New Sarbanes-Oxley Compliance Tools: The Help vs. the Hype

Companies are investing in new software to help them comply with Sarbanes-Oxley. But is any single tool sufficient to address most businesses' needs? It may all depend on the current state of internal controlsand documentation.

Kirk Krappé, president and CEO of Nextance inc. in Redwood City, Calif., says the noise from software vendors pitching Sarbanes-Oxley solutions has grown deafening. He receives two or three e-mails a day from vendors and consultants offering to solve his compliance problems, even though his small, private company isn't subject to the provisions of the new law -- and it's a competitor in the Sarbanes-Oxley compliance assistance market itself.

Most CEOs and CFOs need a document management system just to sort through the hundreds of compliance pitches they're fielding. But few leaders would deny that compliance assistance products and services fill a real need. * Earlier this spring, the SEC underlined the deadly seriousness of compliance issues when it fired off a volley of criminal charges against senior executives of HealthSouth Corp., the $4.3 billion-a-year Birmingham, Ala.-based health care services provider. News of that investigation broke just as management teams at many public companies, particularly those with Sept. 30 fiscal year-ends, began plotting their compliance strategies, investing in external Sarbanes-Oxley assistance and focusing on their assertions of internal controls as laid out in Section 404 of the new legislation.

"What Congress did when it passed the act was to eliminate the Ken Lay defense," says Trent Gazzaway, national director of corporate governance advisory services for accounting and consulting firm Grant Thornton LLP in Charlotte, N.C. "CEOs can no longer say, 'That wasn't my responsibility -- it was the fault of internal audit, the external auditor or the accounting department.' " Ultimately, the buck stops with CFOs -- and their subordinates. So far, the HealthSouth criminal charges have targeted (in addition to the company's former CEO) two former CFOs, a former assistant controller, three finance vice presidents, and an assistant vice president of finance and accounting.

There's no question that compliance assistance providers found an eager market for their products early this year. Stephanie Woodruff, Minneapolis-based global managing director of internal audit services provider Resources Audit Solutions, reports that public-company investment in her firm's compliance assistance software surged in early March. Other finance and accounting consulting firms and accounting firms report similar sales leaps. Gazzaway conducted presentations of CAT Scan, Grant Thornton's control analysis tool, for 40 public companies in a five-week stretch beginning in February.

The flood of compliance assistance software products shows no sign of abating. While there's no question that they are timely and needed, the sheer volume of offerings is overwhelming to many finance executives. And grasping the pros and cons of all available solu-tions remains a challenge.