Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Thursday, November 18, 2004

Making SOX compliance a meaningful exercise

Last week I wrote that Sarbanes-Oxley compliance efforts are too often a wasted effort. Now I've got some confirmation from a reader on the front lines.

"Richard" (not his real name) works for a large well-known company that is proudly claiming its compliance with SOX Section 404 (internal controls). But according to Richard, the benefits do not justify the cost:

Frank, yes, Sarbanes-Oxley is a LOT of work--too much! And no, it doesn't give any additional protection, if you ask me. The internal controls that we've implemented in IT really don't mean much.

Let me illustrate with one example. Our company has implemented an internal control that says a developer cannot directly modify production data. So now we stand next to the user administrator's desk while he runs the SQL we gave him. He has no idea what he is running, but since it is done under his login it is "SOX compliant!"

This is a big productivity drain. Two people are now needed to do something that one person could have done before, it is sometimes difficult to coordinate schedules, and frequently the production data mods are time critical. So now everyone is running around like chickens with their heads cut off trying get some simple UPDATE statement executed.

Well, Congress is full of lawyers and accountants and constantly is lobbied by them as well. So we know who is making money from SOX compliance--the lawyers and the accountants!
The situation that Richard describes is typical of compliance efforts that focus on the appearance of compliance but not the intent of the regulation. In this case, one must ask, what risk to the business is this internal control intended to mitigate? Apparently, Richard's firm thinks that IT personnel may inadvertently (or deliberately!) corrupt the firm's electronic records. The company has therefore implemented a policy that forbids programmers from running special programs to directly alter live files. However, the procedure allows a user with proper access rights to run the exact same program. But since the user doesn't understand the program, he or she has no way to verify that the program will not corrupt the database. Therefore, this internal control might look good on the surface to an auditor that is not familiar with IT security. But it doesn't mitigate any risk to the firm. Rather, it just creates inconvenience.

What would be more effective is in this case would be a meaningful combination of protective measures. First, there should access controls to prevent programmers from updating live files, plus a procedure that requires programmers to submit all update programs to a database administrator. The procedure should call for the programmer to submit documentation as to the need for the update along with test results. There should also be a database audit trail produced to record the results of the live update, and a contingency plan in the event that errors are found after the update (e.g. a backup/restore procedure, or other way to back out the changes). These measures would greatly mitigate the risk of data corruption with three types of controls: preventive controls (limiting the update rights of the programmer, separating the duties of the programmer vs. the DBA, and requiring testing of update programs), a detective control (the audit trail), and a corrective control (the contingency plan). Putting a user in the middle of the process adds nothing.

The trend toward meaningless compliance is not limited to Sarbanes-Oxley. I have written previously about the same problem with FDA regulatory compliance in software validation, where companies spend long hours and generate reams of test results to demonstrate that they have "validated" computer systems that support regulated functions, such as drug manufacturing. Yet the systems are not more trustworthy and reliable when they are finished with their "validation."

Government is increasing and will continue to increase regulation of business functions in general, and computer systems specifically. Sarbanes-Oxley, HIPAA, and FDA regulations, to name just three, have enormous impact on IT departments. It is tempting to treat compliance as a formality--what is the minimum I need to do to pass an audit? But if we don't focus on the risk to the business and the intent of the regulation, we will just continue to add to the cost of doing business without any meaningful protection.

Related posts
Sarbanes-Oxley compliance: too often a wasted effort
Sarbanes-Oxley spotlights need for controls in IT
Turning software validation into a meaningful exercise

by Frank Scavo, 11/18/2004 10:36:00 AM | permalink | e-mail this!

 Reader Comments:

Post a Comment

Links to this post:


Powered by Blogger

(c) 2002-2018, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.

Go to latest postings

Search the Spectator!
Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed RSS News Feed

Computer Economics
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report


2014 Best Independent ERP Blog - Winner 2013 Best ERP Writer - Winner Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs

Key References
Strativa: Business strategy consulting, strategic planning
Strativa: IT strategy consulting
Strativa: Business process improvement, process mapping, consultants
Strativa: IT due diligence
Strativa: ERP software selection consulting and vendor evaluation
Strativa: CRM software selection consulting and vendor evaluation
Strativa: Project management consulting, change management
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Enterprise IT News: diginomica

Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
September 2015
October 2015
November 2015
February 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016
January 2017
February 2017
May 2017
June 2017
October 2017
January 2018
April 2018
May 2018
Latest postings