The Cost of SOX Compliance Software vs Non-Compliance Penalties
The 2002 Sarbanes-Oxley Act or SOX has a significant impact on companies in a number of different industries, with compliance-conscious business leaders considering SOX as they formulate their risk management strategies.
SOX compliance is one of the few regulatory requirements with penalties that extend beyond monetary fines to include imprisonment. With so much at stake, it’s easy to see why such a large number of companies find themselves considering the implementation of SOX compliance software. But what does SOX software do? And how do the costs compare to the monetary SOX non-compliance penalties?
What is SOX Compliance and Why is It Important?
To fully appreciate the importance of SOX compliance, you must have a good understanding of this regulatory requirement and the potential impacts on a business.
SOX compliance requires publicly-held companies to perform a yearly audit that includes evidence of the organization’s financial reporting. The audits are designed to prove accuracy and good governance practices, while simultaneously creating a sense of accountability. This accountability simply didn’t exist when SOX was introduced in 2002 on the heels of numerous scandals in the financial sector.
SOX compliance impacts several regions of a company, from the accounting and finance departments to the IT professionals who are tasked with establishing auditable, secure, and SOX-friendly data management capabilities. SOX also calls for the creation of policies and protocols that ensure a high level of security for data access and data handling. All of this must be done in a transparent manner too.
To be compliant with SOX regulations, a company must implement policies that align with the SOX data security requirements. The business must limit the number of individuals who can access and modify finance-related data or any other data that is considered sensitive in nature.
While most regulatory compliance issues involve remediation orders or monetary fines and penalties, SOX involves legal compliance and the penalties can extend beyond financial to include jail time in serious cases.
SOX regulations are intended to create a greater sense of visibility and accountability in the business world. The annual audits and requirements for a high level of security in a company’s IT infrastructure and its policies and protocols serve to guard against data compromise, such as data loss, data theft, and even cyberattacks.
What is SOX Compliance Software?
SOX compliance software is available as a stand-alone platform or it may be packaged with a larger enterprise risk management software solution. Each SOX software platform is different, but most include tools that are designed to simplify and streamline the auditing and reporting process.
A number of SOX compliance software platforms also feature useful integrations with third-party systems such as ERP platforms, financial software, and other enterprise software interfaces. This allows for the creation of a dashboard that provides an overarching sense of visibility — visibility that can be useful for identifying issues that may result in SOX non-compliance.
The monitoring and alert features that are found in a SOX compliance software system can negate the need for multiple dashboards. That’s good news for IT admins since everything is centralized, including network performance metrics, firewall status, and system security status.
The cost of the actual SOX compliance software system varies depending upon the platform that you choose. Some may opt for a software license that is purchased outright for a higher price, while others may choose a software-as-a-service (SaaS) solution that is billed monthly.
Implementing a SOX compliance software solution also carries a price tag. The exact sum will vary according to the configuration and complexity of a company’s software systems. The number of integrations will also impact implementation cost and timeframe. This begs the question: how does the cost of SOX compliance software compare to non-compliance penalties and fines?
SOX Non-compliance Fines and Penalties
SOX non-compliance fines can be significant and quite literally life-changing since the penalties can include jail time. The Sarbanes-Oxley Act made it a crime for business leaders to knowingly defraud the public with inaccurate and non-compliant financial reports. The penalty for this crime can include up to ten years in jail and a fine of up to $1 million dollars. The potential jail term doubles to 20 years if the company executive intentionally destroys financial records.
In addition to financial fines and penalties such as jail time, there is also the company’s public image to consider. A scandal involving financials and SOX non-compliance can result in lots of bad press and that can have a tremendously negative impact on public perception. Negative news stories and social media chatter abound, and the damage from SOX non-compliance is often irreparable. Even the best and most experienced public relations team may be unable to reverse the damage. For this reason, it’s fair to regard reputation damage as an indirect cost associated with SOX non-compliance.
The Cost of SOX Compliance Software vs Non-Compliance Penalties
At the end of the day, SOX compliance is a situation where an ounce of prevention is worth a pound of cure. The cost of acquiring, implementing, and maintaining SOX compliance software is unlikely to exceed the cost of SOX non-compliance penalties, fines, and other associated losses. This is especially true if you factor in the indirect losses associated with damage to a company’s reputation or brand image.
SOX compliance is a key component of today’s corporate risk management strategy. Companies must architect an IT and data management system that accommodates and simplifies the SOX auditing and reporting process. This system must also allow for SOX-friendly data access controls and tools that facilitate precise management of all security measures that are in place. SOX consultants can only go so far; you need a partner who can address the technology aspects of SOX compliance. This is especially true for companies with custom enterprise software or a unique data storage configuration. This is where the iTech team can assist.
At iTech, we’re experts in risk management software, ranging from GRC software to SOX compliance software solutions and beyond. Reach out to iTech today to discuss your SOX and regulatory compliance needs and we’ll develop an innovative solution that will help you avoid SOX non-compliance fines and penalties.