The following article appeared in the January/February 2003 issue (Volume 26, Number 1) of The Ohio Community Banker.
Rodger Marting, Esq. - Securities Attorney
The Sarbanes-Oxley Act of 2002, like most legislation, is reactionary, not pro-active. In response to the corporate frauds and auditing failures of 2000-2002, the act attempts to plug some holes. The act focuses heavily upon auditing, officer and director responsibilities and securities analysts.
Who Is Affected
1. Auditing firms and their employees
2. Reporting companies - anyone who must file quarterly (10-Qs) and annual reports (10-Ks) with the SEC and their officers and directors.
The Act at section 3(b)(4) provides enforcement by Federal Banking Agencies.
1. Auditor Independence
Registration and supervision of public auditors by the new Public Accounting Oversight Board, which is itself regulated by the SEC. There are many independence requirements. The new Board now requires an inspection of public accounting firms. Disciplinary provisions are provided.
2. Corporate Responsibility
Greatly increased responsibilities are placed on officers and directors, especially the audit committee, of public companies. Certification of the financial reports and internal controls by principal executive officers is required.
3. Attorney Conduct
The SEC is enacting requirements for attorney "whistle blowing" to internal public company officers and directors.
4. Enhanced Financial Disclosures
A wide variety of enhanced financial disclosures are now required, with a special emphasis on "off-balance sheet" matters, special purpose entities, and pro forma matters.
5. Enhanced Conflict Of Interest Provisions
Curtailment of "sweetheart" deals for officers and directors.
6. Securities Analysts And Research Reports
New rules to address conflicts of interest by securities analysts.
7. Increased Penalties
The fines, penalties, and statutes of limitations have been increased and there are specific provisions for destruction of records.
8. Retaliation On Informants
There are new and specific provisions for retaliation upon informants - fines and up to 10 years imprisonment.
Protection - Deadline April 26, 2003
Section 301 of the Sarbanes-Oxley Act specifies that by April 26, 2003 all public companies listed on National Securities Exchanges or Associations must have a complaint reporting mechanism in place that allows employees to report questionable accounting practices, financial misconduct, or suspected illegal activities, anonymously and confidentially, directly to the company's audit committee or other company management who has the authority to investigate or discover misconduct or terminate other employees for misconduct.
Doing everything possible to identify suspected fraud, accounting abuses or other illegal acts, might prevent problems from escalating into legal action or at least minimize the damage. This is not just good business, now it is the law!
Any company, public or private, works in a complex legal environment with potential accounting abuses, financial misconduct, FMLA, ADA, discrimination, and sexual harassment issues looming at every turn. With recent events, fiduciary responsibility has taken on a whole new meaning, with the risk of criminal penalties as well as civil penalties.
It is becoming more and more critical to be able to identify problems before they escalate. Establishing a direct line to the top, with guaranteed anonymity, should provide management candid, timely information about these issues.
NewFound Technologies, a Columbus-based company, has been providing leading-edge technology solutions and services to businesses since 1996. They have developed a Sarbanes-Oxley Solution Line (S.O.S. Line), an innovative technology-based service, to address companies' needs for comfortable, candid lines of communication, so callers can provide straightforward information to corporate management, without fear of reprisal or political repercussions.
S.O.S. Line is an automated, completely anonymous and confidential, two-way Communications Line, hosted on NFTI's Voice Response Systems, with a Toll Free number. It enables management to receive and respond to people's unfiltered concerns, suggestions, and comments. It is easy and convenient. People can call the toll free number anytime 24x7 from any touch-tone telephone. The system will assign callers a Voice Mailbox number with a secure PIN, and will ask them to call and check their mailbox in 3 business days for follow-up questions or a response. They are the only ones who can access the information in their secure mailbox. An outsourced, automated solution provides people the secure feeling that their message will be completely anonymous, and will receive the proper review.
In addition to Sarbanes-Oxley compliance and the ability to identify problems before they escalate, S.O.S. Line provides a fast start rollout and a structured implementation process at a low cost, without capital investment in systems or software. Verbatim documentation of the issues is delivered promptly to the company's designated coordinator, and automated follow-up and response capability is built into the service, while still maintaining the employee's anonymity.