Michael Volkov on Internal Investigations: Best Practices


Guest Post by Michael Volkov

In-House counsel and corporate compliance officers dodge bullets everyday as they stare down the barrels of aggressive prosecutors, regulators, civil litigants, whistleblowers, disgruntled employees and shareholders prodded by trial attorneys to file derivative suits at the drop of a hat. In the face of all of these risks, internal investigations have become commonplace and a standard defensive tactic for a company to regain some leverage, learn the scope of a potential problem and then develop a plan for resolving a particular issue.

All too often, companies follow the rote formula developed in the Sarbanes-Oxley era of the early 2000s. Those same formulas are being applied in the Foreign Corrupt Practices Act, and in more discrete global anti-corruption, money laundering, export compliance and antitrust enforcement matters. Continue reading

Compliance Week Article: Koss Fraud Spotlights Small Filers’ Internal Control Issues


An article in today’s Compliance Week, Koss Fraud Spotlights Small Filers’ Internal Control Issues (subscription required), quotes me on internal controls and the auditors as it relates to the huge fraud committed by VP of Finance Sue Sachdeva at Koss Corp (NASDAQ:KOSS).

I’m no fan of Sarbanes-Oxley because I believe it was ridiculously expensive, and hasn’t really produced any meaningful results. Fraud is just as rampant as before SOX became law, and the only thing companies have to show for it is a huge bill from auditors and consultants. Continue reading

But Sarbanes-Oxley Hasn’t Actually Reduced Fraud…


My friend Francine McKenna wrote yesterday on her blog, re:The Auditors, about what Sarbanes-Oxley has accomplished:

My contention is that Sarbanes-Oxley has at least raised the tone and tenor of the conversation about internal controls and about common sense, tried and true, reasonable practices for financial reporting to shareholders and other stakeholders. Sarbanes-Oxley has raised the expectations, to an appropriately high level, of corporate governance and ethical, non- self-serving behavior of corporate executives. Sarbanes-Oxley has given stakeholders the tools to bring the hammer down on irresponsible, non-responsive, fat headed, cigar chomping, belligerent, insular, seemingly untouchable “big swinging sticks.” The Tone at the Top as improved in most major corporations and their professional advisors, if not by design then by default – the fear of prosecution. Continue reading

The End of Sarbanes-Oxley?


Auditors and consultants around the country would like to string me up for my vocal dislike of Sarbanes-Oxley. I frequently moan that the cost is too high, the results are too poor, and consumers are fooled into thinking there’s been a solution to the fraud problem when there hasn’t.

But Sarbanes-Oxley consulting is a billion-dollar industry.A 2003 study indicated that the total annual cost of complying with Section 404 of Sarbanes Oxley was over $1 billion. An average company spent $1.7 million on SOX compliance last year.

Auditors and consultants aren’t stupid. That’s a cash cow for them, and they don’t want to lose it. Continue reading

An average company wasted $1.7 million on SOX 404 Compliance last year


Financial Executives International polled companies for the 7th year in a row to determine how much it costs to comply with Section 404 of the Sarbanes-Oxley Act. This year, they talked to 185 companies with average annual revenues of $4.7 billion.

The total average cost of compliance was $1.7 million in 2007. This is a decrease from the prior years.

The survey also asked “accelerated filers” (companies with market capitalization above $75 million) about their audit fees for 2007. The total audit fees for these companies averaged $3.6 million, up a bit from 2006. Continue reading

SEC fines have gone down


The fines levied by the Securities and Exchange commission have fallen to their lowest level since 2002. Bloomberg reports that “fewer billion-dollar accounting-fraud cases” and “new policies for fining companies” are to blame.

For the year ended September 30, the SEC issued $1.6 billion in fines, compared to $3 billion in each of the two previous years.

One expert says this is because the cases being investigated by the SEC are smaller and that the SEC has adopted a new stance on penalizing companies, since the penalties ultimately hurt the investors.

Two of the larger fines in 2006 were issued against American International Group (AIG) and Fannie Mae, at $800 million and $400 million, respectively. 2007’s fines include $50 million against Freddie Mac, $45 million against ConAgra Foods, $81 million against HealthSouth founder Richard Scrushy, and $208 million against Deutsche Bank.

It is also reported that the SEC brought 656 cases in 2007, which was a 14% increase over 2006.

SEC brings charges against auditors


69 auditors have been charged by the Securities and Exchange Commission with issuing audit reports on the financial statements of public companies without first registering with the Public Company Accounting Oversight Board.

The SEC has named 37 unregistered audit firms and 32 audit partners in this violation of the Sarbanes-Oxley Act of 2002. According to the SEC: Continue reading

Sarbanes-Oxley Five Years Later


This week’s Wisconsin Law Journal column takes a look at the Sarbanes-Oxley Act of 2002, which was put into law five years ago. The legislation has done some good things, but many have significant criticisms of it. The law was intended to protect retail investors in public companies by bringing certain standards to the financial reporting process.

Sarbox requires executives to certify financial results and be held accountable for the accuracy of financial data. The legislation also attempted to bring more transparency to the independent audit process. Continue reading

5 Years of Sarbanes-Oxley


That’s right. We are fast approaching the 5 year anniversary of the passing of the Sarbanes-Oxley Act of 2002. Who’s celebrating? Well surely the consultants and accountants who have made a fortune off SOX consulting are celebrating a bit.

Over at Audit Trail, they have some surprising results of a survey of public companies. The results are surprising to me because I generally believe that the cost of Sarbanes-Oxley has far outweighed the little benefit that has been gained. Yet executives apparently think SOX has been positive: Continue reading

Changes to Sarbanes-Oxley Rejected By Senate


A proposed amendment to make the internal controls portion of Sarbanes-Oxley optional for smaller corporations was defeated in the U.S. Senate this week. Specifically, the change would have allowed companies with market value less than $700 million to opt out of complying with Section 404 of SarbOx.

Sarbanes-Oxely has been criticized as too expensive relative to the benefits achieved.? Supporters of the law say that corporate fraud has been reduced (although that has not necessarily been proven). The SEC and PCAOB (Public Company Accounting Oversigt Board) are currently working to make some changes to Sarbanes Oxley.