VideoConsolidation projects could prove crucial in meeting regulatory requirements. Obviously, the fewer systems in place, the less data integration required. In addition, the deep-sixing of some programs should reduce the amount of chatter finance managers have to deal with. Case in point: Siegel recalls that before Pfizer deployed its financial-data warehouse, the company's financial managers had to access 14 distinct systems. "A financial manager does not have the time to be an expert in 14 different systems," he remarks.
Not surprisingly, some ERP vendors are flogging instance consolidation—that is, the adoption of a single version of a program—as the simplest way to comply with the new regulatory requirements. Since consolidating existing software tends to generate workflow efficiencies, it's equally unsurprising that customers seem to be listening. A recent survey conducted by AMR Research revealed that 65 percent of publicly traded companies are strongly considering instance consolidation to help them deal with Sarbox (see "Six Degrees of Automation" at the end of the article).
Instance consolidation comes with its own difficulties, though. Cost tops the list. According to AMR, the price tag for an instance consolidation works out to about $10 million per $1 billion in annual revenues. What's more, instance-consolidation projects can take anywhere from 12 months to two years to complete and often require a full reimplementation of the system.
Can You Demonstrate That?
For the moment, most finance executives aren't worrying about instance consolidation. They'd be content instead to document exactly how numbers get rolled up into the general ledger.
At Hudson United, Nagel-voort was brought in to head up the bank's compliance efforts and internal controls. He says the company's executives are comfortable with the output of the controllers group. But, he adds, "if the CFO and CEO have to put their names on the dotted line..."
The ellipsis speaks volumes. With Sarbox approaching, finance managers will likely be fielding tough questions about data—particularly from audit committees. Says Mike Ressner, a former CFO who sits on the audit committees of WilTel Communications and Entrust: "Audit committees ought to be saying, 'You're representing this information as high quality and done with integrity. It would be nice if you could demonstrate that.'"
In all likelihood, internal-control departments will be respon-sible for the demonstrating. "Generally, controllers tend to be more focused on the general ledger or subledgers," says Ressner. "Now they've pushed back out of those ledgers to the underlying systems to make sure the data flow is correct."
Consider Hudson United, which operates about 200 branches in New Jersey, New York, and Connecticut. To help satisfy the Sarbox Sections 302 and 404 certification requirements, Nagelvoort put together a 12-member compliance team that is responsible for the bank's business departments. Recently, Hudson United began installing a document-workflow program called SOXA Accelerator, marketed by HandySoft. According to Nagelvoort, the program helps the company create reports detailing what management and the company auditors consider material for each line item in the general ledgers.
Hudson United appears to be ahead of most companies—at least in the purchasing of compliance software. Many technology vendors see Sarbox as a big selling opportunity (the next Y2K problem, say some) and are pitching all-encompassing, large-scale compliance products, or "kitchen-sinkware," as Schrage calls it. So far, few vendors have made a killing from these products. "Since they don't touch sales," notes Sid Banerjee, CEO at Falls Church, Virginia-based consultancy Claraview LLC, "there's no ROI on these products."
There may be no "R," but there certainly is an "I." The cost of purchasing compliance software can easily top the $1 million mark, say consultants. In addition, Watson of Doculabs points out that for every software dollar spent, corporate customers will have to spend $4 in service. "You're talking about a boatload of consultants," he says.
Further, some finance managers say they're not overly impressed with the current crop of compliance products. When executives at Crown Media Holdings, an entertainment company that operates the Hallmark Channel, first started to assess Sarbox compliance, they contemplated buying software to help manage the company's unstructured data. Specifically, Crown's executive team was interested in a program that would manage the company's voluminous contract rights—one of its key business processes. Although Crown has deployed a document-management program sold by Optika Inc., it has yet to purchase a rights-management application.
Why the delay? "The offerings are not there yet," answers Mark Thompson, senior vice president, finance and information technology, at Crown. "There's nobody out there." Other finance managers tell similar stories. One controller says flatly: "The compliance products are still immature."
Deborah Birnbach, a partner in the litigation group at Boston law firm Testa, Hurwitz & Thibeault who advises clients on compliance, has heard similar complaints. "Companies will buy compliance software," she predicts, "when they see other people buying it."
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