As companies work to meet the regulatory standards of the Sarbanes-Oxley Act, they are experiencing the legislation's effects well beyond their finance department, compelling internal marketing professionals to focus on how regulation extends to marketing and customer-related functions.
CRM-related processes like marketing discretionary spending, sales revenue recognition, service credits and product returns each have a direct effect on financial reporting. An integrated 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 affect 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 [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.
Here are ways CRM can help companies put into place controls to support Sarbanes-Oxley compliance:
Develop 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 among the systems and then take random samples of the documents to attempt to match them.
Though this helps validate that the financial reporting numbers are correct, it does little to incorporate controls into the process. An integrated system environment, by contrast, lets managers monitor the document flow. Revenue recognition can be defined and managed by the appropriate sales and financial managers.
Monitor business activities. Consider this 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, which put companies at risk.
Tracking business activities in a systematic, consistent manner helps ensure appropriate corporate conduct and provides confidence to customer-facing managers that the financial reporting is correct.
Track costs and revenues. Marketing spending is an area with large potential for abuse. In many cases, marketing programs cannot be linked directly to financial performance. Without adequate tracking of the marketing spend, it can be difficult to manage this risk. An integrated CRM system lets a company collect appropriate costs for each individual marketing campaign. These costs then can be matched to corporate initiatives and financial objectives, demonstrating the campaign’s financial effect.
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 affects 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 lets managers control actions and processes affecting 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.
Integrating 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, it 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) make up the top line of a corporate income statement, and many budgeting and expense allocations are based on expected revenue, all of which can affect a company’s profitability. An integrated CRM system that leverages a “top-down” and “bottom-up” approach can help ensure that planning numbers incorporate corporate strategy, financial expectations and field knowledge of future revenue.
Deploying a CRM system that supports Sarbanes-Oxley compliance initiatives. Sarbanes-Oxley spans beyond financial business processes and will have an important, lasting effect on all 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 affects a company's financial picture, a tight link between CRM and financial systems is critical and will let managers automate process controls, monitor performance and ensure the development of an audit trail.
The right CRM solution can provide a vital tool to help organizations overcome many of the unforeseen hurdles in complying with Sarbanes-Oxley and deliver the ultimate return by ensuring peace of mind.