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A Sarbanes-Oxley Primer. Breakout Session # 909 Patricia Bahr, CPCM, CFCM, Director Contracts, Pricing & Procurement, Intergraph Corporation Wednesday, April 12, 2006 1:20 – 2:20 pm. Key Points for SOX. Section 404 Internal Controls Separation of duties Checks & balances

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A Sarbanes-Oxley Primer

Breakout Session # 909

Patricia Bahr, CPCM, CFCM, Director Contracts, Pricing & Procurement, Intergraph Corporation

Wednesday, April 12, 2006

1:20 – 2:20 pm

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

key points for sox
Key Points for SOX
  • Section 404
    • Internal Controls
    • Separation of duties
    • Checks & balances
    • Documentation
  • Internal controls & contracts management
    • Opportunity for procedures and processes to manage risk for it’s origin - operations

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

sarbanes oxley sox outline
Sarbanes-Oxley (SOX) Outline
  • General information about Act
  • Why it’s “a big deal”
  • Impact to Contract Professionals
    • Financial controls are only half the challenge
    • Stronger operational controls
    • Contracts relate directly to revenue recognition

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

what is sarbanes oxley
What is Sarbanes-Oxley?
  • An Act
    • Passed by the 107th Congress
    • On January 23, 2002
    • To protect Investors
    • Named “Sarbanes-Oxley Act of 2002”
      • Approximately 66 pages to read the entire act
    • Eleven Titles or Provisions
    • Signed into law on July 30, 2002

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

who are sarbanes oxley
Senator Paul Sarbanes (D-MD)

Ranking Member of the Banking, Housing & Urban Affairs Committee

Will not seek re-election in 2006

Rep Michael Oxley (R-OH)

Chairman of the U.S. House of Representatives Committee on Financial Services

Will retire at the end of his term (2007)

Who are Sarbanes & Oxley?

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

why sarbanes oxley
Why Sarbanes-Oxley?
  • “To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to securities laws, and for other purposes.”
  • In response to financial scandals
    • Enron, WorldCom, Tyco
    • Arthur Andersen

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

what did sox do
What did SOX do?
  • Established Public Company Accounting Oversight Board (PCAOB)
  • Auditor Independence
  • Corporate Responsibility
  • Enhanced Financial Disclosures
  • Analyst Conflicts of Interests
  • Commission Resources and Authority

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

what else did sox do
What else did Sox do?
  • Studies and Reports
  • Corporate and Criminal Fraud Accountability
  • White Collar Crime Penalty Enhancements
  • Corporate Tax Returns
  • Corporate Fraud Accountability

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

what s the big deal
What’s the big deal?

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

impact to contracts
Impact to Contracts
  • Section 401(j): Off-Balance Sheet Transactions
  • Section 404: Management Assessment of Internal controls

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

401a off balance sheet obligations
Disclose all material off-balance sheet transactions, (including contingent obligations)… that may have a material current or future effect on :

Financial condition

Changes in financial condition

Results of operations

Liquidity

Capital expenditures

Capital resources

Significant components of revenues or expenses

401a: Off Balance Sheet Obligations

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

off balance sheet contracts
Off-balance Sheet Contracts
  • Long-Term Debt Obligations
  • Capital Lease Obligations
  • Operating Lease Obligations
  • Purchase Obligations
  • Other Long-Term Liabilities Reflected on the Company's Balance Sheet under GAAP

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

404 viable internal controls
404: Viable Internal Controls
  • Creation and maintenance of internal controls
    • Separation of duties
    • Checks and Balances
    • Documentation of events
  • Internal controls include
    • Policies
    • Procedures
    • Training programs
    • Other processes (example: inventory control)

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

accounting vs contracts
Accounting vs. Contracts

Contracts

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

take a second look
Take a second look
  • Effective Contract Management
    • Critical to the financial process
  • Review and control of sales contracts
    • Revenue recognition
  • Review and control of purchase contracts
    • Off-balance sheet transactions

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

revenue recognition
Revenue Recognition
  • Accountants determine the method
  • The Contract determines the how and when
    • Documented process
    • Terms and risk factors identified
    • Contract elements
  • Impact of multi-element contracts

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

multi element contracts
Multi-element contracts
  • Upfront deliverables
  • On-going services
  • Event based milestones
  • Usage based consumption
  • Maintenance and warranties

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

managing the contracts
Managing the Contracts
  • Complexity
  • Volume
  • Number of Customers
  • Size of contracts
  • Contract changes

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

the secret decoder ring
The Secret Decoder Ring
  • Determining financial process and revenue is complex
  • All of information comes from the contract
    • Plethora of contract management solutions
    • Reduce risks and terms to contract summary

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

procurement professionals
Procurement Professionals
  • Document decisions and analysis
    • Easy to understand 
    • Avoid ambiguity
  • Risk identification, management & mitigation
  • Consider auditor interpretations
  • Keep management informed
  • Training – sharpen the saw

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

the importance of sox to you
The Importance of SOX to You
  • Implications for Public Companies
  • Current reporting of material changes
    • Buying: Off-balance sheet transactions
    • Selling: Terminations or reductions with significant customers
  • Document
    • Contract files

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

questions

Questions?

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management