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Can RFID Improve Sarbanes-Oxley Compliance?

U.S. companies that deploy RFID to meet retailer mandates or improve their own internal operations could reap an unexpected benefit: stronger compliance with the Sarbanes-Oxley Act.
By Ann C. Logue
Aug 01, 2005—Since the Sarbanes-Oxley Act (SOX) was passed in the summer of 2002, public U.S. companies have been obsessed with meeting the law, which changed the way they are audited. The goal is to prevent fraud and misreporting of financial statements—and that includes verifying that assets and inventory are in place. RFID has the potential to help companies comply with the law by improving asset management.

"Embodied in the financial statement are assertions made by management stating that their physical inventory and fixed assets exist and are owned by the company," says Christopher Monk, senior manager of supply-chain risk consulting at Protiviti, a consulting firm that helps companies comply with SOX. "RFID provides the functionality to track the physical location and movement of inventory from origination point at the supplier through the company's manufacturing or distribution process, establishing an audit trail of ownership rights, physical location and possible protection against fraud."

Sounds like a perfect solution, but for several reasons, even companies that have deployed RFID to meet retailer mandates or improve their own internal operations aren't using the technology to comply with the Sarbanes-Oxley Act. On the finance side, most managers have not yet had the luxury of strategic thinking about Sarbanes-Oxley.

There are technology issues, too—namely how to tie RFID data into the financial applications of enterprise resource planning (ERP) systems, which most companies now use to consolidate their accounting, including tracking assets and liabilities. Also, the executives who handle SOX compliance and RFID implementation are in different departments—and they don't seem to be talking to each other.

Even if they were, companies have so much work to do using their existing management information systems to achieve compliance with Sarbanes-Oxley that few want to risk adding modules that could jeopardize the integrity of their financial controls. But that's likely to change as public companies, information systems vendors, accounting firms and compliance consultants gain experience with RFID systems and the SOX laws.
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