"CAN INTEGRITY BE HARD-WIRED INTO A COMPANY?"
A statement of PriceWaterhouseCoopers from The Wall Street Journal, 1/16/03, page A9.
- Today's topic for conversation: internal control, i.e., the ability of a company to monitor and control itself.
- It is sobering to see how many of last year's corporate scandals were apparently a result of lax controls or management's override of internal control processes. A better system of internal checks and balances would have caught many of these problems before they became headlines, before they hurt investors.
- The Sarbanes-Oxley Act has responded to this situation by putting the accountability for internal financial control squarely on the shoulders of company management and, ultimately, in our opinion, its board of directors.
- Sarbanes-Oxley is also requiring external auditors to attest to management's assertions regarding the effectiveness of the company's internal control and procedures for financial reporting.
- These changes are good, but no one should think the goal here is just a good report card. The opportunity exists to create a higher level of monitoring and control, which, coupled with a spirit of transparency, will create better communications to the marketplace and, ultimately, rebuild investor confidence.
- But that is going to require looking at internal control not as a checklist, as many do, but as a dynamic process.
- The daily challenges a business faces---new staff, less staff, more demands and an even greater opportunity for conflict---should not be allowed to create opportunities for fraud, confusion or even innocent human error.
- Which is why the groundwork for our approach lies in the US standard for internal control, the COSO Report. This report establishes standard criteria for companies to assess and enhance the performance of their internal controls. The advantage of COSO, which nor coincidentally was written by us, is that it provides an integrated and adaptable framework for controls that must be built into a business and its processes.
- Moving forward we believe that through technology and process, a vantage point can be built into a company's reporting mechanisms that allows managers to see that control responsibilities have been completed at the time they matter most.
- This vantage point will be embedded into the existing control processes and continually reassure management about the quality, reliability and comprehensiveness of its financial and management reporting.
- It will also create an early warning system for management that can identify risk while there is still time to act.
- When approached this way, internal controls don't become an administrative burden, but we believe, a competitive advantage.
- Companies can have greater confidence in the financial information they are reporting to the public.
- Investors can trust the quality of information they are receiving.
- So can integrity become as much a part of a company's daily existence as turning on the lights and answering the telephone?
- Shouldn't that be the goal?