IT Control Objectives for Sarbanes-Oxley

Managing Risk

“…many of the IT professionals being held accountable for the quality and integrity of information generated by their IT systems are not well versed in the intricacies of internal control. This is not to suggest that risk is not being managed by IT, but rather that it may not be formalized or structured in a way required by an organization’s management or its auditors.”

IT Key Areas of Responsibility

• Understanding the organization’s internal control program and financial reporting process

• Mapping the IT systems that support internal control and the financial reporting process to the financial statements

• Identifying risks related to these systems• Designing and implementing controls designed to

mitigate the identified risks and monitoring them for continued effectiveness

• Documenting and testing IT controls

IT Key Areas of Responsibility

• Ensuring that IT controls are updated and changed, as necessary, to correspond with changes in internal control or financial reporting process

• Monitoring IT controls for effective operation over time

• Participation by IT in the Sarbanes-Oxley project management office

ITGI Control Objectives

• IT Control Environment

• Computer Operations

• Access to Programs and Data

• Program Development and Program Change

IT Control Environment

The PCAOB has indicated that an ineffective control environment should be regarded as at least a significant deficiency and as a strong indicator that a material weakness in internal control over financial reporting exists

What is the IT Control Environment?

• IT Governance Process – IS Strategic Plan– IT risk management process– Compliance and Regulatory management– IT policies, procedures and standards

Monitoring and reporting are required to ensure that IT is aligned with business requirements.

Computer Operations

Computer operations should include controls over:• Effective acquisition • Implementation• Configuration and maintenance• Ongoing controls over operation address the day-

to-day delivery of information services, service level mgt., management of third-party services, etc.

Access to Programs and Data

Overall goal of access controls are to prevent “the unauthorized use of, and changes to, the system, and entity protects it data and program integrity.”

Program Development and Program Change

• What are the acquisition and implementation risks of new applications and/or systems?

• What are the risks of not having a good change management program?

Multi-location Considerations

• Significant business units

• Potential financial materiality and significant risk considerations, quantitative and qualitative and both aspects provide focus

What is SOX?

SOX provides the foundation for new corporate governance rules, regulations & standards issued by the Securities and Exchange Commission. It covers a range of topics from criminal penalties to Corporate Board responsibilities. SOX also covers issues such as independent auditing requirements, corporate governance, internal control assessment, and enhanced financial disclosure. 

CEO’s of publicly traded companies will be held accountable for the quality of the controls established which enable accurate Financial reporting (including IT processes, systems & roles).

Penalties

Section 802(a) of the SOX states: “ Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”

What prompted SOX?

• Sarbanes-Oxley was passed in the wake of a number of notable corporate accounting scandals including Enron and WorldCom. 

A hint on policies.

Bear in mind that you will be held to the letter of all policies your company develops related to SOX even if they exceed federal requirements. This is very important to remember when drafting policies.

Policies should ensure that corporate behavior is consistent, controlled, and can be proven.

A word on Frameworks

There are many frameworks out there to assist you with SOX compliance. The key is to find a framework that works for your team, commit to it, train on it, and use it to your best possible advantage.

Examples of COBIT Controls Network Security –Firewalls, secure network configuration including 802.11x

Virus Protection –anti-virus and anti-spyware updated regularly

Examples of COBIT Controls Backups & Restore –

Regularly tested procedures

IT Continuity – Disaster Recovery Procedures

Examples of COBIT Controls Files Access Privilege

Controls Identity Management –

password strength/age and access. Who has access and is that appropriate now?

Examples of COBIT Controls

Risk Evaluation Programs – Risk Assessment and internal auditing.

Employee IT Security Training – Training of end users related to utilization of resources.

Examples of COBIT Controls

Management support/buy in – Executive level oversight of projects related to IT.

IT as part of strategic planning – The business must be supported by technologies.

Change Management

Standardized change control is a great place to find fast rewards in pursuit of compliance.

Change ApprovalChange Categorization Change DocumentationChange PrioritizationFormal Request for Change ProcessA body of subject matter experts that oversee

change.

Consistent Logging

• Change Management• Configuration Mgmt. • Event Management• Incident Management• Knowledge Mgmt. • Problem Management

“Operationalize” information.

Connect the internal changes needed with the strategic objectives of the company.

Illustrate that real-time information flow enhances your organization’s ability to make decisions while making compliance easier.

Point out the significance of new activities that may seem mundane or inconsequential. This will help actions taken by staff at every level feel more relevant and less painful.

Remember W. Edward Deming?

SOX Compliance is not a fix it and forget it endeavor. As companies and the ecosystems that support them change new compliance quandaries will come up.

How can SOX help ?

Perspectives on operational control, consistency, and quality take on a whole different meaning once they have a clear relationship to fiduciary responsibility.

It is amazing how different the conversation about project prioritization becomes once executive management are offered the opportunity to make decisions guiding it.