Sarbanes-Oxley Planet

2005-11-07T14:38:00.000-08:00

21% of Fortune 500 companies can not estimate how much they will spend on contract labour. The failure can cost companies up to $100m annually.

The survey findings come from Taleo Corporation. Funnily enough Taleo is a vendor of "demand talent solutions".

"The Contingent Workforce Management Trend Report" concentrates on the contingent workforce.

Many corporations could not answer critical questions about the use and impact of contingent labour. On average 7% of company revenue is spent on contingent labour.

Luckily for Taleo, the survey found that massive savings could be made with the use of contingent workforce management technology.

69% of respondents were also concerned about compliance with regulatory matters such as Sarbanes-Oxley and the SEC.

33% could not say who was responsible for risk and liability as it relates to contingent labour.

2005-11-07T14:37:00.000-08:00

The auction of Refco's regulated futures business will move forward today with the revelation of the bidders.

A U.S. bankruptcy court will actually conduct the auction. Five organisations have lodged bids with Refco. Not all of the bidders may qualify for the auction. Nor is it certain that all the bids are for the whole business.

Man Group a UK hedge fund manager and Alaron from Chicago are confirmed bidders.

Refco has been forced into the sale following the disastrous events surrounding its CEO Phillip Bennett. A $430m debt owed to the broker by Bennett was allegedly disguised in the accounts using very dubious accounting methods. The former CEO has since been the subject of investigation and charges on securities fraud.

Greenhill & Co. a boutique investment bank is advising Refco on the sale.

The auction will take place on November 9th.

2005-11-07T14:36:00.000-08:00

Collins Industries, Inc. of Kansas has announced that following a 1-for-300 reverse stock split followed immediately by a 300-for-1 forward stock split, SEC filings will stop. A significant reduction in Sarbanes-Oxley section 404 costs.

The final result will be a reduction in the number of shareholders to less than 300. Under 300 means that SEC periodic filings are not required.

The company's shares will continue to be quoted on the "pink sheets".

In the Reverse/Forward Stock Split, shareholders with less than 300 shares of the Company's common stock held of record in their name immediately before the transaction will receive a cash payment equal to $7.70 per pre-split share. Shareholders holding 300 or more shares of the Company's common stock immediately before the transaction will not receive cash payment and will continue to hold the same number of shares after completion of the transaction.

Collins Industries, Inc. is a leading manufacturer of ambulances (including medical attack vehicles, rescue vehicles and fire emergency vehicles), North America's largest producer of Type "A" small school buses, the nation's second largest manufacturer of terminal trucks and a leader in the road construction and industrial sweeper markets.

2005-11-07T14:35:00.000-08:00

Bankrupt automotive component giant Delphi is taking court action against suppliers that allegedly threaten to halt deliveries until they are paid.

Four court orders have already been obtained against companies. They are required to explain before a bankruptcy judge their "extortive" behavior. Two of the companies are German.

Under US bankruptcy law, suppliers can not alter contracts to take advantage of the bankrupt company's distressed financial state. Delphi has however will be able to make payments of $90m following court approval.

The Delphi legal team hasten to say that less than 1% of suppliers are making the alleged threats.

2005-11-07T14:30:00.000-08:00

Wal-Mart Facing Bank Opposition

Wal-marts application for a Utah banking licence has ran into opposition. Technically known as an "Industrial Loan Corporation", the institution will process credit card transactions for the retail giant.

Previous attempts to enter banking have also been blocked, including one to buy a Californian ILC in 2002.

In its application Wal-Mart declared that it did not intend entering the retail banking market or open branches outside Utah.

State regulators in Utah and the Federal Deposit Insurance Corporation (FDIC) both have to give approval for the application. Small independent and community banks have made vocal representations to both bodies to try and prevent Wal-Mart setting up the infrastructure.

The danger for the small banks is the retailer leveraging its national muscle to set up a retail banking operation.

2005-10-31T14:39:00.000-08:00

John Steer, Commissioner, U.S. Sentencing Commission (USSC) is the guest speakers at a series of compliance workshops run by the Society for Corporate Compliance and Ethics' (SCCE) held in Los Angeles, Seattle, Atlanta and Houston.

Other speakers include Richard S. Gruner, member of the Advisory Committee to the USSC, and Paula Desio, USSC Deputy General Counsel .

In their press release the society cite research which puts Chief Compliance Officer as third in a list of hot jobs,.

2005-10-26T14:29:00.000-07:00

Disgraced brokerage firm Refco is on the receiving end of the first lawsuits stemming from its collapse. Jim Rogers, an operator of commodity funds is suing Refco through his management company, Beeland Management.

Refco it is alleged in the suit, shifted Mr Roger's assets from their regulated business to Refco Capital Markets, its troubled unregulated business.

The shifting of the assets of between accounts was against Beelands instructions.

The Capital Markets division was the cause of Refco's demise. Accountancy practices at the company allowed CEO to hide a $430m debt he owed to the company.

Trades by Beeland with Refco were processed for Rogers Raw Materials and Rogers International Raw Materials. Over $362m in Beeland funds were held by Refco at the time of the collapse.

The funds had been held in a segrated account. Beeland argues that had they stayed there, they could have been withdrawn. Further the assets were mainly in US Treasuries with only a small percentage in cash.

2005-10-25T14:46:00.000-07:00

Automating of Internal Controls

Control procedures defined can be automated. This is not a Sarbanes-Oxley specific activity. Automation is the third leg of the holy trinity of : good people, good things, automate the good things.

Before we set out to automate a control, we have need 2 aspects confirmed. Firstly that the control is a) effective and b) is open to automation.

Automating a control that is not effectiveness is pointless. Why automate failure?

If a control is not open to automation, for whatever reason, then it should not be attempted. The average public company has hundreds or thousands of controls. So why try and automate the difficult stuff first?

Given the above caveats, why would we want automation? Initially the size of the task facing a company preparing a Sarbanes-Oxley audit seems awesome and overwhelming. The prospect of reducing the load by automation is enticing.

Once the company has started automating, it might notice other enhanced benefits. A successful automation process involves documentation of controls and policies. Use of a tool will require management decisions on configuration, deployment and how the automation process and environment will be supported.

The automation of control procedures has two objectives. As long as one is achieved, then automation has been succesful.

Effectiveness of internal controls is the most important aspect of Sarbanes-Oxley and section 404 in particular. The COSO framework on internal controls places more emphasis on the operational effectiveness than on ensuring they are written down by management.

Measurement of the effectiveness of a control ultimately resides with the prevention of fraud through improved financial reporting. Thus, if we automate a control, does that mean more fraud or opportunities for fraud be prevented.

Any increase in effectiveness can only improve the internal controls for the company.

The control may not increase the effectiveness. The cost of implementing the control may come down. This might please those who bemoan the cost of implementing Sarbanes-Oxley for their company.

Automation of control processes will usually involve a tool such as OpenPages. However the toolbox available to the automater could be as simple as Outlook and Excel.

No matter what the tools used, a number of features should be present in the system.

Given the number of controls even a small company has hundreds or thousands of controls. A tool has to be configurable and flexible to handle thousands of them.

A reference library has to be available for employees and management to access information on policy and procedures. This way issues can be resolved at source.

The tool and surrounding system has to interface with the existing control systems. This would be especially important at the start of the automation process. The number of internal controls automated is likely to be heavily outnumbered.

Tools should be easy to use for those operating them.

Exceptions and special circumstances will have to be handled effectively. Identification of out of the ordinary transactions or events. Guidance or an escalation process should be available to staff who have responsibility for the control.

An example of a control for automation could be ensuring the financial reporting of sales.

The sales process includes the sale, invoicing, dispatch of goods.

Elements of the control suitable for automating :-

On a timely basis the person responsible for the process receives required information.

Routing the work products to the correct person at the correct time.

Tracking the progress and results of the procedure to enable monitoring of control performance

Initiating follow-up action.

2005-10-24T14:18:00.000-07:00

The Securities and Exchange Commission has lost an enforcement case against Siebel Systems over the issue of disclosing material information to the market.

Regulation Fair Disclosure (Reg FD) was the legal source of the SEC 's argument. Reg FD stops companies disclosing material information to securities analysts that is then witheld from the public.

In the case, Siebel argued that the information disclosed to the public and the analyst community had been the same, except for small linguistic differences.

The SEC however felt the publicly available spin had been downbeat, whilst the analysts had been more upbeat.

Following an exhaustive process of comparing the disclosures word for word, Siebel won. The New York Federal judge commented the SEC placed "unreasonable burden on a company's management and spokespersons to become linguistic experts or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company's public statements.

Siebel had previously had an encounter with the SEC over Regulation FD which resulted in a $250,000 settlement.

2005-10-24T13:16:00.000-07:00

ABA
American Bar Association

CII
Council of Institutional Investors

Deferred Prosecution
U.S. legal deal where in response for public acknowledgement and/or payment of a fine/restitution and/or co-operate in ongoing investigations, corporations can escape prosecution. Should the corporation comply with the conditions in the agreement for a specified period, the indictment is dismissed.

EPS
Earnings Per Share

Grant Date
Stock Options:- "The date at which an employer and an employee reach a mutual understanding of the key terms and conditions of a share-based payment award." Defined in SFAS No 123 (Revised 2004) (123R)

IFRS
International Financial Reporting Standards

MD&A
Management's Disclosure and Analysis

NASPP
National Association of Stock Plan Professionals

OEA
Office Of Economic Analysis

Office Of Economic Analysis
Department of the SEC.

Regulation FD
Regulation Fair Disclosure

Regulation FD
Rule enforced by the SEC requiring U.S. to make available to the public that they make to securities analysts. If the disclosure is intentional the release has to be simultaneous. Unintentional discosure has to be made available to the public within 24 hours.

SFAS 123R
FASB Statement of Financial Accounting Standards No. 123, Share-Based Payment. Requires companies to recognize compensation paid in the form of employee stock options as a cost in their financial statements.

Statement No. 123R
FASB Statement of Financial Accounting Standards No. 123, Share-Based Payment. Requires companies to recognize compensation paid in the form of employee stock options as a cost in their financial statements.