Abra HRMS® and Sarbanes-Oxley

In the aftermath of the Sarbanes-Oxley Act, boards of directors are taking an active interest in corporations, and it is increasingly up to human resources personnel to provide them with necessary training and education, according to HR Magazine™.

What is the Sarbanes-Oxley (SOX) Act of 2002?
Following the bankruptcy of Enron in 2001, Congress passed the Sarbanes-Oxley Act of 2002 on July 30, 2002. The law is intended to: (1) establish greater independence between public accounting firms and their audit clients; (2) remove incentives for management misrepresentation of the corporation's financial condition; (3) provide sanctions for corporate/accounting firm misconduct; and (4) establish oversight of the accounting practice.

Who must comply with the provisions of SOX and when?
Section 404 pertains only to corporations that are registered with the SEC. Deadlines for complying with the provisions of this section were recently extended, and depend on the SEC status of the corporation as follows:

• Generally U.S. companies with equity market capitalization over $75 million that file at least one annual report with the SEC, had until Nov. 15, 2004, to comply with Section 404. This impacts a large portion of the Fortune 500.
  
• All other SEC-regulated companies, on the other hand, must begin to comply with Section 404 for their first fiscal years ending on or after July 15, 2005.
  

Why is Section 404 relevant to HR/Payroll functions?
Section 404 of SOX has the most relevance to HR/Payroll functions. Although the SOX legislation is targeted primarily at board governance and accounting practices, its reach extends across the organization and into human resources. Today, CFOs are realizing there are several business processes residing in the HR department that have a direct and material impact on corporate financial statements. Most companies spend 40% to 60% of their budgets on people-related costs, including salary and wages, benefits, training, and personnel administration. It follows that many of the business processes that HR manages have a direct impact on the corporate financial statements:

• Many HR processes involve money. From an auditor perspective, anything deemed to have a material impact on financial statements is important, and this includes many HR-related processes that involve payroll, bonuses, and benefits.
  
• Risk needs to be managed. Inadequate HR compliance can lead to significant fines and legal exposures. This includes a myriad of compliance requirements. In addition, HR practices can reduce risks related to hiring, employee turnover, succession of key positions, employee grievances, and labor relations issues.
  
• Data integrity needs to be maintained. HR data integrity has a very significant impact on security and internal control. The HR management system (HRMS) is the primary system of record regarding who works for the company. Key challenges in managing the integrity of HR data arise because this data is constantly changing and its use is so pervasive throughout the organization.

How does Abra HRMS® help companies comply with SOX Section 404?
Abra HRMS helps achieve and maintain regulatory compliance by automating processes, maintaining accuracy and security of data, managing risks related to fines and legal exposures, and tracking the completion of certifications and other critical training.

For more information and examples of how Abra HRMS helps companies comply with SOX regulations, email MCG at info@mcginc.com.