Protecting the investing public isn’t solely about financial statements, but providing credible information on how organizations reach their results. Organizations must hire approved auditors to evaluate its internal control structures and procedures, and to ensure its financial records are accurate. The auditors also verify that senior management authorizes receipts, expenditures, and transactions. If an organization does not have proper internal controls in place, the auditor is required to report non-compliance to the U. S. Securities and Exchange Commission (SEC).

The single biggest complaint of The Sarbanes-Oxley (SOX) Act of 2002 is that the cost of compliance is significant. There have been a number of studies on the impact of SOX and its associated costs. Even some smaller organizations estimate spending several hundred thousand dollars each year on SOX compliance, and larger companies like General Electric spend as much as $30 million annually.

Chicago-based law firm, Foley & Lardner L.L.P., released its study, “The Impact of Sarbanes-Oxley on Private & Nonprofit Companies,” and revealed that the cost of SOX compliance for small and large public companies is on the rise, and as a result, one in four of the responding companies consider going private to relieve the rising costs. 

Why Sarbanes-Oxley?

As we learned with the fall of companies like Enron, Global Crossing, Ltd., WorldCom, and Tyco International, millions were impacted by deceit and scandals; retirement funds were depleted, and some lost their life savings. This betrayal of public trust made it possible for the quick and almost-unanimous passing of SOX.

SOX requires publicly traded companies to conduct business using repeatable and auditable processes, which ensure ethical and legal standards are met. The complexity of SOX compliance requires more resources for accurate reporting and auditing of all aspects of business operations. Workforce management solutions help organizations manage compliance with SOX and reduce the associated costs. 

Many employers incorrectly assume that they are in compliance simply because they have a time and attendance software system, but SOX compliance requires that the time and attendance system enforces business procedures and has a built-in audit trail that tracks problems and alerts management about those problems.

It’s Not Worth the Risks

Because labor costs are usually one of the largest expense items for a company, processes that impact those costs need to be tightly managed and documented in order to minimize risk of non-compliance. For example, organizations that do not manage the Fair Labor Standards Act correctly are at risk of a class action lawsuit, which could lower shareholder value. Workforce management systems ensure that employees are paid accurately and consistently all the time, and provide the audited proof of those payments.

Companies must disclose, or provide access to, all information about the company and business practices, so stockholders are aware of information that may influence stock value. A comprehensive workforce management system monitors and controls compliance for every transaction between the employee and the employer to ensure your organization complies with the requirements. Examples of workforce management automation include:

• Automatic calculation of payroll costs prevents mistakes and tampering of information
• Approval routing ensures payroll costs are authorized appropriately
• Amended timesheets are attached to historical transactions so all changes are documented
• Audit trails provide a three-year history or longer
• Required user name and password to enter the system to prevent fraud

While workforce management systems ensure SOX compliance by automating the enforcement of business rules and provide documented audit trails of internal controls that affect the labor costs, they also save a significant portion of payroll expense (1-3%) by eliminating errors and decreasing processing time. In fact, analyst firm Nucleus Research has found that SOX compliant systems, like WorkForce Software’s EmpCenter, save enough money to cover the system’s cost in just a few months. For more information, visit www.WorkForceSoftware.com.