The advent of Sarbanes-Oxley Section 404 (SOX) has had a profound impact on the role of the chief financial officer. In the first years of its implementation, CFOs had little time to pore over strategic business plans or roll up their sleeves with the rest of the executive team to chart their company's future.

Instead, the stringent demands of SOX that corporations monitor and report on the effectiveness of their internal accounting and reporting controls had a significant impact on the CFO's day-to-day work and responsibilities. SOX compliance required an enormous time commitment just to maintain adequate controls.

But today, after three years, CFOs once again realize that pure number-crunching need not define the scope of their jobs. Business scandals and tales of corruption no longer plague the headlines. Enron and WorldCom are now cautionary tales, albeit important ones. Most important, companies have a handle on 404.

Corporate America is moving on-and so are CFOs.

With investor and employee confidence back where it should be and with three years of SOX practice behind them, CFOs are starting to see beyond 404. By making accounting functions and SOX compliance more efficient and automated, CFOs are able to again focus on strategic business decisions and the unique perspectives they bring to the table.



Business scorekeepers

During the period when organizations were gearing up to comply with 404, finance teams often found themselves strapped as they focused on the job at hand. Those in the finance department having any exposure to a 10-key over the course of their career were sure to have been recruited for this herculean task.

Consequently, the CFO's role shifted from that of strategic business partner to scorekeeper. Any time spent in the board room was used for reporting on compliance statistics, with less time available to weigh in on major business decisions.

According to a survey conducted by CFO magazine in July 2005, finance teams were still spending a substantial amount of time handling traditional tasks such as accounting and reporting, risk management and tax issue. Conversely, at that time, they spent just 5% of their time on planning and setting company strategy, only 3% talking to customers, and another 3% analyzing potential merger-and-acquisition targets and executing deals.

Why? In the early days of 404, when the CFO served as scorekeeper, many organizations found they:

• Relied too heavily on manual controls and didn't fully realize IT's potential,

• Had disparate IT systems, which made data difficult or impossible to access,

• Worked in reactive mode as they performed repetitive, manual tasks, and

• Were understaffed, with employees who lacked clear roles, responsibilities and goals.

Fortunately, SOX forced them to rethink-and solve-many of these problems.



Reviving the advisor role

While CFOs and their finance staffs were preoccupied with implementing the details of SOX compliance, the role of strategic financial business advisor was often assumed by the business unit in most energy companies. While business unit-based analysts bring specialized industry knowledge, they typically lack the enterprise-wide perspective that the CFO brings to strategic decision-making.

Just as an individual wouldn't decide how to invest in his or her retirement fund without considering the broader picture of other financial goals and commitments, decisions made about the upstream business cannot be made without knowledge of downstream operations. It's a challenge for a business unit advisor to fully understand the impact of his or her decisions on the wider organization.

Making high-dollar decisions in a silo often equates to lost opportunity and more risk.

Fortunately, it's not such a long journey back to the boardroom for the CFO. And the timing couldn't be more critical. Today's energy industry is fraught with new challenges.

Cash flows are at an all-time industry high. So is demand-for access, reserves, and people. Exploration and production efforts require companies to go farther abroad for new sources of energy. Each new operating area comes with its own set of rules and financial challenges. Acquisition activity in the energy industry is also at an all-time high.

These deals require careful due diligence and enterprise-wide perspective.



Steps to take

With much at stake, CFOs must provide their financial teams with clear direction. These steps can help move a team in a strategic direction, to help create future success for the company:

Make SOX compliance a process, not a project. With three years of experience, SOX compliance should be an ongoing process, not an annual project. The learning curve should have flattened out a good bit by now. Smart companies should be reaping the rewards of SOX investments, not still struggling to meet the requirements. Most energy companies have incorporated enterprise resource planning software so that formerly manual processes can be automated.

Run a tight ship. Explicitly define the roles and responsibilities of everyone within the department, and be clear about performance expectations. Make people accountable. Resist the urge to micromanage. And, reward people for a job well done.

Streamline accounts payable and accounts receivable. For many companies, a good starting place is automating and streamlining accounts payable and receivable functions, to shorten the month-end reporting process. This alone goes a long way toward a more efficient financial organization. The technology is in place. The processes are in place. The people are in place. Make sure the finance department isn't running reports out of habit more than need. Conduct an internal survey to see which reports various departments and people in the company truly value. Cut out the unnecessary work. Think quality over quantity.

Make and maximize technology investments. To be 404-compliant, many companies made significant investments in ERP systems. Maximize the investment. Bringing processes under a common, centralized system reduces the number of access points, which in turn reduces the manpower requirements. Also, the less dispersed the IT infrastructure and applications, the fewer resources required to maintain them. Even consolidating servers from five or six locations to three or four can save a significant amount of money.

Outsource when possible. Consider outsourcing finance-related transactional processes like payables, receivables, financial accounting, and fixed-asset accounting. Shaving off these labor-intensive processes can result in notable time and cost savings for some companies.

Re-examine the CFO's role. After a few years of being steeped in SOX responsibilities, it's time for the CFO to re-evaluate the needs and expectations of the company. It should not be a one-size-fits-all position. Every organization has a different set of expectations.

Bear in mind the job will have certainly morphed since the dawn of 404. Zero in on the greatest areas of need and opportunities for improvement.

Fast forward. An important question for CFOs to continually ask themselves: What do I want my organization to look like in one, two or five years? Inevitably, answers to this question involve more automation and less manual labor. Think about a plan for streamlining existing processes and moving on to bigger and better things.

Make good use of that data and discipline. The tremendous amount of data produced during 404 implementation can be a boon to the organization. It can be used to improve business processes and, ultimately, reduce risk. Using this documentation only to satisfy a regulatory requirement would be like locating a new reservoir, drilling a successful well, and then shutting it in after only the first few barrels of oil are produced, just because an incremental investment was needed to unlock the reservoir's maximum potential.

Every organization needs an advisor who brings unique enterprise-wide financial as well as risk management perspective to the company. He or she should define strategic objectives and help the company focus on how to achieve them.

In the end, the business benefits from a CFO who can emerge from the SOX experience with even greater strategic insights to move the company forward. M



Charles Swanson is Ernst & Young's Houston office managing partner. A Tulane University graduate, he has more than 25 years' experience providing audit and consulting services to E&P companies, and has led oil and gas royalty audits and litigation engagements involving federal agencies. He serves on Ernst & Young's International Audit Quality Review team and National Audit Taskforce.

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