Users freeze IT systems as Sarb-Ox looms

Software installations and upgrades are being put off to avoid last-minute compliance glitches

Many companies plan to lock down their financial systems and other applications in order to help streamline efforts to meet Sarbanes-Oxley compliance deadlines that start taking effect late this year, according to a dozen IT managers and consultants who were interviewed last week.

Section 404 of the Sarbanes-Oxley Act requires companies with market capitalizations of $75 million or more to attest to the effectiveness of their IT and financial controls when they file 10-K reports for fiscal years that end after Nov. 15. To help maintain controls that have been fully audited and tested, IT executives such as Mark Thompson have decided to postpone until early 2005 systems rollouts and upgrades that otherwise would have taken place during the fourth quarter -- or even earlier.

"We went through a whole reprioritization of IT projects for '04," said Thompson, senior vice president of finance and IT at Crown Media Holdings Inc., a Greenwood Village, Colo.-based cable TV company that distributes the Hallmark Channel and other programming in 120 countries.

For instance, Crown Media postponed a planned replacement of accounting applications from The Sage Group PLC with Microsoft Corp.'s Great Plains software until the spring of 2005 in order to help it meet Sarbanes-Oxley requirements that kick in when its fiscal year ends Dec. 31, Thompson said.

Crown Media, which is using software from Movaris Inc. to test its IT and financial controls, plans to complete all remediation and testing of its systems by Dec. 1. Thompson said external auditor KPMG LLP will then test the systems to determine if further revisions are needed.

If Crown Media didn't have to meet the Sarbanes-Oxley compliance deadline, it would have installed the Great Plains applications this year in order to have a clean cutover to the new accounting system on Jan. 1, Thompson noted. "Because Sarbanes-Oxley is so important to everybody, we didn't want to take the chance," he said.

Analysts said Crown Media isn't alone in making such decisions. "I've seen many companies postpone projects," said Tim Welu, CEO of Paisley Consulting Inc., a Cokato, Minn., firm that does consulting work and develops software for managing audits of both IT and financial controls.

"Most companies I'm dealing with are trying to put everything in by the end of September. And if they can't do it by then, they're postponing until Q1 2005," said Marios Damianides, a consultant at Ernst & Young LLP in New York and international president of the Information Systems Audit and Control Association in Rolling Meadows, Ill.

Joseph Puglisi, CIO at Emcor Group Inc. in Norwalk, Conn., said the looming Sarbanes-Oxley deadline prompted the construction services firm to limit the initial rollout of an upgraded ERP system to some of the units in its facilities services division. The new system, which is based on PeopleSoft Inc.'s applications for midsize companies, was installed in March.

In order to facilitate its compliance initiative, Emcor decided to wait until next year to add functionality such as the human resources management software that's in the PeopleSoft EnterpriseOne product line. It's also holding off on converting other parts of the facilities services division that continue to run on older versions of the PeopleSoft software or other types of ERP applications, Puglisi said.

Sarbanes-Oxley "has created enough of an extra burden on our accounting staff to effectively eliminate the possibility of moving forward with some accounting systems initiatives," he added.

In some cases, companies have fast-forwarded systems installations in order to add needed functionality and still meet the compliance deadline.

Hilton Hotels Corp. in late March finished installing a homegrown sales reporting system that was written in Visual Basic .Net and runs on Windows 2000 and SQL Server, said Damien Bean, vice president of corporate systems at the Beverly Hills, Calif.-based company. "We made plans last November not to have any Sarbanes-related systems installed during the second half of 2004," Bean said.

Even though companies will halt new systems installations this fall, they still plan to proceed apace on IT development work, said Damianides. Furthermore, the impact on IT spending is expected to be negligible because most companies plan to spend funds that were allocated for project rollouts in different areas within IT, he added.

"I'm seeing a fairly consistent spend," he said. "It's more a redistribution of funds."

Joseph Puglisi, CIO at Emcor Group Inc.
Joseph Puglisi, CIO at Emcor Group Inc.

Copyright © 2004 IDG Communications, Inc.

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