No one should have been surprised that the Sarbanes-Oxley Act was unable to prevent a high-level executive fraud such as the one that led to the recent demise of Refco, a large foreign exchange and commodities broker. While Congress might have thought it could prevent another Enron or Tyco, Refco’s CEO’s ability to disguise and hide $430 million of loans to him by the company confirms that such spectacular frauds are still possible. In practice, the real value of Sarbanes-Oxley Section 404 for shareholders is to materially reduce the risk of other, lower-level fraud and errors, enhance the efficiency of financial processes and increase transparency. However, realizing that potential requires a management team dedicated to maximizing value from complying with the law by applying a total quality management approach to financial processes.
See Article page.
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