Breakout Session # 909

2. A Sarbanes-Oxley Primer Breakout Session # 909 Patricia Bahr, CPCM, CFCM, Director Contracts, Pricing & Procurement, Intergraph Corporation Wednesday, April 12, 2006 1:20 – 2:20 pm NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. Key Points for SOX • Section 404 • Internal Controls • Separation of duties • Checks & balances • Documentation • Internal controls & contracts management • Opportunity for procedures and processes to manage risk for it’s origin - operations NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. Sarbanes-Oxley (SOX) Outline • General information about Act • Why it’s “a big deal” • Impact to Contract Professionals • Financial controls are only half the challenge • Stronger operational controls • Contracts relate directly to revenue recognition NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. What is Sarbanes-Oxley? • An Act • Passed by the 107th Congress • On January 23, 2002 • To protect Investors • Named “Sarbanes-Oxley Act of 2002” • Approximately 66 pages to read the entire act • Eleven Titles or Provisions • Signed into law on July 30, 2002 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. Senator Paul Sarbanes (D-MD) Ranking Member of the Banking, Housing & Urban Affairs Committee Will not seek re-election in 2006 Rep Michael Oxley (R-OH) Chairman of the U.S. House of Representatives Committee on Financial Services Will retire at the end of his term (2007) Who are Sarbanes & Oxley? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. Why Sarbanes-Oxley? • “To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to securities laws, and for other purposes.” • In response to financial scandals • Enron, WorldCom, Tyco • Arthur Andersen NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. What did SOX do? • Established Public Company Accounting Oversight Board (PCAOB) • Auditor Independence • Corporate Responsibility • Enhanced Financial Disclosures • Analyst Conflicts of Interests • Commission Resources and Authority NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. What else did Sox do? • Studies and Reports • Corporate and Criminal Fraud Accountability • White Collar Crime Penalty Enhancements • Corporate Tax Returns • Corporate Fraud Accountability NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. What’s the big deal? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. Impact to Contracts • Section 401(j): Off-Balance Sheet Transactions • Section 404: Management Assessment of Internal controls NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. Disclose all material off-balance sheet transactions, (including contingent obligations)… that may have a material current or future effect on : Financial condition Changes in financial condition Results of operations Liquidity Capital expenditures Capital resources Significant components of revenues or expenses 401a: Off Balance Sheet Obligations NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. Off-balance Sheet Contracts • Long-Term Debt Obligations • Capital Lease Obligations • Operating Lease Obligations • Purchase Obligations • Other Long-Term Liabilities Reflected on the Company's Balance Sheet under GAAP NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. 404: Viable Internal Controls • Creation and maintenance of internal controls • Separation of duties • Checks and Balances • Documentation of events • Internal controls include • Policies • Procedures • Training programs • Other processes (example: inventory control) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. Accounting vs. Contracts Contracts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Take a second look • Effective Contract Management • Critical to the financial process • Review and control of sales contracts • Revenue recognition • Review and control of purchase contracts • Off-balance sheet transactions NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Revenue Recognition • Accountants determine the method • The Contract determines the how and when • Documented process • Terms and risk factors identified • Contract elements • Impact of multi-element contracts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Multi-element contracts • Upfront deliverables • On-going services • Event based milestones • Usage based consumption • Maintenance and warranties NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Managing the Contracts • Complexity • Volume • Number of Customers • Size of contracts • Contract changes NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. The Secret Decoder Ring • Determining financial process and revenue is complex • All of information comes from the contract • Plethora of contract management solutions • Reduce risks and terms to contract summary NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Procurement Professionals • Document decisions and analysis • Easy to understand  • Avoid ambiguity • Risk identification, management & mitigation • Consider auditor interpretations • Keep management informed • Training – sharpen the saw NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. The Importance of SOX to You • Implications for Public Companies • Current reporting of material changes • Buying: Off-balance sheet transactions • Selling: Terminations or reductions with significant customers • Document • Contract files NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

23. Questions? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management