Case Study

Compliance legislation and increased focus on internal control is posing considerable challenges to companies around the world and creating potentially huge costs. LIN TV Corp. has added CODA-Control to its established CODA-Financials implementation to improve control of distributed business processes across its 30 sites and 300 users, and help the company eliminate manual finance processes, thus reducing audit costs and improving overall efficiency.

LIN TV Corp. currently has 1803 employees across the US and Puerto Rico. It operates 30 television stations and has investments in five others. Its 2005 sales were US$380 million, and its market value (as of October 8, 2005) was US$670 million. As a company traded on the New York Stock Exchange, LIN TV falls squarely under the requirements of the Sarbanes-Oxley Act of 2002 (SOX).

Like many companies, accurately reporting on these business units requires a significant number of ‘manual’ accounting processes and adjustments. Like many organizations around the world, these manual processes represent a high risk of mistakes or fraud, and increase the cost of ongoing operations – of audit, in particular. While it was SOX that may have focused the company’s attention in this area, it is increasingly seen as ‘best practice’ for organizations to focus on addressing these risks and inefficiencies.

A new approach to ongoing compliance

Fortunately, LIN TV has found a better way forward – it expects to reduce the ongoing cost of testing manual financial controls for general audit and SOX compliance by automating processes using CODA-Control Manager. This new approach manages the entire compliance process, greatly reducing ongoing compliance risks and associated audit costs, and the company expects to see a return on investment within two years.

Bill Cunningham, Vice President and Controller at LIN TV, explains how he intends to use CODA-Financials, CODA-Control Manager and other CODA products to create what he calls an Accounting Transactional Framework. “For me, it was important that we could do more than just comply with SOX 404,” he says. “We want to minimize the audit costs that Sarbanes-Oxley could cause, and we also want to use the idea of process standardization to drive down operational costs.”

Bill and his team came up with a framework valid for both public and private companies, and created what he describes as “the most exciting change in accounting since the advent of the computer”. Using CODA’s new tools to implement this framework will provide a return on investment that will catch the attention of any CFO or CEO.

SOX compliance in practice
What makes SOX 404 so difficult to implement is that it is all encompassing. And – for just about the first time ever – it is a regulation that recognizes that accounting depends both on computer-based processes and on manual, people-based processes.

Manual controls are more expensive to audit and require frequent retesting, as it is human nature to always find an easier way of doing things (rather than the right way of doing things). The obvious answer is to make sure as many controls as possible are system based.

Automating transactional processing

Under LIN TV’s Accounting Transactional Framework, employees interact with computer programs – called ‘transactional’ or ‘workflow’ engines – to process accounting transactions. The framework requires that it is the transactional engines that record (interface) entries into the accounting systems and not the employees, and that the engine captures the transactions’ supporting documentation.

The company uses document images, captured by CODA-ImagePost, and data embedded in the image to automate the recording of the transaction, providing a new regime based on automated, preventative controls (controls that stop errors) rather than manual, detective controls (controls that spot errors after they’ve happened).

Embedding control through each process

The net result for LIN TV is that users never post transactions to CODA-Financials – transactions are generated by their interaction with CODA-Control Manager, and that manages the whole process, forcing users to follow each prescribed step and therefore comply with all SOX 404 controls put in place.

The company’s approach also ensures that system accounting controls provide more linkage between the transaction and the consolidation of accounts for financial statement purposes. It uses CODA-XL spreadsheets to create financial statements and notes to the financial statements. CODA-XL spreadsheets also analyze key accounts, as a part of the period-end closing process.

Bill Cunningham says: “Internal controls should be built-in to the processes, not built-on. They must be an integral part of what you do, not an additional task after the event.” He believes that transactional engines must control access, timing and flow of all accounting transactions.

LIN TV uses CODA-Control Manager forms to document all internal controls, and chose this product because it contains workflow authorizations, audit logs, supporting documentation and data in a single application. The CODA-Control Manager workflow engine obtains authorizations and supporting documentation electronically that is validated based on business rules. This eliminates manual signatures and dates on accounting documents. A workflow authorization rule is attached to each CODA-Control Manager form.

Compliance: gaining value from necessity

In summary, LIN TV’s Accounting Transactional Framework meets the official goals for SOX 404, requires less time spent solely on complying with SOX, lowers ongoing operating costs, lowers compliance risks and shortens period-end closes. Little surprise, then, that the company is banking on such an impressive return on investment.

Compliance around the world
Many countries are introducing SOX-like compliance, including:

• Canada: Bill 198
• France: LSF
• Netherlands: Code Tabaksblat
• Sweden: Swedish Code of Corporate Governance
• Japan: J-SOX

In profile

CODA provides the most complete suite of products and services to meet the needs of finance departments – from best-of-class financial accounting and procurement systems, through planning, budgeting, consolidation, reporting and analytics, to process control and compliance management. In addition to working seamlessly with CODA applications, the company’s analytic, consolidation and process control solutions also integrate with other leading operational systems to capitalize on customers’ existing IT investments.

CODA’s product offerings are all underpinned by expert consultancy, education and support services, delivered by teams of experienced accountants and technology specialists. Its financial intelligence helps organizations to revolutionize their financial processes: formerly passive accounting systems are transformed into real-time finance engines that deliver true financial intelligence, enabling the finance department to support strategic change throughout the organization.

More than 2500 medium and large user organizations worldwide use CODA software, across all industry sectors. These include IKEA in retail, AMBAC Assurance Corporation in financial services, Central Ohio Transit Authority (COTA) in transportation and logistics, and the Fashion Institute of Design and Merchandising in education.

The business carried out by CODA was founded in 1988, and is headquartered in Manchester, New Hampshire. Part of the CODA Group – itself part of CODASciSys plc (AIM; CSY) – the company has global sales, service and support operations and 550 employees worldwide. Additional information about CODA is available at: www.coda.com