08-17-2007, 11:13 AM
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RFID + SOX = ROI for Public Companies
Issue #112 | Aug. 17, 2007 | by Leanne Smullen
You probably know about the Sarbanes-Oxley Act (SOX), the law congress passed in 2002 to restore public and investor confidence in public companies after the Enron and MCI scandals. But did you know RFID can have an impact on its enforcement?
SOX is a stringent and extensive set of business regulations that require these corporations to create auditable business processes for improved financial transparency and strong internal operational controls. The regulations mandate companies comply with a wide range of management and reporting requirements.
Companies must engage in practices that ensure the integrity, accuracy and security of corporate records. It centers on Section 404: Management Assessment of Internal Controls. This part of the law is so significant Corporate America is spending hundreds of millions of dollars on compliance, according to the U.S. Chamber of Commerce who is fighting for its modification.
There is a big difference between SOX compliance and meeting Wal-Mart or Boeing mandates. If you mess up with SOX, management is personally liable and can serve jail time.
- Managers are legally responsible for material internal control
- Management must attest that the company is controlled, and business and IT processes are documented
- Independent auditors must verify that the company is under control and business and IT processes are documented
The primary goal of SOX is to prevent fraud and misreporting on financial statements. In regard to physical and fixed assets, financial statements include assertions stating that the company’s physical inventory and fixed assets exist and are owned by the company.
Companies now have to apply the same transparency and visibility of hard goods as they do cash. It is not unusual to have a majority of a company’s capital tied up in hard goods, from product inventory, to raw materials, valuable vehicles and equipment. Public companies must have complete visibility and traceability of their corporate assets for better management, accounting and reporting purposes.
Those executives who personally must sign off on these forms, must ask themselves:
- Am I confident I know where our assets are?
- Do we have any ghost assets on our books that we don’t actually have anymore?
- How much have we had to write off due to lost or misplaced products?
- Have we continued to pay taxes and insurance on assets we no longer own?
Using RFID to Track Assets and Comply with SOX
Because or RFID’s success in tracking the physical location and movement of assets and inventory, its value for SOX compliance to public company adds a big number on the plus side of the column.
RFID can help track the entire life cycle of fixed assets: their installation, maintenance, upgrade, movement and decommissioning. It also can monitor a "chain of custody" through the manufacturing and distribution process. Essentially, RFID can help companies establish an audit trail of ownership rights and physical location, which can help them better account for their assets.
The benefits RFID provides for SOX compliance, alone, will probably not create a case for ROI. But the compliance piece should not be ignored when added to the many other, more well-reported benefits of a robust asset tracking solutions:
- Better inventory control
- Improved fixed asset accounting
- Mobile equipment tracking
- Security of sensitive, high-value assets
- Raw materials and work-in-progress tracking on shop floors
- Personnel identification and access for secured access
- Finished goods tracking in manufacturing supply chains
Because each asset gets a unique item number that can be stored in a database, every assigned asset can contain information such as its acquisition date, location, current value, billed account, warranty, purchase order, contract maintenance, insured value and depreciation schedule. Increased supply chain efficiencies to reduced inventory write-offs are a nice bonus.
Other Uses of RFID to Track Assets
In short, an RFID solution that automatically tracks and manages assets that would have this great of a benefit for SOX compliance, would have these benefits overall:
- Continuous, real-time inventory that can easily be matched to books and which results in fewer write-offs and increased tax savings
- Comprehensive asset histories and audit trails reduce errors in recording asset movements and statuses
- Reduced equipment loss or theft due to management alerts when assets aren’t where they should be
- Automated processes that result in significant labor savings
- Management dashboards and reports to help determine key performance indicators and increase asset utilization
Leanne Smullen is Vice President of Marketing for Fluensee, an RFID-enabled asset tracking and supply chain management solutions provider based in Englewood, Colorado. www.fluensee.com.
Last edited by AndreaC : 08-17-2007 at 05:57 PM.
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