Sarbannes Oxley Compliance - can digital paper help?

June 2nd, 2005

What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act of 2002, also known as “SOX”, was passed due to the accounting scandals at Enron, WorldCom, Global Crossing, Tyco and Arthur Andersen, that resulted in billions of dollars in corporate and investor losses. These huge losses negatively impacted the financial markets and general investor trust. The Sarbanes-Oxley Act mandates a wide-sweeping accounting framework for all public companies doing business in the US.

Effective in 2004, all public companies will be required (for the first time) to submit an annual assessment of the effectiveness of their internal financial auditing controls to the Securities and Exchange Commission (SEC). Additionally, each company's external auditors are required to audit and report on the internal control reports of management, in addition to the company’s financial statements.

The Act applies to all publicly-traded companies in the United States, including all wholly-owned subsidiaries, and all publicly-traded non-US companies doing in business in the US.

What does Sarbanes-Oxley compliance require?
All applicable companies must establish a financial accounting framework that can generate financial reports that are readily verifiable with traceable source data. This source data must remain intact and cannot undergo undocumented revisions.

What are the penalties for non-compliance with Sarbanes-Oxley?
Besides lawsuits and negative publicity, a corporate officer who does not comply or submits an inaccurate certification is subject to a fine up to $1 million and ten years in prison, even if done mistakenly. If a wrong certification was submitted purposely, the fine can be up to $5 million and twenty years in prison!

Where can digital paper assist compliance?
As we have seen, a key element of compliance is the ability to trace the source documents for a company’s sales and purchases. This can be a significant challenge for the large organisations that are affected by SOX.

By converting relevant enterprise forms to digital paper, such as Customer Order Forms or Purchase Order Forms, it is possible to integrate data on orders and purchases in real time with an organisation’s financial systems and archive a digital copy of the original document for auditing purposes and compliance with SOX. If an approval process for purchases is required, biometric signature authentication can be added to relevant forms to validate that the right approvals were granted in the purchase approval process.