The Sarbanes-Oxley Act, better known as SOX, was enacted in 2002 thanks to the efforts of congressmen Michael Oxley and Paul Sarbanes. This piece of legislation came on the heels of numerous high-profile scandals in the financial sector. SOX serves to create a sense of accountability and transparency for publicly-traded companies with compliance requirements that include annual audits and reports.
The SOX act prompts companies to establish formal policies and internal controls for financials and other data that may be considered sensitive in nature. Company leaders and boards of directors are subject to increased oversight in an attempt to drive better accountability.
With a goal to “protect investors by improving the accuracy and reliability of corporate disclosures,” this legislation allows for criminal prosecution in cases involving fraudulent or deceptive business practices. SOX is one of the few regulations associated with jail time as a possible penalty in addition to hefty fines. With such high stakes, it’s important to understand what needs to happen in order to avoid fines and the complete breakdown of SOX compliance requirements.
The Five Pillars of SOX Compliance
There are five basic pillars for SOX compliance which are centered around the data management practices that are required in order to be considered compliant. SOX requirements call for audits and reporting of a company’s financials. But in addition to this, corporations are prompted to establish a number of business practices, protocols and policies – measures that must be effectively implemented in order to avoid the complete breakdown of SOX compliance requirements.
Pillar 1: Maintaining Financial Data Security
Financial data is very sensitive in nature and as such, SOX requires companies to establish a robust data security plan. These data security measures are intended to prevent cyber attacks and breaches that could lead to data theft, data modification, data loss and other forms of data compromise. Companies must consider both internal threats and external threats as they work to implement data security measures and good data handling practices. Regulatory issues aside, data often represents a company’s most valuable asset, making this a significant risk management consideration. The breakdown of this SOX regulatory compliance requirement leaves a company extremely vulnerable, particularly in an era where an increasing number of cybercrime incidents involve data theft.
Pillar 2: Preventing Financial Data Tampering
Financial data integrity is essential both from a business and operational perspective and from an ethical perspective. The bank scandals that occurred in the early 2000s entailed incidents of intentional and “malicious” data tampering and as such, this SOX pillar is key for achieving compliance. Achieving SOX regulatory compliance by maintaining data integrity is just one piece of the puzzle. All of those SOX compliance-related efforts are for naught if a company cannot prove that nobody has altered or tampered with its data. This is why audits are so critical. The auditing process offers evidence that a corporation’s financial data has not been falsified, modified or destroyed. The breakdown of this SOX compliance requirement can be extreme. This is one pillar where the complete breakdown of SOX compliance requirements can lead to criminal prosecution and jail time amongst other penalties.
Pillar 3: Tracking Attempted Data Breaches and Response
Data breaches inevitably occur despite even the most innovative security measures. Companies are required to implement measures that extend beyond data security to include monitoring for attempted and successful breaches. Businesses must thoroughly document and report their response to these incidents in order to be considered SOX compliant. The breakdown of this pillar may lead to consequences such as fines.
Pillar 4: Proving Compliance in 90-day Cycles
Reporting is a key element of the SOX compliance equation. A corporation must prove their compliance in 90-day periods through the use of audits and reporting. The breakdown of this pillar translates into non-compliance, which, in turn, leads to monetary fines and other penalties.
Pillar 5: Maintaining Event Logs
Event logs are extremely important when it comes to SOX regulatory compliance. A well-architected data management platform will include a mechanism for creating a log entry every time a user adds, accesses, modifies or deletes data. The best platforms maintain a record of the exact modifications. This information is necessary if a company is going to be effective in proving their data’s integrity.
These five SOX pillars apply to publicly-held companies – including foreign companies that conduct business in the United States – and wholly-owned subsidiaries. Privately-held companies and non-profit organizations are exempt from SOX regulations, although there is an impact on auditing and accounting firms. SOX prohibits an accounting firm from also performing auditing functions for a publicly-held company and vice versa.
Using Regulatory Compliance Software to Avoid the Complete Breakdown of SOX Compliance Requirements
Avoiding the complete breakdown of SOX compliance requirements ought to be a key component of a company’s risk management strategy. But actually achieving and then successfully maintaining compliance can be quite challenging. A risk management software platform with SOX compliance modules or a stand-alone SOX regulatory compliance software solution can make a world of difference for corporations seeking to more effectively manage their regulatory compliance-related efforts. These SOX software systems typically include tools for identifying deficits and planning/tracking a company’s response to those issues. In addition, many platforms feature integrations with enterprise software and data management/storage platforms, along with dashboards that provide updates on modifications to the SOX compliance requirements.
Finding the right SOX compliance software system can be a challenge, especially if an organization has unique needs. But this is where the iTech team can help, as our talented team of developers specialize in innovative and user-friendly risk management software solutions. The team here at iTech works with each client to achieve a full understanding of their regulatory compliance needs and other risk management challenges. Then, we architect an innovative solution that resolves those pain points while simultaneously simplifying the activities that are necessary in order to avoid the complete breakdown of SOX compliance requirements. We invite you to contact iTech today to discuss your company’s SOX compliance and risk management challenges.