CEOs and CFOs today face accountability for their business actions. In the US, since the introduction of the Sarbanes-Oxley Act of 2002, mistakes or fraud leading to large shareholder losses can result in $5 million in fines, or 20 years in prison. While the Act is not applicable to all South African companies, those wanting to trade globally or attract foreign investment best take heed of its regulations.
"If SA companies want to deal internationally, foreign companies will demand best practice, as well as all the protection required by the Sarbanes-Oxley Act, on a business-to-business level," says Andr'e Zitzke, Solutions Specialist of SAS, leaders in business intelligence.
The Act places accountability for internal financial controls squarely on the shoulders of senior company management and boards of directors. It requires CEOs and CFOs of all publicly traded companies, with revenue of at least $75 million, listed on the New York Stock Exchange, AMEX or Nasdaq, to certify the accuracy of corporate financial reports. It also requires external auditors to verify executive management's assertions about the effectiveness of internal control systems for tracking and auditing financial processes and reporting.
"SA companies are now starting to employ global best practices," says Zitzke. "In the past, company boards here were responsible, but accountability was vague. With King II and other recent legislation, this is changing. Any reputable SA company, although not listed in the US, should consider complying with the requirements of the Sarbanes-Oxley Act as best practice."
If a local business cannot prove adherence to international best practice - in this age of protection of the shareholder - international companies are unlikely to do business with it, for fear of becoming involved with a disreputable company. If an American bank trades with any company that is linked to money laundering, for example, it can lose its banking licence.
"For that reason, many international companies are now complying with American Anti-Money Laundering (AML) requirements and Sarbanes-Oxley Act practices, so that they do not lose their American trading partners," says Zitzke.
Zitzke's advice to SA companies wanting to introduce best practices or compliance reporting?
"Do not choose 'throw-away' technology solutions that specifically address just one niche area, such as money laundering," he says. "Compliance requires a large financial injection, and once this investment has been made, the solution should be such that it can be enhanced to enable the company to move forward.
"Companies should choose a business intelligence solution from a reputable, financially stable company; one that can take the organisation beyond mere compliance," he advises.
Once companies have bedded their compliance solutions down, they should then be able to move their focus from the past and the present to the future.
"They can start to analyse data to get an indication of what will happen, to reach a point of real predictive analysis," says Zitzke. "This forward-looking intelligence, as opposed to the rear-view approach, is the way of the future."
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