Sarbanes-Oxley and supply-chain security
Journal of Commerce
Monday, November 15, 2004
By: COREY JORDAN

Two recent colossal events, the Sept. 11 terrorist attacks and accounting scandals at major U.S. corporations, changed the meaning of "security blanket" and how we conduct our lives, companies and supply chains.

While the attacks produced new acronyms such as DHS and C-TPAT, the corporate accounting scandals led Congress to adopt the Sarbanes-Oxley Act. SOX, as the law is known, was a direct response to the corporate debacles of Enron, Tyco and MCI WorldCom. In each case, while the chief executive was touting his company's financial stability to Wall Street analysts and shareholders, company officials were busy creating a precarious house of cards fraught with inaccuracies and debt.

With SOX now in place, the chief executive and the chief financial officer will be held accountable and responsible. The law states that both must sign off on and can be held accountable for:

-- All financial statements, both internal and external, such as those published and distributed to shareholders, the Securities and Exchange Commission and analysts. These include quarterly and annual forecasts, 10(k) and 10(q) filings, and other statements.

-- Accounting practices and standard operating procedures, or SOPs.

-- Certification from internal and external auditors validating that SOP documentation and practices are legal and accurate.

The company must make itself available for scrutiny by outside auditors, the SEC and government investigators. If wrongdoing is uncovered, company officials can trade their pinstriped suits for a striped uniform of another kind. They will no longer be permitted to say, "I didn't know about ... it was his responsibility!"

This increased scrutiny goes beyond the boardroom. For years, while senior management strategized upstairs working with MBAs and high-priced analysts, the "grunts" toiled down in the warehouse, making sure products got in and out on time. Not only did the chief executive or chief financial officer not know this was taking place, most of the time they couldn't even find the dock!

This has pluses for supply-chain professionals. Anne Marie Griffin, Microsoft's senior manager for global trade compliance, noted at last summer's American Association of Exporters and Importers conference that Sarbanes-Oxley has helped with export compliance. "There's money now, there's high visibility," she said. "Our CFO comes and see us and gets us the resources we need, including IT systems."

For years, Customs and Border Protection and other governmental agencies have required companies to submit import-export documentation that includes: Entry Summary forms - 7501 and 3461 (for imports); Automa-ted Export System - electronic version of the shipper's export declaration (for exports); commercial and pro-forma invoices; certificate of origin; correct HTUS/Schedule B classifications to determine duty rates and taxes; letters of credit and money transfers; applicable licenses or permits; quota documentation; and packing lists.

This documentation and related shipping-receiving SOPs authenticate a company's trustworthiness to conduct international business. It's only natural that these processes be infused into the SOX Act's requirements. With millions of dollars expended daily in this area, you can bet it will ultimately be an audit point and as ripe for prosecution as misleading financial statements.

One can easily see a dotted-line progression of the Customs-Trade Partner-ship Against Terrorism into the SOX arena. As the fallout continues from the 9/11 Commission Report, don't be surprised if the new information czar position heads all these related programs. SOX and C-TPAT will result in a new era of self-audit and overall business compliance and scrutiny.

Companies have found that C-TPAT participation has helped them with their supply-chain management. Many corporations are creating import-export compliance departments that usually report directly to corporate counsel or internal audit departments, and have an important say in supply-chain, manufacturing and risk-management decisions. These professionals have become the de facto watchdog over the entire supply chain.

Many companies with limited staff retain consulting firms to manage their compliance programs. Not only does the consultant monitor supply-chain, manufacturing and risk-management issues, but also broker relationships.

Corporations are discovering the importance of a safe, competitive and secure global supply chain. Operating within the SOX guidelines has become another skill set that must be mastered by logistics, traffic and warehousing managers as well as chief executives and chief financial officers. A company's survival may depend on it.

Corey Jordan is vice president, account management, of American River International in Melville, N.Y. He can be reached at (631) 396-6824, or via e-mail at corey@worldest.com.