Steps for leveraging CRM as part of every company's strategy for complying with Sarbanes-Oxley legislation.
Posted Dec 8, 2003
While most of the discussion about the Sarbanes-Oxley Act has focused on financial management, it is now becoming clear that marketing professionals need to focus on how the legislation will extend to marketing and customer-facing functions. CRM-related processes like marketing discretionary spending, sales revenue recognition, service credits and product returns each have a direct impact on financial reporting, and are critical areas that should be addressed as part of every company's strategy for Sarbanes-Oxley compliance. A CRM system can help companies establish controls for the financial reporting related to these processes to easily support compliance with the legislation.
Sarbanes-Oxley requires companies to establish and maintain an adequate set of internal controls for accurate financial reporting that can be audited by a third party [Section 404]. The CRM-related processes outlined above all have an impact on a corporation's financial reporting, and may not be top-of-mind when planning the overall strategy for Sarbanes-Oxley compliance. Several other sections of the legislation [Section 302 and 401(b)] have implications for customer-facing activities, including the requirements that sales figures reported for the prior year are correct. Section 409 requires companies to report material changes to financial conditions, such as the loss of a strategic customer or significant customer claims about product quality.
New requirements in all of these areas will directly affect the marketing organization, and it is important to understand how to solve these new challenges. Following are steps for leveraging CRM as part of every company's strategy for complying with Sarbanes-Oxley legislation.
Development of an audit trail
Diverse system landscapes, which include custom interfaces, make it difficult to track the document flow from a sales opportunity to a sales order to an invoice to an accounting document. Traditional auditing methods attempt to balance the totals between the systems, and then take random samples of the documents to attempt to match them. This helps validate that the financial reporting numbers are correct, but does little to incorporate controls into the process. An integrated system environment, by contrast, enables managers to monitor the document flow. Revenue recognition can be defined and managed by the appropriate sales and financial managers.
Monitoring of business activities
Consider the following example:
Company ABC has a sales system that manages sales quotes and sales orders, but not sales activities. Suddenly, accusations arise about bogus sales orders being submitted by sales reps to meet quotas. Without the right system in place it will be difficult to identify suspicious sales orders until after the fact. This is not an effective control.
A CRM system that tracks activities, as well as sales quotes and orders, can be used to incorporate process controls that identify questionable sales transactions. If the business activities point to a relatively small order and then the actual order comes in significantly higher, this order may need to be flagged and investigated. Was there a clerical error on the order? Did circumstances around the order change, and if so, why? Was something suspicious going on? The right CRM system can provide exception-alert capabilities to identify instances outside of defined parameters that put companies at risk.
Tracking business activities in a systematic and consistent manner helps ensure appropriate corporate conduct and provides confidence to customer-facing managers that the financial reporting is correct.
Tracking of costs and revenues
Marketing spending is an area with large potential for abuse. In many cases marketing programs cannot be directly linked to financial performance. Without adequate tracking of the marketing spend, it can be difficult to manage this risk. An integrated CRM system allows a company to collect appropriate costs for each individual marketing campaign. These costs can then be matched to corporate initiatives and financial objectives, demonstrating the financial impact of the marketing campaign. With a CRM platform that links to other key business operations, managers can put into place the appropriate controls to ensure accurate financial reporting, such as setting an approval process that requires the appropriate cost structures to be in place before releasing marketing funds.
Automated management controls and alerts
Pricing is another key area for sales managers that impacts accurate financial reporting. For instance, what discounts are available? When can a price be overridden? Who approves discounts? CRM can address all these issues by putting into place an adequate system of controls that includes the security and approval workflow around changing prices and extending discounts.
A CRM system that enables managers to control actions and processes that impact financial results, such as pricing, marketing discretionary spending, and extending customer credits, is critical to providing an infrastructure of manageable internal controls. In addition, an alert system that enables exception reporting, key performance indicators, and daily performance monitoring is critical for quickly and accurately addressing problems and issues that arise.
Integration of financial information into CRM planning applications
Sarbanes-Oxley requires that the CEO and CFO certify that any public disclosure of financial numbers, including financial guidance, is correct. If a company provides any financial information about how it expects to finish the quarter or the year, the financial information must be as accurate as possible. Therefore, companies are renewing their focus on planning and forecasting, making the accurate collection and classification of sales even more critical.
For instance, sales (in the form of revenue) comprise the top line of a corporate income statement and many budgeting and expense allocations are based on expected revenue, all of which can impact the profitability of a company. An integrated CRM system that leverages a top-down, bottom-up approach can help ensure that planning numbers incorporate corporate strategy, financial expectations, and field knowledge of future revenues.
Deploy a CRM system that supports Sarbanes-Oxley compliance initiatives
Sarbanes-Oxley spans beyond finance and accounting and will have an important, lasting impact on customer related processes, making the need for an integrated CRM system even more crucial. Because much of what transpires in the marketing and sales organization directly impacts a company's financial picture, a tight link between CRM and financial systems is critical and will enable managers to automate process controls, monitor performance, and ensure the development of an audit trail.
With a June 2004 deadline for initial compliance, the right CRM solution can help companies overcome many of the unforeseen hurdles in complying with Sarbanes, and deliver the ultimate return by giving companies peace of mind.