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ANOTHER LOOK Accounting in ERP Systems

Sarbanes-Oxley Ten Years Out
Ten years has passed since the passage of the Sarbanes-Oxley Act of 2002, and to date, the
SEC—the organization in charge of prosecuting violations of the law—has filed cases
against only 20 companies accused of violating the act. The backbone of the act was
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increased responsibility placed on company executives. The act allows the SEC to seize pay
from the CEOs and CFOs of companies found to have filed fraudulent financial statements,
even if the executives were not directly involved in the fraud. However, some experts, such
as Jack T. Ciesielski, president of R. G. Associates and the editor of The Analyst’s
Accounting Observer, believe the act is a “dormant enforcement tool” and is not a
deterrent because it is not really being used. A primary challenge to enforcing the
Sarbanes-Oxley Act is that much of the language in the bill was poorly drafted and
ambiguous. In addition to the small number of cases filed under Sarbanes-Oxley, half of the
companies that have been charged have been small companies, and many cases have yet to
be resolved.
Recently, however, some larger companies have been charged with violations of the
act. For instance, Navistar was charged by the SEC with overstating its income from
2001 to 2005, and, as a result, the chief executive of the company, along with the former
chief financial executive, were forced to give back stock they had earned during that
time frame. Similarly, the former CEO at Diebold (a maker of automated teller
machines) was forced to repay cash and stock after the SEC charged the company with
overstating its results over the course of five years. And in a recent case against Beazer
Homes and two of its former executives, the SEC collected $8 million and 119,000
shares of Beazer stock. While these cases do involve larger companies, with executives
being forced to return at least some portion of their compensation, many feel that
enforcement is still lacking. According to Harvey Goldschmid, a professor at Columbia
Law School and a former SEC commissioner, “The trick is to create deterrents and
accountability in the system. You don’t do it if you’re soft on individuals.”

Question:
1. Use the Internet to research the latest news surrounding the Sarbanes-Oxley
Act. Make a list of companies that have been charged with fraudulent
activities in the last three years. Can you see any patterns of an increase or
decrease in fraud over the past few years?

The next section explores ways in which SAP ERP and other ERP systems can
prevent corporate fraud and abuse.

Archiving
One of the first things a new SAP ERP user typically notices is that the software offers very few
ways to delete items. For example, the menus in the SAP ERP system related to material
master data (master records that describe material characteristics) are shown in Figure 5-11.

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