Until now, the Sarbanes-Oxley Act (SOX) has primarily been the concern of senior executives and finance officers. However, new requirements, scheduled to take effect later this year, could mean changes for meeting planners as well, including closer scrutiny of expense reporting and more stringent documentation requirements.
Introduced by Senator Paul Sarbanes (D-MD) and Representative Michael Oxley (R-OH), the bill was enacted in 2002 to increase corporate responsibility and curtail accounting scandals. The area of concern is section 404 of the Act, which becomes law August 15 for large corporations and June 15, 2005 for smaller publicly traded companies. The legislation does not affect private companies, except those planning to go public.
Section 404 requires each public company to include an "internal control report" in its annual report. Companies must document financial reporting procedures in the annual report and have independent auditors sign off on it.
The onus of the changes will fall most directly on purchasing and procurement departments—those who control the purse strings. However, because of the annual audits, planners will face tighter controls in the way they purchase items, such as meeting space, hotel rooms, airline tickets, food and beverage, and other services.
"From the meeting planners perspective, it’s going to be a filter down effect," says Joshua Grimes, attorney with Grimes Law Offices, Philadelphia
There are several steps that planners can take to comply with Sarbanes-Oxley, says Scott Green, director of audit and compliance at Weil Gotshal & Manges LLP, New York, and author of the new book, The Managers Guide to the Sarbanes-Oxley Act: Internal Controls to Prevent Fraud.
First, corporations will need to document the business purpose of travel and meetings by establishing an approval system wherein senior management signs off on the objective of the event, says Green. The larger and more expensive the meeting, the more senior level approvals will be required.
"The idea is to prevent, or at least raise as possible abuse, activities such as throwing lavish, million dollar parties in exotic locations for corporate personalities that have little business purpose or benefit for shareholders," says Green.
Second, if they don’t already, companies should establish policies to determine what portion of travel or offsite meeting-related expenses a company would pay and what would be considered personal charges.
Incentives won’t be hurt by the law, according to Green. "Those expenditures designed to motivate employees and, as a result, improve financial results that drive stock prices, should continue to be encouraged and paid for by a corporation."
The end result of the tighter controls will be higher costs. "Most companies are saying the costs are much greater than anyone anticipated," Green says. Many firms have hired consultants to document their processes in preparation for external audits. Others are purchasing special documentation software.
While consulting fees are one-time costs, audit fees are not, and they are expected to rise anywhere from 25-100% over past years.
In a new white paper, WorldTravel BTI, Atlanta, says planners and travel managers should consider using automated expense-reporting systems to assist in the enforcement of financial controls. The corporate travel management company suggests contacting the company controller or internal auditor to discuss compliance requirements. It also outlines a number of internal controls that meeting/travel managers can implement, such as reviewing company travel policies, supplier rebate and discount programs, travel authorization processes, value added tax (VAT) reclamation procedures, employee per diems, corporate card programs, and client billing processes; mandating compliance for preferred supplier and travel management programs; and revising employee handbooks to include section on business ethics and code of conduct.
SOX will also require that planners record measures to insure the safety of meeting attendees, says Bill Boyd, president and CEO of Sunbelt Motivation & Travel Inc., Irving, Texas.
Planners should record the due diligence done to account for the safety of a destination and venue, adds Boyd.
Also, with more transparency comes heightened scrutiny from shareholders, which, according to Grimes, may result in the need for additional security at annual shareholder meetings.
Some are predicting that Sarbanes-Oxley could actually result in more board and committee meetings for companies that are under stress. "Most boards realize that they need to actively get involved when their companies are struggling," says Green.
For the most part, though, meeting departments are well prepared for Sarbanes-Oxley, says Julie Carroll, national director, strategic partnerships at WorldTravel Meetings & Incentives, Chicago. "The trend in the meeting management industry over the past couple of years has been to have legal departments and/or procurement departments involved," she says. "They realized what a large budget item meetings is, so they want to get their hands around it."
However, an understanding of Sarbanes-Oxley could help raise the profile of planners within the corporate structure, says Boyd. "It’s a wave that’s going to sweep you away if you don’t ride on top of it. If you do, it could help you get a seat at the table because this is going to be a major issue in our industry in the next two to three years."