From Compliance to Competitive Advantage
Eric Karofsky
AMR Research
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GO SOX!GO SOX!
Agenda
• Sarbanes Oxley
• General compliance
• Competitive advantages
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Waves of ComplianceC
ost
Time
A Long Tail
Do It & You’re Done
Systemic Change
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302
404
409
Executive sign-off
Requires corporate officers to personally sign off and attest that financial information is true and internal controls have been evaluated 90 days prior to the reporting date
Requires continuous evaluation of internal controls and procedures for financial reporting
Requires real-time notification within 2 days on material changes in a company, such as loss of or a significant reduction of major account, large write-off
Key Sections of SOX“Real time notification
within 2 days on material changes”
• Plant shutdown?
• Plant failures?
• Quality deviations?
• Recalls?
• Loss of raw material supplier?
• etc.
Evaluate controls
Timely disclosure
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SOX needs multiple inputs
Procedures
ReportingReal time
notification
SOX requirements
ERP
HR
Financial
AP / AR
Suppliers
Customers
Procurement
Operations Data!!!
• Real time input
• Repeatable processes
• Audit trails
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When Compliance is talked about, it’s usually
Sarbanes-Oxley Act of 2002 (SOX)But it’s just the tip of the compliance iceberg
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Regulations AboundFinancial
(e.g. Sarbanes Oxley, Basel II)
Supply Chain Traceability (e.g. RFID, CTPAT, Bioterrorism Act, Country of Origin Labeling)
Import / Export / Trading(e.g. ITAR, Denied Parties Screening)
Product Approval / Certification (e.g. FDA 21 CFR, REACH)
Manufacturing Process Approval / Certification (e.g. FDA, Mil-Spec Compliance)
Manufacturing Traceability (e.g. eBR, eDHR, RoHS, TREAD)
EH&S Compliance (e.g. EPA, OSHA)
Recoverability(e.g. ELV, WEEE)
Information Management(e.g. HIPAA, GLB, FACTA)
Corporate / Industry Sustainability Initiatives (e.g. CAFÉ, Minority Sourcing, Code of Conduct / Training)
65% - 78% of spending is not
SOX related
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Regulation complexity
Process / info coordination
x
Applicable regulations
Complexity !!!=
Customer regulations
x
EU (15 27)
Japan / China USA Rest of world+ ++
x
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The Risks and/or Costs of (Non)-ComplianceFinancial
Fines, penalties
Legal expenses
Audit Fees Operational
Inability to conduct business
Process/Product change
Entry barriers to new markets Reputation
Brand value
Reduced sales
Reduced stock price
BUT COMPLIANCE ALSO
YIELDS BENEFITS!
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What specific business process(es) do you ALSO plan to support with your compliance investment(s)?
10%
28%
36%
14%
11%
2%
Better visibility tooperations
Better quality
Streamlinebusinessprocesses
More secureenvironment
Supportglobalization
efforts
Other
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Recommendations for Investment
• Increase investment in technologies that automate testing your internal controls – Key technologies can reduce the cost of SOX compliance
upwards of 25%
• Better visibility though portals, dashboards, and scorecards
• Training and education activities necessary for effective adoption
• Talk with auditors about material events in manufacturing!
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“When all regulated entities face the same obligations under the law, the smartest corporations will find a way to comply with imagination and less cost.”
Ben Heineman, Jr: SVP for law and public affairs at GE
Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 13
Thank you.
Eric Karofsky
AMR Research
GO SOX!