Shared Services for Finance & Accounting - Wheelhouse Advisors 7.15.08

Taking Sarbanes-Oxley Beyond Compliance
To Exercise Continuous Improvement In
Financial Shared Services

John A. Wheeler
Founder & Managing Principal, Wheelhouse Advisors LLC
8th Annual Shared Services for Finance & Accounting – Boston, Massachusetts
July 15, 2008

© Copyright 2008 - Wheelhouse Advisors LLC

Discussion Topics
• Evolution of a Sarbanes-Oxley compliance program within an
Enterprise Risk Management framework
Wheelhouse Advisors LLC

• Streamlining and automating the compliance process

• Leveraging a shared service center to gain an advantage in risk
management and compliance

• Strategies for integrating Sarbanes-Oxley into the business for
maximum efficiency and effectiveness

2 | © Copyright 2008 - Wheelhouse Advisors LLC

Developing an ERM Framework

What is “ERM”?
“… a process, effected by an entity's board of directors,
management and other personnel, applied in strategy
setting and across the enterprise, designed to identify
potential events that may affect the entity, and manage
risks to be within its risk appetite, to provide
reasonable assurance regarding the achievement of
entity objectives.”

Source: COSO Enterprise Risk Management – Integrated Framework - 2004.


• ERM is a process that encompasses the following key activities
– Identifies potential events that may arise out of and/or impact a

company’s strategic objectives
– Assesses the severity and likelihood of risk events
– Determines risk response
• Evaluates in relation to risk tolerances
• Determines approach – Avoid, Accept, Reduce, Share
• Specifies mitigation plan
– Manages risk within the enterprise’s risk appetite
– Takes a portfolio view of risk at the top
– Monitors performance continuously


“Old School” Approach “New School” Approach
 Risk perceived as individual hazards that  Understand risks in context of business

may negatively impact a given area strategies and objectives
 Ad hoc focus on risks with greatest  Disciplined and forward looking focus
emphasis on recent events on critical risks
 Managing risks is senior management’s  Managing risk is everyone’s
responsibility responsibility
 Minimize and/or eliminate risk  Manage risk within tolerance levels and
capitalize on opportunities
 No risk owners  Well defined accountability for risks

 No formal risk reporting or monitoring at  Risk reporting emanating from existing
the entity level channels to the top
 Highly decentralized  Portfolio management


Risk Assessment vs. ERM
• Assessments
– Point-in-time snapshot

– Often internal audit driven
– Identifies where to focus current attention
– Great for planning, but not the full solution

• ERM
– Continuous risk monitoring and identification
– Real-time assessment using indicators as well as evaluation of new
strategic initiatives
– Balanced focus on opportunities and impacts
– Built-in ownership of risks at the right level – embedded in the
business


Benefits of ERM
ERM provides the ability for a company to:
– Understand and define risk appetite as it relates to strategy

– Link growth, risk and return
– Optimize risk response decisions
– Minimize operational losses and surprises
– Rationalize capital resources
– Strengthen credit ratings
– Improve efficiency by integrating responses to multiple risks
– Seize opportunities to capitalize on rewards from taking intelligent
risks


Evolution of a Risk & Controls Program
• Sarbanes-Oxley (“SOX”) Section 404 as a starting point

• Innovation and integration leading to greater efficiency and
effectiveness

• Barriers to overcome

• Required changes in approach


Evolution of Risk & Control Programs

Developing Implementing Improving Integrating

•
• Seamless and
• • Alignment of control
Highly reactive to Individual control
proactive risk &
programs to
individual regulatory programs in
control program
increase efficiency
mandates various phases of
and reduce
implementation
• Risk governance &
• administrative
Immature risk and/or refinement
oversight structure
burden
governance &
fully embedded in
•
oversight structure Evolving risk
• business governance
More focused risk
governance &
structure (i.e. from
• governance &
Informal risk related oversight structure
strategy through
oversight structure
infrastructure
execution)
• More formal risk
• Identification and
related
• Risk infrastructure
implementation of
infrastructure at
automated and fully
best practices
corporate and
integrated across
across business
business unit
enterprise
units
levels

Immature Mature


SOX as a starting point
• Greater potential for those companies that did not view SOX as
merely a compliance exercise, but as an opportunity to improve the

business
• Similar disciplined approach with primary focus on risks first,
processes second and controls third
• Streamlining business processes
– Eliminating duplicative activities
– Process improvement, eliminate outdated procedures
– Enhancing data integrity for critical decision-making
• Enhancing, automating and integrating data flow
– Focus on data analytics and mining opportunities to strengthen
controls
– Providing more transparent and seamless communication across the
business
– Viewing the process end-to-end to understand control gaps

Opportunities to Leverage SOX

Improve the nature of
Centralize operations
certain controls

Enhanced Financial
Reporting &
Business Processes

Improve the flow and
Implement process
reliability of
improvements
information


Four “S’s” of Shared Services

Simplify Standardize Streamline Systemize


Key Steps to Successful Shared Services
Deployment

Systemize
Simplify Streamline
Standardize

 Identify control  Design system to
 Identify primary  Develop action
points to mitigate support
business plan to address
streamlined
objectives key risks
gaps in a
processes
common way
 Eliminate  Measure
 Automate
 Design common
redundant efficiency of
controls where
processes and process vs.
job roles
possible
activities quality of output
 Identify KPIs &
 Implement real-
 Perform gap  Identify
quality
time monitoring of
analysis opportunities to
measures
KPIs and quality
automate
measures
workflow


Aligning SOX Improvement & Shared Services
Deployment Projects
Typical SOX Program Evaluation & Improvement Activities

Identify significant Document/review Design and implement Plan ongoing
financial reporting process flows noting key control improvements maintenance and testing
locations control points
Evaluate significance Evaluate design of Design and execute Broaden scope to cover
of financial reporting existing controls tests of controls other enterprise-wide
risks risks

Risk
Process and Control
Ongoing
Assessment
Control Improvement
Monitoring
and Project
Evaluation and Testing
Planning

Potential Shared Services Deployment Activities

Identify and prioritize Analyze process flows Design and implement Develop key
areas that might to identify potential process / system performance indicators
contain meaningful bottlenecks, duplication, enhancements to continually measure
inefficiencies waste, etc. effectiveness


Potential Benefits from Aligned Efforts
Focus Area Opportunity
• Improved quality, accuracy and timeliness of financial information
Financial Close

• Reduced time to close the books each period
• Eliminating unnecessary and/or manual activities
• Better aligned strategic and business goals
Performance
• Better information for decision making
Management &
• Elimination of unnecessary or redundant reports
Financial Reporting
• Identification of business areas that need improvement
• Reduced budget complexity and cycle time
Budgeting &
• Enhanced ability to respond to market changes
Planning
• Increased quality, accuracy and timeliness of information
• Eliminating unnecessary and/or manual activities
• Decreased cost and cycle time associated with billing and collecting
Order to Cash
• Increased accuracy on orders and bills
• Increase in cash flow
• More efficient purchasing process
Procure to Pay /
Supply Chain
• Better supplier relations
• Reduced inventory costs
Inventory
• Reduced warehouse space
Management


Barriers to Overcome
Attitudes / Culture
• People are “burned-out” by SOX

• Seen as interfering with “real work”
• Lack of alignment with performance measurements – little incentive to
participate
• Budget constraints are increasing leaving few resources to commit
• Organizational impacts from eliminating or streamlining processes
• Wavering support from executive management and board
Infrastructure
• No shared language
• Differing reporting standards and/or policies
• Over reliance on multiple support functions and systems
• Little or no linkage between risks, process and controls
• Enabling technology is non-existent or fragmented at best


Changes Required
• Clear and consistent support from executive management
• High-level, multi-disciplinary, dedicated core team

• Strong business case on how Shared Services will enhance
– Risk management and compliance
– Business decision-making
– Achievement of corporate and business unit strategic objectives
• Building controls into business processes – efficiently and without
undue administrative burden
• Well defined roles and responsibilities for risk leading to improved
accountability – build into incentives and performance
management
• Long-term commitment to the effort, linked to strategic planning


Critical Success Factors for Leveraging SOX
 Control documentation
contains quality information for

users to understand the
underlying business processes Quality of Content
 Company actively utilizes
control and process
documentation to identify
inefficiencies in operations and
Technology &
Level of Use &
business processes Organizational
Understanding
Impacts
 Company consistently
considers technology as well
as organizational impacts
when evaluating shared
services opportunities



For more information about service offerings, please visit:
www.WheelhouseAdvisors.com

Or email us at:
NavigateSuccessfully@WheelhouseAdvisors.com

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Shared Services for Finance & Accounting - Wheelhouse Advisors 7.15.08

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