Sarbanes-Oxley Act, popularly known as the SOX Act, was made to protect shareholders and the public from accounting errors as well as fraudulent practices in companies by improving the accuracy of corporate disclosure.
It is essential to bring transparency in corporate governance and formalize a system of checks and balances to avoid financial scandals. Hence, all public companies must comply with the Sarbanes-Oxley Act. This act does not specify how to store the data or a data plan for companies; however, it specifies the time length and the type of records to be stored.
SOX compliance applies to
- Public companies in the United States.
- International companies with registered equity/debt securities in the US.
- Any accounting firm or any third party that offers financial services to the above-mentioned businesses.
Companies must save their business records (that include electronic records and electronic messages) for at least five years to comply with SOX guidelines. Non-compliance may result in fines, imprisonment, or both.
The SOX Act has the following two sections that require the attention of the IT department:
It is related to the financial reporting of a company. According to section 302, the CEO/CFO of a company must certify that all records are accurate and complete. They must hold themselves responsible for all internal controls, review these controls in the past 90 days, and confirm the same. In short, there is a clear guideline for all modern businesses to ensure high-security standards are enforced.
It specifies the requirements for the monitoring and maintenance of internal controls that are related to the accounting and finance of a company. According to section 404, businesses must have an annual audit of these controls that should be performed by another firm. In this audit, the effectiveness of all internal controls is assessed and its findings are reported.
If these sections are well-understood, it will help you in guiding the policies for your IT team, hardware implementation, and software implementation.
“What data do you have?”
“What type of data do you have?”
“What precautions need to be taken for which type of data?”
SOX compliance is not possible without tools and processes to secure your data. You require written evidence of internal controls. The written evidence must state that these controls have been communicated and enforced.
You can put the right security tools and processes in place after completing your audit. The SOX audit should be done once a year. Based on your findings, you may require to update your controls. For unbiased results, the SOX audit must be performed by an outside company.
Companies have migrated to electronic records to keep the data safe. SOX Act requires that IT departments create and maintain an archive of all corporate records. The real trick is to find the best way to keep these records manageable, cost-effective, and in compliance.
IT department need to comply with SOX guidelines due to the following concerns:
- Managing records that may lead to issues like destruction, alteration, or falsification of records.
- The retention period of record storage that includes the best practices for securely storing public accounts.
- Type of business record to be stored such as electronic communications
IT department must address how to prevent falsification of records, destroy data properly (especially sensitive data) and manage alterations and versions of data. Since the data retention period depends on the data, the SOX guidelines help companies to better understand which data to keep and for how long. Some data cannot be destroyed after a certain period. Thus, the third concern of the SOX guidelines (i.e., which type of data must be stored) cannot be ignored by the SOX Act.
How your company can monitor its data and enforce corporate policies for data handling?
Initiating with the proper data classification method is the key. It ensures that your data will be stored properly. When the data is classified properly, you will know what precautions must be taken for what data. Whether the data is to be encrypted and compressed or be in a certain file format depends on the data itself.
It is important to mask the data while transferring from one person/system to another. It is a part of protection and compliance. Thus, you must monitor data, enforce your policies, and log every user action.
Your company must comply with the SOX guidelines as non-compliance may lead to serious consequences.
SOX compliance cannot be pushed off or leave to chance; keeping up with it requires dedication. It is good to have the bandwidth for keeping your SOX compliance. You must ensure that all policies are communicated to your IT department. You can take help from an outside company that can audit, recommend tools, set up policies, and monitor data.