How to Avoid the Complete Breakdown of SOX Compliance Requirements

Avoiding the complete breakdown of SOX compliance requirements is critical for organizations. The challenges associated with the Sarbanes-Oxley Act of 2002 are numerous, complex, and often include high costs. 

Section 404 of SOX Compliance is particularly challenging as it places the responsibility on management to maintain internal controls for financial reporting and requires auditors to attest to their effectiveness. Implementing SOX for the first time can be complicated, leading to delays in implementing broader initiatives beyond literal compliance. The SOX Compliance Act has exposed weaknesses such as a lack of enforcement of existing policies, communication issues, and a weak compliance culture. 

Despite these challenges, some executives have found ways to leverage SOX compliance requirements for positive change within their organizations. For example: 

1. Yankee Candle: The company emphasized fraud prevention and internal control by regularly sending internal correspondence to auditors, aiming to demonstrate a strong control environment. This proactive approach helped enhance the company’s governance and risk management practices, fostering a culture of compliance and integrity. 
2. PepsiCo: PepsiCo utilized an annual survey and ethics training to strengthen its control culture. The survey, conducted by internal auditors, delved into various aspects of employee behavior and practices, including hiring, evaluation, and incident reporting. This approach not only enhanced the company’s control environment but also improved employee understanding of ethical standards and compliance requirements. 
3. BlackRock: By taking an exhaustive inventory of its policies and procedures, BlackRock improved employee acclimation and understanding of operations. This meticulous approach to documentation not only facilitated compliance efforts but also streamlined operations, leading to increased efficiency and effectiveness in financial management processes.
4. Iron Mountain: Following extensive merger and acquisition activity, Iron Mountain streamlined its organizational structure and processes. This strategic move not only aligned its operations but also improved efficiency and effectiveness, demonstrating the company’s commitment to compliance and governance. 
5. Sunoco: Sunoco standardized its billing processes and eliminated multiple billing methods. This initiative not only reduced errors and improved data consistency but also enhanced compliance efforts by ensuring uniformity and transparency in financial reporting processes. 
6. Manpower: Manpower standardized its software development processes, reducing errors and streamlining development cycles. This approach not only improved the quality of its software but also enhanced its compliance efforts by ensuring consistency and reliability in software development practices. 
7. Kimberly-Clark: Kimberly-Clark standardized its journal-entry processes, reducing errors and improving data consistency. This initiative not only enhanced the accuracy of its financial reporting but also strengthened its compliance efforts by establishing clear and consistent guidelines for journal entries. 
8. RSA Security: RSA Security converged its compliance efforts for Sarbanes-Oxley, HIPAA, and other regulations, reducing overall compliance costs. This strategic approach not only improved its compliance posture but also demonstrated its commitment to governance and risk management across multiple regulatory frameworks. 

These examples underscore how companies have transformed their operations and governance practices in response to SOX compliance requirements, ultimately enhancing their overall resilience and integrity.

Prevent Breakdown of SOX Compliance Requirements 

SOX Regulatory Compliance’s core objective is clear: safeguarding businesses by ensuring accurate corporate disclosures. To achieve this, organizations must focus on the following parameters:

1. Know Your SOX:
   Not following the guidelines of Section 302 and 404 are common reasons for SOX compliance failure. Thus, to effectively comply with the Sarbanes-Oxley (SOX) Act, companies must focus on two key sections: 302 and 404.  Section 302.  places a significant emphasis on corporate responsibility by making the CEO and CFO directly responsible for the accuracy of financial statements. These executives are required to certify that the financial reports are accurate and comply with SOX requirements. Section 404. on the other hand, requires companies to include in their annual reports an assessment of the effectiveness of their internal controls over financial reporting. This section highlights the importance of maintaining strong internal controls to ensure the accuracy and reliability of financial statements.
2. Master Data Retention:  For public companies and registered public accounting firms, SOX Sections 103(a) and 801(a). require the retention of audit work papers for at least seven years. While SOX doesn’t directly apply to private companies, Section 802. prohibits the intentional destruction, alteration, or falsification of records to obstruct a federal investigation. punishable by up to 20 years in prison or fines.
   
   SOX specifies different retention periods based on document types:
   – Seven years for accounts payable and accounts receivable ledgers, timecards, and product inventory records.
   – Five years for invoices to customers, invoices from vendors, and purchase orders.
   – Three years for employment applications.
   
   Certain records, such as bank statements, contracts, payroll records, and legal correspondence, must be retained permanently. The American Institute of Architects Austin Chapter’s policy aligns with SOX, emphasizing the prevention of accidental record destruction. Additional SOX-mandated retention periods. include:
   
   – Seven years for state sales tax information, business expense records, invoices, bank statements, earnings records, and payroll tax records.
   – Seven years after employment termination for records related to employee promotion, demotion, or discharge.
   
   – Five years for sales records, state unemployment tax records, accident records, and salary records.
   – Three years for general correspondence, credit card receipts, and employment applications. Certain documents, like Articles of Incorporation, executive/board policies and resolutions, bylaws, financial statements, tax returns, employment and termination agreements, and insurance policies, require permanent retention.
3. Choose Storage Wisely:  SOX mandates electronic media as the preferred storage method for retaining records, requiring them to be stored in a non-rewritable, nonerasable format as defined in the Securities Exchange Act of 1934. According to SOX regulations, businesses must ensure that emails are tamper-proof, permanently word-protected, encrypted, and read-only.– They must adhere to the company’s policies on email archiving, data retention periods, and email protection.
   
   – They must be auditable by a third party if necessary.
   – They must be fully indexed and searchable. In cases where documents cannot be converted to an electronic format, or it is not economically feasible to do so (e.g. if they are too large to fit onto a CD-ROM), the original hard copies should be secured in locked cabinets or vaults. When these documents reach their retention expiration dates, they should be destroyed. Section 802 of SOX. also stipulates that any employee who is aware that the company is under investigation or suspects that it might be must immediately cease all document destruction and alteration activities.
4. Build a Comprehensive Data Retention Policy:  To ensure compliance with SOX data retention requirements. companies should implement a comprehensive data retention policy. This policy should outline the specific retention periods for different types of documents and specify how documents should be stored and protected. It should also include procedures for regularly reviewing and updating the policy to ensure that it remains current and compliant with SOX requirements. By implementing a robust data retention policy, companies can better manage their data and avoid potential compliance issues. 

Partner with iTech to Avoid Breakdown of SOX Compliance Requirements   

While SOX compliance requirements present their fair share of challenges, following SOX compliance best practices offers a unique opportunity for organizations to strengthen their governance structures, foster a culture of integrity, and build trust with investors and stakeholders. 

Finding the right SOX regulatory compliance software system can be a challenge, especially since every organization has its own unique needs. But this is where iTech can help, as our talented team of developers specializes in implementing IBM OpenPages, an innovative and user-friendly risk management software solution. The team here at iTech works with each client to achieve a full understanding of their regulatory compliance needs and other risk management challenges. Then, we implement a solution that resolves those pain points while simultaneously simplifying the activities that are necessary to avoid the complete breakdown of SOX compliance requirements. We invite you to contact iTech today to discuss your company’s SOX compliance and risk management challenges.