Finance Law May Force IT System Overhauls

Computerworld - The Sarbanes-Oxley Act, the U.S. government's attempt to bring honesty, clarity and speed to corporate financial reporting, may ultimately require costly overhauls of budgeting, reporting and decision-support systems.

But much remains unclear about the potential impact of the law, which was passed last summer. Even companies whose systems appear to comply with the act are uncertain as to exactly what some provisions mean and when they must comply with the requirements, according to recent interviews with IT and business executives.

The uncertainty stems from the fact that the Securities and Exchange Commission is still fleshing out the details of the law through a series of proposed rules. Moreover, the SEC has delegated some regulatory tasks to other organizations, such as stock exchanges, and they have yet to act.

But the combined weight of Sarbanes-Oxley and other new regulations is expected to result in major systems changes at some companies. "We're looking at a whole series of governance and compliance issues related to IT for Sarbanes-Oxley," said David Klementz, chief financial officer at Progress Rail Services Corp. in Albertville, Ala.

Irving Tyler, CIO at Quaker Chemical Corp.

Jonathan Karpoff, a finance professor at the University of Washington in Seattle, said executives whose necks are now on the line at report-signing time will demand systems that are more timely and accurate. "What I'm hearing quite a bit is that firms can use Sarbanes-Oxley as an impetus to completely overhaul their control, monitoring and reporting processes," Karpoff said.

That's what's going on at Progress Rail. The supplier of railway products and services recently scrapped a combination of manual procedures and spreadsheets for consolidating the books of its subsidiaries and installed a set of financial-data integration and analysis software from SAS Institute Inc. in Cary, N.C.

Progress Rail is also using SAS Balanced Scorecard, a tool that gives Klementz near-real-time financial-performance metrics. That could tip him off to business problems that might otherwise go undetected until a quarterly audit is done, he said.

Those steps, which cost about $500,000, are just the beginning. Klementz said Sarbanes-Oxley and other new SEC regulations are prompting Progress Rail to do a top-to-bottom examination of other systems that can affect its financial results, such as inventory control. In addition, the company faces higher labor costs.

"We're greatly increasing IT staff in order to make sure I'm comfortable that systems and controls are in place," Klementz said, adding that he's also hiring IT and regulatory-compliance consultants.