Making the Most of SOX

By Nancy Koenig

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The Sarbanes-Oxley Act (SOX) deadline is looming and soon accuracy, timeliness, completeness, and transparency of financial reports will be essential requirements for publicly traded companies in the U.S.

Even though SOX is largely a financial and accounting driven initiative, it does present great opportunities to get IT projects funded. Planned carefully, SOX projects can also deliver strategic impact to the business by optimizing existing business processes or structuring new processes for competitive advantage.

Section 404 of SOX requires auditors to attest to the underlying controls and processes companies use to derive financial results. For companies that market and sell their products through indirect channels, SOX is a tremendous challenge, and puts the CEOs and CFOs of those companies at greater risk.

Companies that utilize channel partners have many different types of transactions, including cooperative marketing funds claims, special pricing and quotations requests, consignment inventory, rebates, returns and warranty claims -- many more than in a direct selling model.

In addition, these channels partners often have different types of compensation plans including spiffs, commissions and volume incentive rebates. All of these transactions must be documented and certified for the appropriate level of control. Companies who don't manage these transaction processes are not only at risk for SOX non-compliance, but also for working capital shrinkage, fraud, and overall inefficiency in their selling processes.

However, by investing in the proper solution to manage multi-channel environments, companies can meet regulatory requirements for business processes, as well as reduce costs and increase revenues.

Utilizing PRM Solutions

Process automation technology -- also commonly referred to as partner relationship management (PRM), channel relationship management (CRM), e-business, or sell-side e-commerce -- helps companies achieve SOX compliance by enabling them to profile their partners, serve partner-specific content to them, and automate all transactions.

By automating financial transactions with configurable workflow and advanced reporting, companies can deliver better business value to partners, as well as meet regulatory requirements.Configurable Application Workflow

With configurable application workflow, companies can easily prove that they have the proper implementation and controls in place to prove SOX compliance.

For example, take a distribution partner's claim for server work performed under warranty. The partner submits the claim via the partner portal, which can be automatically approved if all the data is submitted correctly and is within a specified dollar amount.

If the amount exceeds the level required for auto approval, it is forwarded to the warranty administrator, who has parameters under which he or she is authorized to approve the claim. If it exceeds these parameters, the claim is escalated to the business head. Finally, the backend systems can be programmed to prevent payment of claims unless they are submitted to the portal.

The process is clearly defined and documented via the workflow interface, fulfilling SOX requirements. An automated record for all submitted claims provides for easy auditing. Additionally, security is maintained by user ID and password to ensure only authorized users can change the status on a claim from 'pending' to 'approved'.

By limiting the backend systems to only accept claims via the partner portal, companies can prevent fraud by ensuring that no one can override the process.

Advanced Reporting

The primary driver behind the importance of processes is the ability to act on key information. Process automation technology takes critical information updated in real-time and applies it to advanced reporting functions for day-to-day operations management, as well as for complying with SOX's real-time disclosure clause.

Going back to the above scenario for claims approval, advanced reporting can provide tremendous insight into claims submission traffic such as providing auditors with key statistics on number of claims submitted, approval and denial percentages, and escalation results.

Reporting can also assist companies in meeting SOX disclosure regulations, which require companies to disclose significant events to investors within as little as 48 hours. Additionally, process automation can provide powerful tools to build a data warehouse designed to draw relationships between data that help companies understand complex events throughout the channel.

The benefits of workflow and reporting capabilities are evident, but there are a number of other reasons why adopting PRM technology is a strategic move. Above all, it can positively impact the bottom line. Customers have achieved tremendous results such as 90 percent reduction in cycle time for processing claims, 40 percent load reduction on call centers due to self-service functionality, and 200 percent increase of online sales.

For example, a major supplier of HVAC equipment implemented process automation software to automate its warranty claims process, which is a significant part of its after-sales service. Within six-months of the implementation, 90 percent of the company's claims were completely automated.

The implementation enabled the company to reduce cycle time and administrative costs of pushing paper back and forth, and increase general partner satisfaction because they were able to pay those claims more quickly.

When SOX auditors looked at this process and their process documentation and controls, the automated processes passed the audit. Although, SOX compliance had never been conceived as part of the project at the beginning, this is a clear case where the customer reaped real business benefits in addition to meeting SOX requirements.

Strategic Investment

The most important thing to remember when making a decision is that investments should be about overall business value, not just compliance. Process automation technology can help companies achieve competitive advantage by streamlining operations and reducing costs, and by putting transactions in place that actually help increase revenue because partners have the tools to work more effectively.

Companies that look at the bigger picture and strategically examine how they can fully leverage the power of their SOX-compliant implementation will be the ones who get realize the biggest return on investment.

Nancy Koenig, is the vice president of Product Operations for Click Commerce, a partner relationship management software vendor.