Cash-Flow Management Includes All Of The Following Activities Except Fo Compliance and Regulation: Impacting on the Global Business Community

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Compliance and Regulation: Impacting on the Global Business Community

In the wake of major corporate meltdowns such as Enron and Worldcom, stricter compliance laws have been introduced around the world to ensure that corporate executives and directors are held more accountable for their actions.

The latest compliance standards focus on greater accountability and control over key business processes – most importantly document flow and data management.

There are two central aspects of compliance enforcement:

o The duty of the company to ensure the enforcement of standards

o The need for legal protection in case of legal proceedings or disputes

Non-compliance is not an option, companies risk heavy fines and management can be held personally liable if the information is incorrect. Therefore, it is important for a company to study all regulations, not only those that concern their specific area of ​​operation, but also generic legislation that affects the general activity of the business.

The consequences of non-compliance are extremely serious; In December 2002, the Securities and Exchange Commission (SEC) fined five Wall Street firms a total of $8.25 million for improper email storage (Forrester Research).

Circulating documents for approval, whether in paper or electronic form, raises security issues. Who is authorized to access the documents and what information can they access? This is particularly important to ensure compliance with legislation such as the Sarbanes Oxley Act, which applies to US companies and their foreign subsidiaries; and in the UK the Data Protection Act and the Freedom of Information Act.

Document processing software such as Tokair’s TokOpen system addresses these challenges and automatically enforces compliance. Every action related to access to a single document is audited, access is limited to specific personnel, and the actions it can perform are also controlled. The software can also restrict access to different information within a document to different specific users or groups within an organization.

This ability to allow different information in a document to be seen by different users means that the different needs of the Data Protection Act and the Freedom of Information Act can be automatically met without having to make copies of the documents.

This flexibility can also be extended to an approval hierarchy based on account value. So if a member of staff isn’t allowed to approve payment of an invoice that’s over £500, for example, they can still check it, but can then automatically pass it on to a supervisor for payment approval.

Here are some of the latest regulations and the impact they may have on a company’s document management strategies:

Sarbanes Oxley Act of 2002

It is a key driver of compliant enterprise document management systems. In the US, failure to comply is now a federal offense punishable by up to 20 years in prison. US affiliates in the UK must also comply with this legislation. The European Union is expected to introduce similar rules for member states.

Under Section 302, the CEO and CFO must certify that the reports accurately reflect the company’s financial condition and results. In addition, they must confirm that they have internal controls in place and evaluated to ensure accurate recording and reporting of performance. Any deficiencies in these controls and any fraud at management level should be reported.

Section 404 requires annual reports to describe in detail the internal controls that are in place to ensure accurate financial reporting and to evaluate their effectiveness.

This can have a significant impact on the document management system. For example, a company without clear controls and transparency in the approval of accounts payable could be in violation of the Sarbanes Oxley Act.

Data Protection Act 1998

Whatever document management system is in place, personal data for business use must be handled in accordance with the Data Protection Act 1998. A secure document management system such as TokOpen can help with compliance by reducing the possibility theft or accidental loss of personal and confidential information. It may also facilitate the enforcement of applicable requests for such data.

The law contains eight principles:

1. Personal data is processed fairly and legally.

2. They are obtained only for certain legitimate purposes and may not be further processed in any way incompatible with these purposes.

3. It must be appropriate, adequate and not excessive in relation to the purposes for which it is processed.

4. Must be accurate and updated as necessary.

5. It should not be kept longer than necessary.

6. It is processed in accordance with the rights of individuals to whom personal data refer, according to the law.

7. Adequate technical and organizational measures are taken to prevent unauthorized or illegal processing of personal data and to prevent accidental loss, destruction or damage of personal data.

8. Personal data shall not be transferred to a country or territory outside the EU, unless an adequate level of protection of the rights and freedoms of the individuals to whom the personal data relates is ensured.

Freedom of Information Act

This gives people a general right of access to information held by or on behalf of public authorities. It is intended to promote a culture of openness and accountability among public sector bodies and to increase the public’s understanding of how public bodies work, why they make the decisions they do and how they spend public money.

Good records management should be a key objective of all organizations, public and private, in the pursuit of business efficiency and ensuring that information is easily accessible and properly documented. As a result, public authorities will be able to more easily comply with legislation that affects them, such as the Freedom of Information Act.

The principles underlying records management—creation, preservation, identification, and retrieval—apply equally to electronic and paper media. This means that procedures for email and other information stored on shared and personal hard drives must be as robust and detailed as those for other records.

Compliance conflicts

Document management systems are challenged when different information in the same document is subject to both the Data Protection Act and the Freedom of Information Act, as one is for confidentiality and the other for accessibility.

Leading document management systems such as TokOpen control who can view different parts of a document and meet the conflicting needs of both pieces of legislation.

In a typical document, such as a bank transfer application form, some information falls under the Freedom of Information Act, while other parts of the document are private, meaning that access must be restricted and audited in accordance with the Data Protection Act. Certain information must not be disclosed to anyone outside the bank, as it is private and for internal use only.

Document management software solves this problem by hiding internal information when the document is viewed by someone outside the bank. Users with authorized access can still view the entire document.

In the same case, the applicant’s name and address are protected by the Data Protection Act and should therefore only be seen by employees dealing with this customer, for example HR or accounting. The rest of the staff does not have access to these specific document details. TokOpen document management software can ensure compliance with this.

Document Management: The Way Forward

Increasingly complex legislative requirements are emphasizing the need for companies to implement document capture and management systems. Although a document management system is an important component, it will not ensure compliance by itself. A broader view is needed to ensure that businesses remain compliant with changing legislation.

In court, the judge will consider the evidence based on several criteria:

o Are procedures clear and consistent, with a requirement to document procedures? This is often referred to as document policy.

o Are the procedures implemented? This is a shared responsibility between the management and control of access and privileges of the selected document management system.

o Can the claims be substantiated? This largely depends on the audit trail of the document management system.

Compilation of the policy on the document

After determining the regulations to be followed, a document policy is required that covers the following:

o Scope of information covered

o Security classifications

o Storage media

o File format and version control

o Standards (compliance and regulations)

o preservation and destruction

o Responsibilities

Document policy defines how information is stored and is therefore key to ensuring compliance. It should serve these main purposes:

o Make sure everyone knows what they can do

o Determine the current business practice

o Show why a particular action was taken, e.g. explain why the document was destroyed

o Strengthen the probative weight of documents

o Assistance in authenticating documents to increase legal weight

o Improve the court’s view of the evidence presented

Consideration should also be given to how long the documents should be kept. This depends on the type of document and industry-specific regulations.

This raises an interesting question. What is the legal position if the original document is electronic? This can best be answered in three steps.

o The Civil Evidence Act 1995

o Certified copies will be accepted with the same weight as the original

o Later revisions carry more weight than superseded revisions

o Admissibility

o Does the court accept this evidence?

o With what weight?

o Proper procedures should be followed if documents are submitted to court

Therefore, the legal weight given to the document must also be taken into account when assessing compliance. In addition to ensuring that documents and information are managed in accordance with compliance legislation, document management software also plays a key role in ensuring that documents have optimized legal weight when submitted to court.

Improving the legal weight of documents depends on three key factors:

o Information management

o System management (due diligence, audits, etc.)

o Operational issues (good management practice)

o Legal issues

o General (e.g. Data Protection Act, storage of invoices, etc.)

o Industry specific (compliance/regulations etc.)

o Specific to the organization (internal regulations, etc.)

o Need for customs clearance permits

Companies are therefore obliged to take care to ensure compliance with the law. This is best described as information security and can be summarized by the following questions:

o Can the court be sure that the data (evidence) was not accidentally or maliciously altered or that some of it was lost?

about i.e. the data has been properly cared for

o Basic criteria may be met

o Confidentiality (who had access?)

o Integrity (is it reliable?)

o Availability (can it be obtained?)

Summary

Ensuring compliance with the law is a responsibility shared by:

o Personnel following clearly defined documentation procedures

o Management implementing these procedures

o The document management system monitors and enforces the duty of care

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