which proves that the Sarbanes-Oxley legislation is not an insurmountable obstacle.
The conclusion is that the Sarbanes-Oxley legislation just makes controls stricter. What it cannot achieve by itself is changing how people think and act. Ethical behavior should not be the object of a choice, especially if the situation of thousands of people or more depends upon the morality of a single individual. However, it was a necessary step to be taken after the Enron collapse, with far-reaching consequences and with surprising effects still to be expected.
1.Wells Susanm J., Educating the Boardm, HRMagazine, Alexandria: Feb 2005.Vol.50, Iss. 2; pg. 46
2.Shean, Tom. Board member duties take on real meaning after Sarbanes-Oxley Knight Ridder Tribune Business News. Washington: Dec 14, 2004.
3.Raber, Roger W., What Has Really Changed in the American Boardroom?, Community Banker. Washington: Oct 2004.Vol.13, Iss. 10; pg. 60
4. Lohse, Deborah, New anti-fraud rules causing upheaval among Silicon Valley companies, Knight Ridder Tribune Business News. Washington: Mar 4, 2005.
5. Sarbanes-Oxley Tutorial - SOX Compliance Information, What is the Sarbox Act or Sarbanes-Oxley Act?, http://sixsigmatutorial.com/SOX/sarbanes-oxley.aspx?ref=aw
6.. The Sipex Website www.sipex.com/news/pr_20050406b.htm
Wells Susanm J., Educating the Boardm, HRMagazine, Alexandria: Feb 2005.Vol.50, Iss. 2
Raber, Roger W., What Has Really Changed in the American Boardroom?, Community Banker. Washington: Oct 2004.Vol.13, Iss. 10; pg. 60 idem
Lohse, Deborah, New anti-fraud rules causing upheaval among Silicon Valley companies, Knight Ridder Tribune Business News. Washington: Mar 4, 2005
Shean, Tom. Board member duties take on real meaning after Sarbanes-Oxley…