How SOX keeps you safe


The Sarbanes-Oxley Act.  The very name sends shivers of fear down the backs of corporate officers—well maybe not, but this pivotal piece of legislation did have a huge impact on corporations, accountants, and financial documents of all kinds.  Sarbanes-Oxley, or SOX for short, took effect in 2002.  It is named after Republican Congressman Michael Oxley and Democratic Senator Paul Sarbanes, though the official title is The Public Company Accounting Reform and Investor Protection Act. Basically, as the very lengthy name implies, SOX was passed in order to protect investors from corporate accounting fraud.  Representative Oxley and Senator Sarbanes wrote the bill in response to a nationally infamous fraud fiasco.  In 2001, Enron filed for bankruptcy.  Through the course of the proceedings, it was discovered that Enron’s accounting department had committed serious accounting fraud by “cooking” their books.  The firm was convicted of obstruction of justice, and the resulting fallout included millions of dollars in stock losses as well as an overall loss of confidence in the market in general.

SOX was pushed into legislation due to public outcry over the Enron incident.  With the backing of Sarbanes and Oxley, as well as the blessings of then President George W. Bush, SOX quickly passed in both the Senate and the House by overwhelming majorities. In effect, SOX made tampering with financial records a criminal offense and increased penalties for white collar criminals.  The act made corporate executives such as the CEO and the CFO personally responsible for the veracity of their company’s financial records as well as the implementation of internal controls.  Now, if discrepancies are found in the financial statements of a publically traded company, the senior management could face stiff monetary penalties or even jail time.

By making the execution of internal controls the duty of a company’s highest leadership team, SOX highlighted the importance of protective measures.  Internal controls are preemptive procedures set in place by a company’s senior management team to discourage employee fraud.  They can include internal audits, employee screening, and mandatory vacations.  For a more complete discussion on internal controls see our previous blog on the subject of employee fraud.  In addition to overseeing internal audits, SOX also increased its oversight of external auditors.  It established an accounting oversight board to monitor corporate accounting. Auditing firms now must rotate their auditors so that they do not become complacent, auditing the same company year after year.  SOX made sure that anyone who negligently handles financial reports must be made responsible.

As I think this article has made clear, securing financial records is very, very important. Any number of disasters could strike your documents at any time.  Whether it is your balance sheet or your cash receipts, financial documents are susceptible to flooding, fire, theft, mismanagement, fraud, and a whole host of other worst case scenarios.  As real as those dangers are, you don’t need to lose sleep over document security—if you’ve contacted Tarheel Imaging and Microfilming that is.  We have the ability to shred compromising papers, scan deteriorating documents and safeguard susceptible financials.  If you have not contracted with Tarheel Imaging yet, we urge you to do so before it is too late.  Once a document is destroyed, it cannot be brought back.  If the company is sued, proving the financial documents have not been tampered with might be difficult if all the official paper copies are gone.