Sarbanes-Oxley (SOX)

1. Sarbanes-Oxley(SOX)

2. Agenda • What is Sarbanes-Oxley? • What does SOX mean for the Postal Service? • Communications and Training • Timeline • Financial Support & Control Activities

3. Paul Sarbanes Michael Oxley What is Sarbanes-Oxley? • The Sarbanes-Oxley (SOX) Act of 2002 was enacted as a result of a series of large corporate financial scandals. • It is administered by the SEC. • It is intended to: • Improve confidence in financial reporting through increased corporate governance. • Reduce fraudulent practices and accounting inconsistencies.

4. What does SOX mean for the Postal Service? As a result of the Postal Accountability and Enhancement Act of 2006: • We must begin quarterly certifications in February 2008. • We must comply with Section 404 of SOX by 2010. • Management must: • State its responsibility for establishing and maintaining an adequate internal control structure for financial reporting. • Make an assertion on the effectiveness of the internal control structure with regard to financial reporting. • Provide annual certifications for fiscal year 2010 and beyond.

5. SOX is about: Good business practices Accountability and ownership Effective execution of controls Timely, accurate and authorized SOX is not about: Waiting time in line at a post office Carriers still on the street at 1900 Productivity targets in mail processing What SOX is and is not about…

6. SOX “Speak” • Process – One or more business activities, normally end-to-end from transaction origination to recording a financial activity. Examples: • Payroll Process • 1412 Process • Retail Floor Stock Process • Credit Card Purchasing Process • Employee Hiring Process

7. SOX “Speak” • Controls – Procedures performed within processes that add a level of assurance that the process objective is being achieved. For instance: • Authorizations of transactions • Authorizations of activities • Physical control over assets

8. Documentation Define processes and systems that impact financial reporting Identify key controls Identify risks Testing Test key controls for effectiveness Remediate failures and retest Steps Necessary for Compliance

9. Steps Necessary for Compliance • Reporting • Management Certification • Management certifies effectiveness of internal controls • External Auditor Validation • External Auditor tests key controls • External Auditor certifies effectiveness of internal controls

10. Our Objectives • Through the implementation of SOX: • Provide consistent documentation of our processes and systems. • Increase accountability and ownership of controls. • Receive external auditor certification quarterly and annually, as required, for FY 2010 and beyond.

11. Our Mission Strengthen our business practices to thrivein a competitive environment

12. Our Vision Strategic Transformation beyond compliance Value Transform “Leverage Compliance for Better Performance” Improve “Optimize and Sustain” Maturity Continuum Comply “Penalty Avoidance” Cost Stakeholder Value

13. Benefits • Reinforces public trust in our financial reporting • Standardization and streamlining of processes and systems • Increased accountability and ownership of controls • Consistent documentation of processes and systems

14. Financial Accountability Examples Present Today • Limit access to the unit cash reserve • Close credits • Remit all funds from retail operations • Secure cash/stamp drawers • Monitor or reconcile master trust account balances • Properly follow close out procedures • Properly prepare bank deposits • Verify disbursement transactions are supported • Ensure Voyager transactions are supported with receipts • Ensure SmartPay (IMPAC) transactions are supported with receipts Financial Accountability Examples with SOX • Limit access to the unit cash reserve • Close credits • Remit all funds from retail operations • Secure cash/stamp drawers • Monitor or reconcile master trust account balances • Properly follow close out procedures • Properly prepare bank deposits • Verify disbursement transactions are supported • Ensure Voyager transactions are supported with receipts • Ensure SmartPay (IMPAC) transactions are supported with receipts SOX Impact on the Field

15. How Does SOX Affect You? • Youmust employ existing financial controls according to present policies and procedures • Ensure your actions are timely,accurate, and authorized • Where signatures are required – be sure to sign it! • Promote good business practices – reinforce accountability

16. Communications & Training • Website – http://SOX • Who-what-where-when-why-how • FAQ’s, Acronyms, Glossary of Terms • Email – SOX@usps.gov • Communications in partnership with the new law and transformation strategy • Training: • Method: On-line & instructor led • Topics: General awareness and audience specific • Venues: Classroom, meetings, conventions

17. Timeline December 2006 February 2007 FY 07 FY 08 FY 09 FY 10 Countdown to Compliance to Complian ce Countdown December 2006 – PAEA passed February 2007 – SOX Program Management Office created FY 07 – Organization and Implementation Guide in place FY 08 – Processes and control documentation completed FY 09 – Control testing and remediation completed FY 10 – Compliance and monitoring

19. Financial Control and Support NAPUS National Convention September 10 – 11, 2007

20. Financial Control & Support • Financial Control & Support • Key group for interaction with the Field on SOX • 480 Managers and Analysts in 80 districts • Proactive Approach • Perform Finance Reviews • Offer Support and Guidance • Assist in the remediation of control failures

21. Financial Control & Support • Established in early FY 2007 to: • Monitor, evaluate, and review financial and revenue systems • Focus on weaknesses identified through control testing • Improve integrity of financial and revenue reporting

22. Financial Control & Support • Established in early FY 2007 to: • Test key financial activities in support of SOX compliance • Conduct field testing • We will use a statistical sampling approach for testing our financial controls • Remediate control weaknesses • Typically for SOX compliance, the pass rate of 95% is required for a given control

23. Financial Control & Support • Established in early FY 2007 to: • Focus on control failures identified by Ernst & Young (our external auditors). • Use cause analysis to address control weaknesses • Support Accounting Service Centers and retail units • Conduct training on financial systems • Support financial system implementation

24. Communication to the Field • Area VPs, District Managers and PMs • Report systematic control failures • Progress toward SOX compliance • Communication will be ongoing

25. Key Financial Activities • A set of controls/procedures • Provide assurance to financial statement assertions • Sustain a strong internal control environment • Ensure alignment with policy and procedures • Reviewed by FCS during SOX/key financial activities

26. Key Financial Controls The absence of any one/or combination of key financial activities would result in a high probability that financial statements will contain material misstatements!

27. Key Financial Activities at Post Offices Liquid Assets Are Physically Controlled • Limit access to the unit cash reserve • Close inactive credits • Secure stamp/cash drawers • Properly follow close-out procedures • Properly prepare bank deposits

28. Key Financial Activities at Post Offices Liquid Assets Are Physically Controlled Failure Point 7

29. Key Controls at Post Offices Retail Sales & Cash Are Reconciled Daily • Adequately separate duties • Restrict access to information resources • Monitor and reconcile master trust account balances • Monitor and promptly clear employee items • Monitor and reconcile financial differences • Remit all funds from retail operations

30. Key Financial Activities at Post Offices Retail Sales & Cash Are Reconciled Daily FailurePoint 7

31. Key Controls at Post Offices Field Payables are Properly Approved • Verify that disbursement transactions are supported • Ensure SMARTPAY (IMPAC) transactions are supported with receipts • Update Voyager master PIN list • Secure Voyager master PIN list • Support Voyager transactions with receipts • Reconcile monthly Voyager purchases

32. Key Financial Activities at Post Offices Field Payables are Properly Approved FailurePoint 7

33. Key Controls at Post Offices Time Records are Approved before Submission to Payroll • Support payroll transactions • Complete PS Forms 1723 to support higher level authorization

34. Key Financial Activities at Post Offices Time Records are Approved before Submission to Payroll FailurePoint 7

35. What do Postmasters have to do? • Nothing new • Renew efforts to ensure that policy and procedures are being followed at your postal retail unit • Continue to be aware of changes to policy and procedures

36. Sarbanes-Oxley QUESTIONS? Contact us via email at sox@usps.gov

37. Email us at sox@usps.gov SOX Website!