Wednesday, April 28, 2010

How mature is your Enterprise Risk Management (ERM) Practice?

I wanted to share what I found to be surprising statistics from their recently published 2010 Report on the Current State of Enterprise Risk Oversight: 2nd Edition" published in February.

• 48.7% of respondents describe the sophistication of their risk oversight processes as immature to minimally mature. Forty-seven percent do not have their business functions establishing or updating assessments of risk exposures on any formal basis. Almost 70% noted that management does not report the entity’s top risk exposures to the board of directors.
  
  
• Almost 57% of our respondents have no formal enterprise-wide approach to risk oversight

More statistics and a call for input on how you are managing your ERM practices - How mature is your Enterprise Risk Management (ERM) Practice?

Labels: Enterprise Risk Management Initiative, NCSU, survey results

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Tuesday, April 27, 2010

SEC Approves Enhanced Disclosure About Risk, Compensation and Corporate Governance

(12/16/2009)
The Securities and Exchange Commission today approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.

In particular, the new rules require disclosures in proxy and information statements about:

• The relationship of a company's compensation policies and practices to risk management.
• The background and qualifications of directors and nominees.
• Legal actions involving a company's executive officers, directors and nominees.
• The consideration of diversity in the process by which candidates for director are considered for nomination.
• Board leadership structure and the board's role in risk oversight.
• Stock and option awards to company executives and directors.
• Potential conflicts of interests of compensation consultants.

The new rules, which will be effective Feb. 28, 2010, also require quicker reporting of shareholder voting results.

SEC Approves Enhanced Disclosure About Risk, Compensation and Corporate Governance

Labels: board of directors, Executive Compensation, governance, risk management, SEC (Securities and Exchange Commission)

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Tuesday, April 20, 2010

Control Rationalization - 8 Best Practices

The health of your business requires consideration that a continual over assessment of risks and controls encumbers your resources and leads to unnecessary testing. External auditors need a business case to justify reducing SOX compliance requirements. As the business owner closest to the daily processes of your organization, you are in the best position to build this business case.

"Control Rationalization – The 8 Best Practices" from Claret Partners

Labels: automation, best practices, rationalization, reduce key controls

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Tuesday, April 13, 2010

SOX Life: Revisiting your Control Environment

I have had too many conversations about "just one more layer for good measure" when it comes to controls in the enterprise.

Never enough time" and "too many competing demands" seems to be the recurring theme, as folks complain about staffing being reduced 10% since 2007, and cashflow being as tight as most of us have ever witnessed.

These complaints seem to come on the heels of

• "This is a great idea, but we've already got 37 strategic initiatives underway, and I don't know if we can manage since we are running 4 FTEs under budget and have two new temps joining our staff this week."
• "We don't know if management is getting the information they need - we're too busy trying to keep up with the recording of our transactions."
• "Send me an invoice [for consulting services], and we'll see how the Procurement process plays out."
• "I've got so many mandatory tasks to perform, I/we never get to the valuable work of analysis and investigation that could really move our company forward."

Have you re-evaluatead your control environment lately?

Labels: enterprise control practices, enterprise risk management, levers, rationalization, risk assessment

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Monday, April 12, 2010

Amended Custody Rules and SAS 70s

On December 30, 2009, the Securities and Exchange Commission (SEC) finalized the
amendments to the custody requirements of Rule 206(4)-2 (the "Rule"), under the
Investment Advisers Act of 1940. What do you need to do to prepare and comply
now that the Rule has gone into effect as of March 12, 2010?

See Deloitte's "March 12th Effective Date for Amended Custody Rule" for the three most common concerns facing organizations subject to the Rule.

Labels: Deloitte, IAA, private equity, SAS 70, SEC (Securities and Exchange Commission)

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Tuesday, December 16, 2008

What Does Madoff's Auditor Say? No Answer

The tiny auditor of Bernard Madoff's Wall Street firm, at the center of an alleged $50-billion Ponzi scheme, is being investigated by the district attorney in a New York City suburb.

Friehling & Horowitz had signed off on the annual financial statement for Bernard L. Madoff Investment Securities LLC, according to Bloomberg News.

CFO.com's calls to the auditing firm's headquarters in New City, N.Y., were not answered yesterday.

"We're trying to determine if there have been any state crimes here," Rockland County District Attorney Thomas Zugibe told Bloomberg in a telephone interview. "When you have a key player like that operating in your county, you have to look."

What Does Madoff's Auditor Say? No Answer

Labels: audit, bankruptcy, Madoff

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Sunday, September 28, 2008

Proposed "Emergency Economic Stabilization Act of 2008"

Noteworthy language in the relief regarding market transparency, oversight and audit, and mark-to-market (MTM) FAS157 treatment:


Section 114. Market Transparency.
48-hour Reporting Requirement: The Secretary is required, within 2 business days of exercising authority under this Act, to publicly disclose the details of any transaction.

Section 116. Oversight and Audits.
Requires the Comptroller General of the United States to conduct ongoing oversight of the activities and performance of TARP, and to report every 60 days to Congress. The Comptroller General is required to conduct an annual audit of TARP. In addition, TARP is required to establish and maintain an effective system of internal controls.

Section 132. Authority to Suspend Mark-to-Market Accounting. Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.

Section 133. Study on Mark-to-Market Accounting.
Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.


Section 302. Special Rules for Tax Treatment of Executive Compensation of Employers Participating in the Troubled Assets Relief Program.
Applies limits on executive compensation and golden parachutes for certain executives of employers who participate in the auction program.

Read the 110 page proposal in its entirety.

Labels: Comptroller General, FAS157, mark-to-market, TARP

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Saturday, August 09, 2008

Gartner Magic Quadrant - GRC

Free report from Gartner on leading GRC applications, courtesy of MetricStream.

Labels: Gartner, grc, MetricStream

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Thursday, May 29, 2008

Survey: Enterprise risk management still a blind spot for insurance CFOs

The drumbeat for the use of enterprise risk management processes at major companies is getting louder thanks to the credit crisis.

Federal Reserve Chairman Ben Bernanke said yesterdayThursday that the credit crisis has exposed weaknesses in many financial firms’ risk-management practices. “For risks to be successfully managed, they must first be identified and measured,” Mr. Bernanke noted in a speech. “Recent events have revealed significant deficiencies in these areas.”

Apparently, those deficiencies exist at businesses which specialize in identifying and measuring risks. A new survey conducted by consulting firm Towers Perrin found CFOs at insurers are still woefully behind in weighing enterprise risk when making business decisions.

“Although many life companies have made progress in such areas as risk identification, prioritization and measurement, few are achieving the desired full potential of enterprise risk management (ERM) as a management tool,” concluded Towers Perrin, which surveyed CFOs at 38 large and midsize North American life insurance companies.

For example, 83% of those CFOs said their company lacked the tools necessary to measure value creation from ERM. More than 70% said they had not yet aligned ERM with performance incentives.

Survey: Enterprise risk management still a blind spot for insurance CFOs

Labels: ERM, life insurance companies, measuring risk, Towers Perrin survey

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Large-caps set high corporate governance standards, but independence still an issue for some

For those that have felt the corporate governance requirements under SOX were unreasonable, consider these findings in Austrailia regarding corporate governance practices. The themes sound all too familiar.

Australia’s largest publicly listed companies generally meet all aspects of best practice guidelines for corporate governance; however full independence still remains a key issue for some major companies.

The 2008 BDO Kendalls Large-Cap Corporate Governance Survey, released today, shows that while independence at the board level is not an issue for most (70%) of Australia’s top 20 listed companies, a number of large companies do not meet best practice guidelines in relation to their audit, remuneration or nomination committees.

The survey methodology used has been developed by BDO Kendalls over a number of years and in some cases sets a higher standard than the ASX best practice principles for corporate governance.

Areas highlighted included some companies having audit, remuneration or nomination committees that were either not made up of all independent directors or the chair was not independent. The survey findings are based on the 2007 annual report disclosures of the 20 largest Australian listed companies by market capitalisation as at 13 March, 2008.

Large-caps set high corporate governance standards, but independence still an issue for some

Labels: Austrailia, BDO Kendalls Large-Cap Corporate Governance Survey, corporate governance

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Lawsuits may expand Sarbanes-Oxley

Two lawsuits filed by former employees against Fidelity Investments may resolve a simmering dispute in the securities industry: Whether mutual fund employees are protected by a whistle-blower law adopted in the wake of corporate accounting scandals.

The Sarbanes-Oxley Act does not specifically apply to the Fidelity Investments chairman's firm and other privately held companies.

Congress gave whistle-blowers at public companies strong protections against retaliations when it passed the Sarbanes-Oxley Act in 2002 after the collapse of Enron Corp. and WorldCom. But the law does not specifically extend to privately held firms such as Fidelity that invest in public companies.

Lawsuits may expand Sarbanes-Oxley

Labels: employee lawsuit, Fidelity Investments, whistleblower

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Harsh internal IMF audit calls for 'major changes'

Internal auditors at the International Monetary Fund released a harshly critical report on governance Wednesday and urged "major changes" to maintain the embattled institution's relevance.

The Independent Evaluation Office of the IMF said that effectiveness had been the strongest aspect of the 185-nation institution's governance, "while accountability and voice have been the weakest."

"If left unaddressed, these weaknesses would likely undermine effectiveness over time," IEO director Thomas Bernes said in a statement.

Harsh internal IMF audit calls for 'major changes'

Labels: governance, IMF, internal audit

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Friday, April 25, 2008

Board Adopts New Ethics and Independence Rule Concerning Communications with Audit Committees and an Amendment to its Existing Tax Services Rule

The Board adopted Rule 3526 to enhance communication between audit committees and registered firms regarding the firm's independence. Rule 3526 will require a registered public accounting firm, before accepting an initial engagement pursuant to the standards of the PCAOB, to describe in writing to the audit committee all relationships between the firm or any of its affiliates and the issuer or persons in a financial reporting oversight role at the issuer that may reasonably be thought to bear on the firm's independence. Registered firms will also be required to discuss with the audit committee the potential effects of any such relationships on the firm’s independence. Rule 3526 will require firms to make a similar communication annually for continuing engagements. If approved by the Securities and Exchange Commission (SEC), Rule 3526 will supersede the Board's interim independence requirement, Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and two related interpretations.

Board Adopts New Ethics and Independence Rule Concerning Communications with Audit Committees and an Amendment to its Existing Tax Services Rule

Labels: audit committee, code of ethics, pcaob, tsx services rule

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Crunching the Words

When auditors seek evidence of fraud, they take a careful look at a company's financial statements. Maybe they should examine other statements, such as those uttered by company executives.

That's the theory behind new fraud-detection software developed by two professors at Virginia Tech, who say that the story a company crafts around its numbers often says much about whether those number are solid.

"We want to add another tool to the auditor's toolbox," says Greg Jenkins, associate professor at Virginia Tech and the program's co-developer. The idea is "to look at all the communications a company makes public [including MD&A disclosures, public statements, and a range of SEC filings] and see if there are patterns that are inconsistent with the company's performance, or with the performance of other companies in the industry," he says.

Crunching the Words

Labels: audit, fraud, MD and A disclosure

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Tuesday, April 22, 2008

SOX Life Blog: Knowledge Management and Corporate Governance

Knowledge Management (KM) is more than a buzz phrase running through organizations, so if you were hoping this discussion was going to abruptly end, think again.

With so many organizations facing labor shortages as the baby boomers look toward retirement, it becomes not only a staffing but a very practical governance conversation about addressing this talent gap. What would happen if all your senior talent left tomorrow?

I recently received an email from a researcher in Austrailia interested in organizational maturity of KM practices, and how this is viewed in association with corporate governance. I would invite you to participate as well (and ask consultants to consider a key client as well for whom this would be relevant).

Dear Colleagues,

I am Suzanne Zyngier, a Research Fellow at La Trobe University, Australia is conducting questionnaire research into knowledge management (KM) strategies and governance. This questionnaire is unique in investigating the governance of knowledge management which is defined as the implementation of authority to ensure the realization of benefits of KM strategy development and implementation.

This new research will overview conditions globally.This new research is important because it will enhance our understanding of the issues encountered in governance, development and implementation of KM programs. Practitioners and theoreticians need and want to find better solutions to these issues.This questionnaire comprises 20 questions about KM - some text based and some multiple choice, and a section on background information. The questionnaire takes approximately 15 minutes to complete.

SOX Life Blog: Knowledge Management and Corporate Governance

Labels: baby boomer, change management, corporate governance, knowledge management

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Thursday, April 17, 2008

SOX Life Blog: Reader Question - Understanding & Evaluating Segregation of Duties

I appreciate when readers share their challenges in applying issues and concepts, as invariably there are an additional dozen people also struggling with this same topic.

One professional writes:

I am new at this and need to understand about SOX and SOD, do you have any other resources? I am looking for Purchases Orders to Negotiations for credit terms, to who enters the new vendor and who signs and who does Accounts Payable all the way through to Fixed Assets? Can you help or recommend a book on SOD or an inexpensive software solution?

This reader had already come across a few past entries (Explaining Segregation of Duties, SOD Part II), and was still struggling with putting the concept into application. An additional entry that is less apparent was on the access management challenges that organizations face when cleaning up business practices - a highly correlated discussion.

My best recommendation for a quick overview and orientation to control practices...

SOX Life Blog: Reader Question - Understanding & Evaluating Segregation of Duties

Labels: access management, coso, fraud, segregation of duties, seperation of duties

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PCAOB Considers Adopting New Ethics and Independence Rule Concerning Communications with Audit Committees and Amending its Existing Tax Services Rule

The Public Company Accounting Oversight Board has scheduled an open meeting for Tuesday, April 22, at 9:30 a.m. in the Board's open meeting room at 1666 K St. NW, Washington, DC.

The Board will consider adopting Rule 3526, Communication with Audit Committees Concerning Independence, which would supersede the Board's interim independence requirement, Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. The rule would require a registered public accounting firm to communicate to an issuer's audit committee about any relationships between the firm or any of its affiliates and the issuer or persons in financial reporting oversight roles at the issuer that may reasonably be thought to bear on the firm's independence. The communication would be required both before the firm accepts a new engagement pursuant to the standards of the PCAOB and annually for continuing engagements.

Board to Consider Adopting New Ethics and Independence Rule Concerning Communications with Audit Committees and Amending its Existing Tax Services Rule

Labels: independence, pcaob, rule 3526, tax services

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Wednesday, April 16, 2008

Segregation of Duties Whitepaper: Minimizing the Cost and Complexity of Sarbanes-Oxley Compliance

Another resource available for those seeking to better understand and manage their SOD risks and issues.

Corporate and IT executives continue to feel the pressures of assuring
federal regulators, auditors, boards of directors, and stockholders that
corporate financial statements are accurate and precise. Additionally, they
must ensure that the personnel responsible for working with financial
information don't have inherent conflicts of interest. A critical element of
Sarbanes-Oxley compliance, known as avoiding Segregation of Duties conflicts
(SOD conflicts), will continue being a top concern. Furthermore, manual
management of SOD conflicts creates too high a risk – especially for global
businesses where hundreds of individuals are managing literally tens of
thousands of financial functions.

Labels: segregation of duties

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Changing Ethics Compliance Rules And Their Potential Impact On Government Contractors And Investors

Recently, the US Government implemented a new rule and proposed yet more rules regarding ethics and corporate compliance programs for government contractors. This marks a continuing shift towards adopting a more aggressive approach in addressing government contractor fraud, which is similar to the protocols applied to other sectors of US industry.

The enacted rule addresses requirements for contractor codes of business ethics and conduct ("CBE"), awareness programs and internal control systems. The newly proposed rules go much further, heightening the need for contractors to strengthen their ethics and compliance programs and for investors to focus on these issues during due diligence.

Changing Ethics Compliance Rules And Their Potential Impact On Government Contractors And Investors

Labels: CBE, ethics, fraud

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Cox Seeks $1B Boost from Congress

Securities and Exchange Commission chairman Christopher Cox asked Congress to approve his nearly $1 billion budget request for fiscal year 2009.

If lawmakers agree the SEC needs its first budget increase in three years, the commission will have realized a roughly 4 percent increase and be able to keep its staff levels the same as fiscal year 2007, Cox testified during an appropriations hearing before a House subcommittee on Wednesday. The SEC currently employs about 3,470 full-timers.

Cox Seeks $1B Boost from Congress

Labels: Christopher Cox, sec

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