How COBIT helps you achieve SOX Compliance

First released way back in 1996, COBIT has already been around for quite a while. One reason why it never took off was because companies were never compelled to use it ? until now. Today, many CEOs and CIOs are finding it to be a vital tool for achieving SOX compliance in IT.

Thanks to SOX, COBIT (Control Objectives for Information and related Technology) is now one of the most widely accepted source of guidance among companies who have IT integrated with their accounting/financial systems. It has also gained general acceptability with third parties and regulators. But how did this happen?

Role of control frameworks in SOX compliance

You see, the Sarbanes-Oxley Act, despite having clearly manifested the urgency of establishing effective internal controls, does not provide a road map for you to follow nor does it specify a yardstick to help you determine whether an acceptable mileage in the right direction has already been achieved.

In other words, if you were a CIO and you wanted to find guidance on what steps you had to take to achieve compliance, you wouldn’t be able to find the answers in the legislation itself.

That can be a big problem. Two of your main SOX compliance obligations as a CEO or CIO is to assume responsibility in establishing internal controls over financial reporting and to certify their effectiveness. After that, the external auditors are supposed to attest to your assertions. Obviously, there has to be a well-defined basis before you can make such assertions and auditors can attest to anything.

In the language of auditors, this ?well-defined basis? is known as a control framework. Simply put, once you certify the presence of adequate internal controls in your organisation, the external auditor will ask, ?What control framework did you use??

Knowing what control framework you employed will help external auditors determine how to proceed with their evaluations and tests. For your part, a control framework can serve as a guide to help you work towards specific objectives for achieving compliance. Both of you can use it as a common reference point before drawing any conclusions regarding your controls.

But there are many control frameworks out there. What should you use?

How SOX, COSO, and COBIT fit together

Fortunately, despite SOX?s silence regarding control frameworks, you aren’t left entirely to your own devices. You could actually take a hint from the SEC and PCAOB, two of the lead organisations responsible for implementing SOX. SEC and PCAOB point to the adoption of any widely accepted control framework.

In this regard, they both highly endorse COSO, a well-established internal control framework formulated by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). Now, I must tell you, if you’re looking specifically for instructions pertaining to IT controls, you won’t find those in COSO either.

Although COSO is the most established control framework for enterprise governance and risk management you’ll ever find (and in fact, it’s what we recommend for your general accounting processes), it lacks many IT-related details. What is therefore needed for your IT processes is a framework that, in addition to being highly aligned with COSO, also provides more detailed considerations for IT.

This is where COBIT fits the bill.

How COBIT can contribute to your regulatory compliance endeavors

COBIT builds upon and adheres with COSO while providing a finer grain of detail focused on IT. You can even find a mapping between COBIT IT processes and COSO components within the COBIT document itself.

Designed with regulatory compliance in mind, COBIT lays down a clear path for developing policies and good practice for IT control, thus enabling you to bridge the gap between control requirements, technical issues, and business risks.

Some of the components you’ll find in COBIT include:

IT control objectives

These are statements defining specific desired results that, as a whole, characterise a well-managed IT process. They come in two forms for each COBIT-defined IT process: a high-level control objective and a number of detailed control objectives. These objectives will enable you to have a sense of direction by telling you exactly what you need to aim for.

Maturity models

These are used as benchmarks that give you a relative measurement stating where your level of management or control over an IT process or high-level control objective stands. It serves as a basis for setting as-is and to-be positions and enables support for gap analysis, which determines what needs to be done to achieve a chosen level. Basically, if a control objective points you to a direction, then its corresponding maturity model tells you how far in that direction you’ve gone.

RACI charts

These charts tell you who (e.g. CEO, CFO, Head of Operations, Head of IT Administration) should be Responsible, Accountable, Consulted, and Informed for each activity.

Goals and Metrics

These are sets of goals along with the corresponding metrics that allow you to measure against those goals. Goals and metrics are defined in three levels: IT goals and metrics, which define what business expects from IT; process goals and metrics, which define what the IT process should deliver to support It’s objectives; and activity goals and metrics, which measure how well the process is performing.

In addition to those, you’ll also find mappings of each process to the information criteria involved, IT resources that need to be leveraged, and the governance focus areas that are affected.

Everything is presented in a logical and manageable structure, so that you can easily draw connections between IT processes and business goals, which will in turn help you decide what appropriate governance and control is needed. Ultimately, COBIT can equip you with the right tools to maintain a cost-benefit balance as you work towards achieving SOX compliance.

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How To Get Started with your IT Compliance Efforts for SOX

There’s no question about it. For many of you top executives in the corporate world, all roads leading to a brighter future have to go through SOX compliance. And because the business processes that contribute to financial reporting (the crux of the Sarbanes-Oxley Act) are now highly reliant on IT systems, it is important to focus a good part of your attention there.

It is a long and arduous path to IT compliance, so if you don’t want your company to fall by the wayside due to inefficient utilisation of resources, it is important to set out with a plan on hand. What we have here are some vital information that will guide you in putting together a sound plan for SOX compliance of your company?s IT systems.

Why focus on IT systems for SOX compliance?

We’ll get to that. But first, let’s take up the specific portions of the Sarbanes-Oxley Act that affect information technology. These portions can be found in Section 302 and Section 404 of the act.

In simplified form, Section 302 grants the SEC (Securities and Exchange Commission) authority to come up with rules requiring you, CEOs and CFOs, to certify in each annual or quarterly financial report the following:

  • that you have reviewed the report;
  • that based on your knowledge, the report does not contain anything or leave out anything that would render it misleading;
  • that based on your knowledge, all financial information in the report fairly represent the financial conditions of the company;
  • that you are responsible for establishing internal controls over financial reporting; and
  • that you have assessed the effectiveness of the internal controls.

Similarly, Section 404, stated in simplified form, allows the SEC to come up with rules requiring you, CEOs and CFOs, to add an internal control report to each annual financial report stating that you are responsible for establishing internal controls over financial reporting.

You are also required to assess the effectiveness of those controls and to have a public accounting firm to attest to your assessment based upon standards adopted by the Public Company Accounting Oversight Board (PCAOB).

While there is no mention of IT systems, IT systems now play a significant role in financial reporting. Practically all of the data you need for your financial reports are stored, retrieved and processed on IT systems, so you really have to include them in your SOX compliance initiatives and establish controls on them.

Now that that’s settled, your next question could very well be: How do you know what controls to install and whether those controls are already sufficient to achieve compliance?

Finding a suitable guide for IT compliance

The two bodies responsible for setting rules and standards dealing with SOX, SEC and PCAOB, point to a well-established control framework for guidance – COSO. This framework was drafted by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and is the most widely accepted control framework in the business world.

However, while COSO is a tested and proven framework, it is more suitable for general controls. What we recommend is a widely-used control framework that aligns well with COSO but also caters to the more technical features and issues that come with IT systems.

Taking into consideration those qualifiers, we recommend COBIT. COBIT features a well thought out collection of IT-related control objectives grouped into four domains: Plan and Organise (PO), Acquire and Implement (AI), Deliver and Support (DS), and Monitor and Evaluate (ME). The document also includes maturity models, performance goals and metrics, and activity goals.

A few examples of COBIt’s detailed control objectives are:

DS4.2 – IT Continuity Plans
DS4.9 – Offsite Backup Storage
DS5.4 – User Account Management
DS5.8 – Cryptographic Key Management
DS5.10 – Network Security
DS5.11 – Exchange of Sensitive Data

By those titles alone, you can see that the framework is specifically designed for IT. But the document is quite extensive and, chances are, you won’t need all of the items detailed there. Furthermore, don’t expect COBIT to specify a control solution controls for every control objective. For example, throughout the control objective DS4 (Ensure Continuous Service), you won’t find any mention of virtualisation, which is common in any modern business continuity solution.

Basically, COBIT will tell you what you need to attain in order to achieve effective governance, management and control, but you’ll have to pick the solution best suited to reach that level of attainment.

Articles highly relevant to the one you just read:

Month End Accounting The Way It Should Be Today
Spreadsheet Woes ? Burden in SOX Compliance and Other Regulations
Spreadsheet Woes ? Limited Features For Easy Adoption of a Control Framework
How Internal Auditors Can Win The War Against Spreadsheet Fraud

Firewalls

There are two main reasons why some companies are hesitant to plug into the Internet.

  1. They know they’ll be exposing their company data to outside attacks from malicious individuals and malware.
  2. They fear their employees might get too many distractions: games, porn, chats, videos, and even social networking sites.

One vital component for your overall security strategy against such concerns? A firewall.

A firewall can block unauthorised access to certain Internet services from inside your organisation as well as prevent unauthenticated access from the outside. It is also used to monitor users’ activities while they were online.

In an enterprise setting, one may expect a collection of firewalls either for providing layered protection or segmenting off different units in the organisation. Some areas only need a standard line of defence while others require more restrictions. As such, certain firewalls may have different configurations compared to others.

Naturally, the more intricate an organisation’s defence requirements get, the more complex the task of monitoring, testing and configuring the firewalls becomes. That’s why we’re here to help.

  • We’ll evaluate your network as well as the security requirements of each department under your organisation to determine which firewall architecture is most suitable.
  • To achieve maximum efficiency, we’ll point out where each firewall should be positioned.
  • We’ll work with your key personnel to make sure all firewall configurations are set and optimised with your business rules in mind.
  • If a large number of firewalls are required, we’ll help you set up a firewall configuration management system.
  • Firewalls should be regularly tested and assessed to ensure they are in line with the organisation’s security policies. We’ll perform these routine tasks as well.

Firewalls aren’t very good at defending against sophisticated viruses. There are much better solutions for malware-related vulnerabilities, and we can help you in that regard too.

Other defences we’re capable of putting up include:

The Child at Work: Fun Team Builds with LEGO SERIOUS PLAY

There is a child just below the surface in all of us. When were kids, adults lopped off the sharp bits that intruded into their ?genteel? society. Schools, to their everlasting shame sanded away our unique free spirits, as they stuck us into uniforms and imposed a daily classroom discipline. We received badges and prizes if we obeyed, and strict sanctions when we did not. This produced a generation of middle-age managers who no longer know how to play.

Life can be so deadly serious ?

Things work pretty much the same in business. Life is deadly serious. If we want to keep our jobs, we must deliver on the bottom line in our departments. There is little time for fun outside the Christmas party, when we may, within the limits of decorum engage in activity for enjoyment and recreation, rather than a serious or practical purpose.

Team builds (and strategic planning sessions) can be deadly boring affairs that proceed down narrow funnels defined by human resource facilitators. No matter how hard HR they may try, the structural hierarchy will remain intact, unless they find a way to set it aside during the program. Injecting fun into the occasion liberates independent thought, and this is why.

? But not for a little child at play

Next time you dine out at a branded family restaurant, select a seat that allows you observe the kiddies? play zone. Notice how inventive children become, when the family hierarchy is not there to tell them what to do (although parents may try from the wrong side of the soundproof glass). The ?serious play? side of fun team-builds aims to liberate managers by releasing their child for the duration. Shall we dig a little deeper into this and discover the dynamics?

Many of us have less than perfect oral communication skills. This is one of the great impediments to modern business meetings. We may not have sufficient time to formulate our thoughts for them to remain relevant when we speak. When we express them, we sense the group?s impatience for us to hurry up, so other members can have their opportunity to contribute.

Sharing better thinking with LEGO? bricks

Most of us feel an urge to click the brightly coloured plastic bricks together that carpenter Ole Kirk Christiansen released into a war-weary world in 1949. The basic kit is a great leveller because the blocks are all the same, and the discriminators are the colours and the power of our imagination. Watching a free-form LEGO builder in action is equally fascinating, as we wonder ?what they will do next? and ?what is happening in their mind.?

Examples of LEGO Serious PLAY in action

Instead of asking team members to describe themselves in a minute, a LEGO? SERIOUS PLAY? facilitator may gather them around a table piled high with LEGO bricks instead, and ask them to each build a model of themselves. The atmosphere is informal with interaction and banter encouraged. It is still serious play though, as team members get to know each other, and their own personalities better

The system is equally effective in strategic sessions, where the facilitator provides specially selected building blocks for the team to experiment with as they learn to listen, and share. This enables them to deconstruct a problem into its component parts, and share solutions regardless of seniority, culture, and communication skills.

Creating problem- and solution-landscapes three dimensionally this way, enables open conversations that keep the focus on the problem. Participants at these team builds do not only reach effective consensus faster. They are also busy building better communication skills as they do.

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