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One in a series of previews of the FMI MarkeTechnics Show

In any other year, the phrase "How To Keep Your CEO Out Of Jail" might seem like hyperbole. But this year, when names like Martha Stewart, Parmalat, Ahold, and Enron seem more associated with scandal than the ethical conduct of business, keeping corporate executives out of trouble and out of prison seems like a very real concern.

In a presentation scheduled for Monday, March 1, at the annual Food Marketing Institute (FMI) MarkeTechnics conference in San Francisco, CPA Marty Karasick of Wilkin & Guttenplan plans to address the necessary controls that need to be put in place in 2004 to assure legal and ethical behavior by public companies.

To preview his presentation, we engaged Karasick in an exclusive e-interview:

MNB: What does it say about the industry and the world we live in that FMI is featuring a session entitled “How to Keep Your CEO Out of Jail”?

Marty Karasick: The title is designed to be an attention getter, not a threat, however, executives that ignore the rules and attempt to deceive investors are subject to up to 25 years in a federal prison and millions of dollars of fines. Further, Congress and the SEC have removed “I didn’t know” as an answer for failure to fully disclose information to investors timely and accurately.

MNB: How would you rate Sarbanes-Oxley compliance in the food industry to this point?

Marty Karasick: Many corporations subject to the Sarbanes-Oxley act are struggling with SOX compliance. Others have completed or are in the process of completing their controls documentation. During 2003, the SEC extended (by one year) the time for full compliance with the Act. Most companies used this time as an opportunity to achieve full compliance. Some companies see this extra time as an opportunity to postpone the work and therefore the expenses.

Based on my discussions with others, Supermarket Industry compliance is no different than the rest of corporate America. Some companies are in the mature stage of controls documentation. Others are in the early stages. Because the time required will exceed 1000 hours in most cases, corporations that have not as yet commenced the documentation of their internal and disclosure controls, may be in trouble. I know of no food retailers that have not yet begun the process. Most retailers are achieving their documentation objectives through a combined effort involving management, external auditors (they must render an opinion on the thoroughness of the work and management’s report on controls) another CPA firms or other consultants and in many situations, the company’s internal auditors.

MNB: What is the technologist’s responsibility in terms of Sarbanes-Oxley compliance? Is this a one-time role, or an ongoing function?

Marty Karasick: Because public companies are required to report financial disclosure information timely and accurately, they must rely on effective internal controls. To accomplish this objective, corporations are required to understand the design of their manual and computerized control systems and to monitor the effectiveness of those systems throughout the year. IT departments will be asked to assist the individuals responsible for documenting controls today and in the future as systems and procedures change.

MNB: These seem like entirely backroom responsibilities and functions. Are there ways in which these efforts specifically impact the customer experience?

Marty Karasick: The single most important aspect of this new culture is the control environment, or as we like to call it, The Tone At The Top. This is anything but back office. It deals with the message CEOs send to their organizations. The concerns are that companies avoid short cuts in an effort to boost short term profits at the expense of the corporate culture. The benchmark requirement today is to establish solid soft and hard controls and to self assess the effectiveness of those controls through a self monitoring process. Each company’s independent auditors are required to form an opinion on the design of the controls and their effectiveness. Tighter controls mean less mistakes including front end mistakes. While the checkout lines may not become shorter, they should move a little faster if the mistakes were system related.

MNB: Do you believe that this kind of legislation and its requirements is a short-term trend, or does it reflect a broader, more long-term trend in terms of how retailers need to make internal changes both on the technology and financial side?

Marty Karasick: The congress has empowered government to correct the deficiencies experienced during 2000-2003 which resulted in an erosion of investor confidence. This was accomplished through the creation of the Public Company Accounting Oversight Board and additional resources for the SEC. Over time, we will see more requirements, not less. The focus is on improving the quality of financial reporting, auditing, stock recommendations, and abuse by corporate executives. The SEC intends to be tough (jail time) where the rules are openly ignored and investors suffer losses. I believe that mistakes will happen and in such cases, stiff fines will be imposed. Also, the SEC will pursue the repayment of bonuses when senior management benefits from careless mistakes.
KC's View:
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