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As corporate America closes in on its second full year of compliance with the Sarbanes-Oxley Act, one truth is becoming painfully clear: most businesses still flounder in a sea of spreadsheets to manage their internal controls.



The flood first arrived in 2004. Faced with enormous challenges of documentation and testing, executives tackled the problem with spreadsheets because they were the only IT tool companies already used and understood. Such a strategy made for a huge workload, but it was hardly surprising in that inaugural year of Sarbanes and Section 404, when auditors’ expectations were unclear and nobody wanted to be the first to run afoul of government regulators.

We all know how the basic plot unfolded: Section 404 project managers distributed “control surveys” to all corners of the company, in the form of template spreadsheets. Managers at various business units filled out and returned their spreadsheets… and spreadsheets, and more spreadsheets. A multibillion dollar enterprise could find itself juggling thousands of sheets to track and test its internal controls. Many did. All the while, they struggled with basic problems such as version control, data integrity, and cooperation from business units.

Well into 2005, executives now know that such painstaking routines cannot become the norm; they cost too much, require too many workers, and leave too much room for error. In polite conversation, the talk is about creating “sustainable” compliance with Sarbanes-Oxley. What everyone really means is, “We need some way to monitor and test internal controls without using a zillion spreadsheets.”

In other words, businesses must find some way to automate their controls.

At its most fundamental level, Sarbanes seeks to ensure the integrity of financial reporting via stronger internal controls. Spreadsheets, as versatile as they are, fail on this front because they can only be used to maintain static documentation about an internal control. Auditors or employees will then use this spreadsheet to perform manual testing to attempt to detect an improper transaction after it has already occurred. Detection is an important part of any internal controls system, certainly, but it is miles away from preventing control violations before they happen. If Corporate America has any serious desire to boil the monitoring and testing of controls down into a simplified, sustainable process for Sarbanes compliance, a prevention-based system is a critical part of the solution.

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