Sarbanes-Oxley Act Violations as a Catalyst for Payment Testing

Kassidy Kelley , Managing Editor

April 7th, 2023

For many CTOs, daily operations are a balancing act of maintaining systems and cutting-edge technology while complying with the laws and regulations relevant to their host organization. But what happens when you miss a step and have Sarbanes-Oxley Act violations? If you’re willing, it can lead to a culture shift that embraces compliance, QA, and testing to prevent future issues.

The US government introduced the Sarbanes-Oxley Act of 2002 (SOX), and the UK is currently facing an auditing QA overhaul, similarly being dubbed UK SOX. Let’s dive into how trying to stay compliant (or violating) SOX can open up the path to embracing payments testing and QA as prevention.

What is SOX?

The Sarbanes-Oxley Act of 2002 came about in the wake of multiple financial scandals from influential organizations like Enron, Tyco, and Worldcom. The US government introduced SOX to assure accuracy in publicly released audits and disclosures. SOX holds the board and executive officers accountable for the accuracy of the financial information and reports.

SOX protocols intersect with tech departments in establishing and managing internal controls, or Section 404 of the finalized act. This requires companies to assume full responsibility for the internal controls directly related to financial reporting. The guidelines for SOX are as follows:

1. The Initial Assessment – This requires documenting the many financial processes a company might use. Information is gathered to help identify deficiencies and develop plans of action to close these gaps.
2. Interim Testing – This is performed roughly at the midpoint of the fiscal year and is done to guarantee any deficiencies have been remediated. This might spur further changes in controls and documentation if needed.
3. Year-End Testing – The last round of testing is done by internal teams. This serves a similar function to interim testing regarding assessing the efficacy of controls and how they are implemented.
4. External Testing – An external independent party audits the final step in SOX compliance. Many organizations hire auditing firms to guarantee that implemented controls function as intended and no violations have occurred.

The Fallout. What Happens if you receive Sarbanes-Oxley Act Violations?

SOX violations carry severe consequences. On the lighter end of the scale, it can result in fines of up to $1 million or a prison sentence of up to 10 years for violators or the company’s delisting from public exchanges. For organizations that have willfully violated the act, this can result in a fine of $5 million and a prison sentence of up to 20 years for individuals who knowingly violated the law. 

Violations occur when financial information has been modified, destroyed, or falsified. Violations aren’t just intentional: accidentally misreporting financial figures can subject a company to a violation. The guidelines for compliance with the act require cooperation from the accounting, executive, financial, IT, and QA departments. On the IT department’s end, it is crucial to implement payment testing and other internal controls to sidestep violations before they occur.

Embracing QA on the Offensive

As dire as the consequences of Sarbanes-Oxley Act violations may be, they can benefit your organization if you embrace a culture change that can follow. In the aftermath of a violation, developing and fostering a culture of compliance in your company is vital. Once implemented, a well-rounded SOX testing process can ensure your company avoids another violation. 

Aside from the guidelines mentioned, your organization can implement payments and analytics testing. Payment testing, when exhaustively performed, can create accurate and up-to-date financial reports that can be further combined with analytics testing to catch potential issues before they even arise. In particular, analytics testing ensures data integrity and accuracy, which in turn also helps protect an organization. This can be tricky to implement depending on the internal or external needs of the team handling your testing. Still, it’s well worth the extra effort to protect your company’s reputation. 

Implementing control sets to avoid SOX violations doesn’t have to be difficult and can be aided by externally managed service providers like Testlio. Testlio offers various services oriented around quality assurance testing and analytics testing, which can serve as a safeguard for your organization while also helping foster compliance and functionality to avoid potential violations.

See how Testlio can wield analytics and payments testing to help you stay compliant.