Inconsistent Pricing of Employee Sales May Be Non-Compliant with the Sarbanes-Oxley Act
Compliance with the Sarbanes-Oxley Act of 2002 is mandatory for all publicly traded corporations. Under the new federal law, corporations must eliminate all conflicts of interest, establish processes to ensure honest corporate disclosure, and govern with greater accountability. Furthermore, the legislation mandates accuracy of a company’s financial reports, requiring finance departments to better understand the true picture of a company‘s inventory and assets, such as with fleet. The Sarbanes-Oxley Act was the legislative reaction to the spate of corporate scandals involving companies such as Enron, Tyco, WorldCom, and Adelphia. The law is named after Sen. Paul Sarbanes and Rep. Michael Oxley, the bill’s key sponsors.
How Does This Affect Fleet Operations?
How a fleet complies with Sarbanes-Oxley (SOX) depends on whether it constitutes a material part of its company’s financial processes. It is these companies that are the ones most likely to include fleet operations in their SOX compliance audit.
However, the problem with SOX compliance is that every company interprets the law differently. “The laws were written vaguely and are subject to very different interpretation,” said Greg Corrigan, VP, marketing and strategic business services for PHH Arval in Sparks, Md. “There is an army of consultants who are making a career out of Sarbanes-Oxley compliance audits. Of the audits I have seen, I haven’t seen any two recommendations from two consultants that are identical.”
Proactive Fleet Managers
SOX audits involving fleet operations typically examine the processes in place to validate the accuracy of the fleet billing and to validate that calculations are done consistently and correctly. A proactive fleet manager will review internal processes to ensure they are properly documented and establish a system to conduct periodic audits. According to Corrigan, other potential fleet compliance requirements are:Documentation on how the lease payment is computed. This includes periodic audits of new-vehicle notices to ensure that the vehicle acquisition price and fleet incentives are accurately represented and properly calculated in the lease payment. A system to track fleet incentive monies to ensure that the amount of monies agreed to were actually received from the manufacturer. Internal process documentation for company vehicle eligibility for new hires to ensure a vehicle isn’t assigned until a specific point in the hiring process. Auditors want to ensure that there is a system in place so that a vehicle cannot be ordered without proper authorization.
Potential Fleet Compliance Issues
When selling out-of-service units to employees, companies need to ensure that fleet policy is uniformly applied, without exceptions, and that all buyers are treated uniformly and consistently. However, when the selling prices of used company vehicles are negotiated individually with employees, rather than sold at a fixed price, there may be a perception that not all employees are treated uniformly under fleet policy. This is especially the case if certain employees receive preferential pricing in the purchase of out-of-service fleet vehicles. Although primarily an ethics issue, if a fleet manager is actively involved in individual price negotiations, it is prudent that he or she documents the procedures for this corporate policy. Auditors want to ensure that fleet policy is being enforced uniformly and consistently throughout the organization.
Another potential fleet compliance issue lies with decentralized fleets, where P&L responsibilities are distributed among different business units and fleet policy is implemented at the local level. This may result in a lack of uniformity in fleet policies. Using the earlier employee sales example, a regional manager may administer the program differently than other managers. Vendor selection is a third potential compliance issue. When a company selects fleet suppliers, those decisions need to be done in a consistent manner, as documented in the corporation’s purchasing guidelines. The selection process should also take into consideration the supplier’s internal financial controls and processes. The supplier selection process needs to be tightly managed to ensure there is no appearance of impropriety.
No Common Thread
There is no common thread in what auditors look at when examining fleet operations for SOX compliance. “Consultants know very little about fleet and if fleet managers have good processes in place, they will be able to lead the discussion on how fleet transaction accuracy is validated,” said Corrigan.
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