27 April 2009 - 19:20Sarbanes-Oxley and Contract Management

I am asked quite often about Sarbanes-Oxley and how it relates to contract management, or how contract management helps organisations comply with the Act.

The Sarbanes-Oxley Act 2002 imposed new corporate governance and financial disclosure obligations on US public companies, the likes of which had not been seen in over 70 years. The aim of which was to strengthen corporate accounting controls and reform standards of public financial auditing and reporting in the wake of such financial disasters as Enron, WorldCom, and others.

Other reforms and accords such as Clerp 9 2004, governing Australian corporate law, and Basel II, Banking and Finance internationally, also govern and provide standards to help promote more effective risk mitigation and timely financial and risk disclosure.

Sarbanes-Oxley section 302 mandates that officers signing financial reports must be responsible for establishing and maintaining internal control structures and procedures for financial reporting.

Real contract management systems such as Open Windows Contracts provide effective transparency and visibility into financial commitments that organizations are often unable to achieve using financial and accounting systems. Public companies require control procedures to be established and continuously improved, over financial commitment handling and operational activity. Contract management systems with business process automation can ensure a corporate-wide consistency of risk identification and mitigation procedures that is easily and regularly auditable by signing officers responsible for Financial Reports.

Real contract management systems allow for greater controls to be put in place around:

  • highly sensitive sourcing and contract development processes,
  • contract award, negotiation and agreement creation,
  • relationship compliance and governance,
  • commitment management, risk identification and reporting.

The  formalization and standardization of such tasks helps organizations comply with their obligations under agreements and Acts such as Sarbanes-Oxley, dramatically lowering the cost of compliance, and the risk of litigation and officer penalties because of oversight or fraud.

Sarbanes-Oxley Section 409 relates to ‘Real Time Issuer Disclosures’ and required “urgent” public disclosure information on material changes in their financial condition or operations. Material information concerning the company and its consolidated subsidiaries must be made known to responsible officers by others within each entity. This means that disclosure controls and procedures must be put in place.

One of the key advantages of implementing a systems approach to contract management using software such as Open Windows Contracts, will be your ability to determine and make available information of a commercially critical nature before it impacts your business, and to allow disclosure in accordance with the Act.

Material changes in financial and operational conditions are required to be urgently disclosed to the public. These events can be identified earlier with systems in place for tracking and managing contracts, which are the instruments that provide the framework for all of your business transactions, and the part of your business most often neglected.

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9 April 2009 - 9:48Inside Contract Management

The reactive nature of contract management, and organizations’ inability to put in place good systems to manage contracts means that you may currently be experiencing some or all of the following slices of contract pain.

  • An inability to invoice match commitments to items billed has a direct impact on the number of suppliers you are currently paying in error.
  • By not effectively managing your obligations and opportunities you may be failing to renew customer contracts and under billing for the services that you have provided.
  • If your contract management knowledge is sitting in your staff’s heads, it can easily walk out the door. If it’s sitting in systems it is retained and is transferrable between staff members.
  • You may be wasting money because you are unable to enforce compliance to negotiated terms and conditions in contracts. You must positively manage a contract to deliver its value.
  • You cannot possibly manage your contracting risk if you do not know what risks you face. Multiple decentralized systems give you no way to see a clear picture of organization wide risk and commitment reporting. Consistent policy use across the organization is thwarted by multiple disparate systems.
  • An inability to track and measure what you currently do means that you will be unable to show continuous improvement, because you have nothing ‘concrete’ to build on and no way to judge supplier effectiveness.
  • If you have no automation of processes then you will spend a major portion of your time reinventing the wheel instead of using experience and precedent to lead you into each new deal.
  • 10% of contracts are lost, never to be found. If you add the time spent looking to the time it takes you to find an agreement that you actually have, there are a lot of wasted hours that could be saved with a contract management system.
  • If you are not following automated processes for contract development and delivery then poorly negotiated contracts and non-compliance to committed terms and conditions can lead to costly litigation.
  • If you are unable to forecast renewal dates then you may be stuck in agreements that should already have been terminated. Contract management software systems can remind you as these dates approach, helping to prevent costly oversights and embarrassment.
  • Statistically it is proven that information double handling introduces data errors into your processes. Contract management software with business process workflow can route data through your entire organization with electronic approvals, maintaining the integrity of your data, and keeping everything all in one place.
  • Lost productivity caused by manual and paper-based contract filing systems and multiple disparate databases can be costing your organization big dollars.
  • Organizations that cannot communicate efficiently and track chronologies, contract correspondence and performance data will find themselves at a tremendous competitive disadvantage when it comes time to negotiate, because they have no records of anything that was said or done.
  • Inefficiencies across the contract lifecycle and the disconnect between departments means that money leaks out through bad management of contracts. Organizations must recognize the relationship between expenditure and profit.
  • If a contract is worth executing it is worth executing quickly. The longer we spend in the pre-contract phase, the longer we are missing out on the post execution benefits of the deal.

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