IT firm digitizing the compliance process

WASHINGTON, July 20 (UPI) -- IT executives at a Fairfax, Va., firm are betting their new software will win over financial officers who are struggling to handle the costs of compliance with the Sarbanes-Oxley Act and other corporate-governance laws.

This week, webMethods Inc. rolled out its new software, called webMethods for Compliance, which is "designed to verify the completeness, accuracy and validity of transactions and business processes in accordance with" the SOX Act and federal requirements, the company said in a statement.

The firm, which specializing in business integration software, "is targeting the software to CFOs and internal auditors at publicly traded companies," Arnold Huffman, vice president of Global Strategic Business Solutions at webMethods, told United Press International.

The Web-based program, which costs six figures, has been available for 18 months to selected clients, Huffman added. The software takes a holistic approach to monitoring all impacted business processes and financial transactions for compliance.

"We have over 30 customers on webMethods for Compliance," John Conley, the company's director of public relation, told UPI.

According to Huffman, many publicly traded companies spend nearly 80 percent of their compliance time and cost on SOX requirements.

The software tracks in real time the business processes of institutions and alerts them when they might be violating certain corporate governance-laws or when historical norms fall out of pattern.

For example, if a teller forgets to log in a $10,000 transaction -- which is required by law -- the software immediately informs the in-house auditors the deal must be documented for federal regulators.

"The monitoring, analysis and evaluation of internal controls is labor intensive, costly and often fails to flag issues in time to take corrective action" Huffman said in a company statement. "Automation of this process is critical and can produce significant savings for the corporation."

With many banking and investment firms, the auditing and monitoring of their business practices for federal regulators is labor intense and attached with a high expenditure cost, John Hall, a spokesman for the American Bankers Association in Washington, told UPI.

Escalating compliance costs have a direct affect on how banks serve their customers and communities, so automating the process reduces the regulatory costs incurred by institutions, because it reduces red tape and paperwork, said Hall, who focuses on banking technology issues for the trade group.

Last May, Bradley E. Rock of the ABA told the House Committee on Financial Institutions and Consumer Credit that, based on industry research, the total cost of compliance for banks ranges from $34 billion to $42 billion per year.

This, however, "does not include compliance costs due to legislation enacted in the last five years, such as the USA Patriot and Sarbanes-Oxley," Rock said.

In 2003, the ABA, the largest banking association in the nation, issued a report stating that 45.4 percent of compliance dollars were earmarked for personnel salaries and benefits, while 5.1 percent was allocated for compliance software.

The compliance-software figure probably has increased, Hall said, explaining that the compliance-technology sector has grown rapidly over the past couple of years.

"More banks are turning to compliance software because of the complexity of federal laws," he added.

"Making compliance repeatable, sustainability, and cost-effective must become the priority for ongoing investment," John Hagerty, vice president of AMR Research in Boston, said in "Active Compliance is Becoming a Reality," a March 2005 report.

"Continuous monitoring and automated testing is maturing in approach and applicability to be considered for evaluation now rather than later," added Hagerty, whose firm specializes in technology investments.

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Lydell Bridgeford is an intern for UPI Science News. E-mail: sciencemail@upi.com