April 9, 2005
Regarding: File Number 4-497 invitation to representatives of public companies, auditors, investors, members of the legal community and others to participate in the Wednesday, April 13, 2005 Roundtable on Implementation of Internal Control Reporting Provisions about their experience with the internal control provisions.
My experience as a Consultant engaged in assisting clients attempt to prepare for Sarbanes-Oxley Section 404 compliance is the utter confusion, frustration and at times hysteria by the managment team of public companies, by their external independent and internal auditors, by managers of my own employers attempting to ease those fears, and lack of knowledge or complete misunderstanding by members of the American public at large, especially those with non-financial backgrounds. In addition, it seems the way these S-Ox 404 compliance efforts are carried out will not leave the investment community better off in the end. So much of our focus is limited to the accuracy and completeness of transactions and account balances, due to managements perception, or what they would have us believe as consultants engaged on their behalf of evaluating risks in their organization, that risks lie primarily with the accuracy and completeness of financial data and the clerical staff who are initiating those transactions, rather than the environment management is creating, both in its own corporation as well as its tight-knit relationship with its external audit community, which is the root cause of the debacles of public companies gone wrong in the first place.
While this Act has made my professional experience a hot commodity in a Bush-induced low employment, high cost-of-living American society; in the end, the investment community will be no better off than before the Act and executives who intend no good to their shareholders, employees and colleagues have no obligation to change their behaviour, tactics or motivations. In short, the Tone at the Top is as poor, if not worse, than before Mr.s Sarbanes and Oxley created the Auditor Reemployment Act of 2002.
It is my belief that to do any good to the investment community, the Act should have focused as much on getting back to the basics of internal controls we Accounting majors spend countless boring hours studying during our University/College Audit course, as on scrutinizing Executive Management and the underlying motivations for their decision-making. However, when we uncover deficiencies/gaps in internal control which could lead to irregularities, it remains easy for companies to terminate the clerical or lower to middle management staff who did what they were co-erced to do to meet KPIs and other internal goals/objectives rather than the CEO who is responsible for the top-down coercive tactics in the first place. And we have not even addressed the issue of run-away executive compensation which is not supported by their actual results.