question about arms length/conflict of interest in public co 2926

  • good day, as the title says, i need some reference to a document or section thereof, that spells out controls or procedures needed in order to be SOx compliant in the following case, if it is out of compliance at all…
    i am an employee in a publically traded company at a managerial level.
    my wife recently took a consultant job within the same company, however in a different business unit. i owned a registered company at the time that was established and the corporation permitted my company to employ her instead of having her spend the time and money to set up all the items (insurance, tax remittance, accounts etc etc) on the condition that I paid her and did not collect a wage or profit in any way. this was agreed upon and is being upheld as her marginal rate is much lower than mine so it is the most beneficial to our household to have her take the wages instead of me.
    there has been some discussion that the corporation i work for want her to start her own business to stay on and it would be a large and costly endeavour for us, for the same net result. they claim it could be looked at as a conflict of interest…
    given that neither her nor i are in a role that can directly influence the share price, have no insider information or can profit by each others actions (ie i dont influence her wage or sign off on any invoice that she submits) i dont see how the controls are not in place to keep the corporation from looking unethical. basically, i cant do anything to make her more money and vise versa so how can this be an issue?
    if someone can direct me to a document that defines this as OK or not, i would like to get my hands on it to avoid having to set her up as a limited company or sell her my company which is the likely scenario.
    thanks in advance

  • Hi and welcome to forums …
    SOX is written at a high level and provides a framework for controls rather than highly specific rules of governance . As it’s written in a flexible manner, it’s subject to corporate interpretation for companies to design financial controls that are relevant in ensuring that financial exposures can’t be easily manipulated.
    We’ve certainly seen many business controls established in the past that were outside the scope of what SOX is designed to cover. On the surface, it appears that checks-and-balances are in place currently and that financial manipulations of the companies results would not be an easy thing to accomplish – based on the scenario shared.
    I could see some potential exposure with the manager of a business area using their own consulting services to further enrich their salaries. However, that’s more in the case where there is ‘one stop shopping’ on approvals and that manager can approve their own purchases of services. As you all report to differing divisions, you must not be involved in assigning or approving work assignments or paying for them to her in any way (and if that test is met you may be okay???)
    While there isn’t specific guidance on an employee also owning a consulting company providing services at the same time – a company could certainly question it as a financial concern and setup financial standards that go beyond SOX regulations . However, much would depend on the amount of finacial exposure and whether there was any direct SOX involvement by either.
    As it costs greatly to create a new small business operation, I might avoid making changes unless truly pressed to do so. Then work with a CPA to do this in the most effective and least costly manner.
    Good luck and please feel free to ask additional questions 🙂

    GOOGLE SEARCH with -and-quot;SOX-and-quot; and -and-quot;Conflict of Interest-and-quot; as search terms … Please copy paste to browser as direct links in forum are prohibited
    P.S. Both COSO and COBIT provide key financial controls for workflows and IT systems respectively. Many external SOX auditors use these to ensure controls are adequately met. These are very lengthy and complex reads – and I doubt they might cover your specific circumstances.
    COSO - Genernal Financial Controls
    COBIT - SOX 404 Financial IT System Controls (free download)

Log in to reply