QAD Enterprise Solutions &

Global Corporate Governance

Maryann Hafner / Solution EngineerMarch 2004

Globalization

Corporate Governance

Corporate Governance

Corporate Governance

What is it?Operating a business organization in

compliance with all government and agency laws and regulations

Focus now on principle-based vs. historical rules-based for accounting and disclosure

Overarching goal of

performance with integrity

Corporate Governance

Principles: current global regulations

Context: ERP application relevance

Support: QAD enterprise solutions

global Corporate Governance

1.Sarbanes-Oxley Act of 2002 (SOX)– Adopted by USA and associated Global Operations

2. International Financial Reporting Standards

(IFRS) International Accounting Standards (IAS) 2005– Adopted by European Union (EU), Australia, Hong Kong,

Korea, Malaysia, Singapore, Canada, China, Russia-pending, global movement in EEA, Iceland and Norway…mandatory and optional

regulatory compliance

SOX vs. IFRS

IFRS Driving Purpose Directly remove barriers to cross-border trading

– single capital market. Uniform reporting standard to provide internationally comparable financial & non-financial information on which to base economic decisions

SOX Driving Purpose Legislatively demand corporate responsibility

and accountability from corporate executives to all stakeholders in order to restore investor confidence.

It’s about…

integrity of operations transparency of

disclosure

accountability for

accuracy

Sarbanes Oxley Act of 2002

sox

Corporate Governance in US

1.Sarbanes-Oxley Act of

2002 (SOA, SOX, Sarbox…) Compliance Deadlines: (varying)

– 404 - Fiscal Year ending on or after June 15, 2004 > $75M Fiscal Year ending on or after June 15, 2005 < $75M

Primary Initiatives: (Business Systems)1. Disclosure of internal business controls

& processes2. Accelerated Reporting Deadlines3. Exec Certification - personal liability for

accuracy 4. Rapid Disclosures of material events

Sarbanes-Oxley Act Section 302Mandates CEO and CFO

personal certification of financial statements and filings including personal review, does not contain untrue information, responsibility, design and assessment of effectiveness of disclosure controls and procedures in place – disclosure of weaknesses to auditors and audit committee.

Section 906 Mandates CEO and CFO

personal certification ensuring 10-K’s, 10-Q’s, annual reports as well as periodic reports containing financial information complies with Sarbanes-Oxley/1934 Act, represents an accurate representation of the firm’s financial condition.

Section 404Requires annual filing of internal

control evaluation report, whereby, companies are required to document existing controls that have bearing on financial reporting, test them for effectiveness, report gaps and deficiencies. Must establish and maintain internal controls that conform to standards for financial reporting (e.g.,COSO Framework). External auditor attestation.

Section 409 Requires disclosure to public

information on a “rapid and current basis” of material changes to the firm’s financial condition or operations.

Sarbanes-Oxley Timeline Section 404 Internal Control Activity Phasing

Phase I – Discovery & Documentation NOW

Phase II - Gap Analysis FY04 Audits

Phase III – Remedial Action 2004 - 2006

Phase IV – Monitor FOREVER

SOX Internal Control Timeline

Internal Control…

What is it? A process, effected by an entity’s board of

directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories– Effectiveness and efficiency of operations– Reliability of financial reporting– Compliance with applicable laws & regulations

- as defined by COSO

Enterprise Risk Management

It means Internal Control… …is a process. It is a means to an end, not an end in

itself. …is effected by people. It’s not merely policy

manuals and forms, but people at every level of an organization.

…can be expected to provide only reasonable assurance, not absolute assurance, to an entity’s management and board.

…is geared to the achievement of objectives in one or more separate but overlapping categories.

Internal Control:COSO Framework

for Enterprise Risk Management

•Operations

•Financial Reporting

•Compliance

•Activities

•Business Unit

•Divisions

•Enterprise

MONITORING

INFORMATION AND COMMUNICATION

CONTROL ACTIVITIES

RISK ASSESSMENT

CONTROL ENVIRONMENT

UN

IT A

UN

IT B

AC

TIV

ITY

1

AC

TIV

ITY

2A

CT

IVIT

Y 3

Evaluating Internal Control: 3

DimensionsConsists of 2 points of focus1. Entity level 2. Activity (process) level

Consists of 3 objectives:1. Effectiveness and efficiency of operations (safeguarding of

assets)

2. Reliability of financial reporting 3. Compliance with applicable laws and regulations

Consists of 5 components:1. Control environment2. Risk assessment3. Control activities4. Information and Communication5. Monitoring

Internal Control is

unique to an organization

Enterprise risk management is a dynamic process.

No two entities will, or should, apply enterprise risk management in same manner.

Capabilities and needs differ dramatically by industry and size, and by culture and management philosophy…one company's application of the enterprise risk management framework – including the tools and techniques employed and the assignment of roles and responsibilities for enterprise risk management – often will look very different from another COSO Framework

International Financial Reporting Requirements

IFRS

Corporate Governance - GLOBAL2. International Financial Reporting

Standards (IFRS), aka International Accounting Standards (IAS)

Compliance Deadlines:

– European Union by 2005 – HOWEVER must have comparative

financial data for prior years– Various national adoption

• Permitted or not permitted as option• Required for some or all domestic listed

companies

IFRS Initiatives

1. CONSOLIDATIONS - Consistent & comparable Global Financial Reporting

2. TRANSPARANCY - Additional detail disclosure of enterprise wide information, analysis and reporting of business by segment

3. MEASUREMENT for assets & liabilities - Valuation and Recognition

4. Harmonized PERFORMANCE measurement

5. MOVE from national GAAP to IFRS

Rules-based

Principle-based Accounting & Disclosure

Regulated Corporate Governance

Software Applications Compliance Support

Gartner….Sarbanes-Oxley does not regulate

technology; however, using technology effectively can reduce the cost, time and risk of an enterprise’s compliance activities.

Although Sarbanes-Oxley doesn’t directly regulate information technology, IT is the backbone of the financial processes that the law regulates

AMR Research 2003

compliance support

Software Tools & Systems1.ERP (manufacturing, distribution, accounting…)

2. Best-of-breed financial (revenue management…)

3. Business Process Management4. Risk and Reporting Management5. Business Performance Management -

Analytics/BI6. Document and Records Management 7. Compliance Management – documentation &

analysis

8. Auditor Tools9. Basic IT system infrastructure/Security Mgmt10.Basic IT system infrastructure/Collaboration

(e-mail, storage and tracking)

compliance support

and Enterprise Corporate Responsibility

An ERP application/system can…– provide automated process controls and

tools that enable an enterprise to be able to support compliance

An ERP application/system does not…– make an enterprise compliant

An ERP application/system is not…– “compliant” in and of itself

Global internal visibility Global external transparency & comparability Harmonized data and reporting Consistent “real-time” performance disclosure Systematized/documented internal control Systematized/documented event workflow “Real-Time” alert event notification Audit Dashboards,“Electronic Audit Committees” Integrated disparate systems Centralized shared business processes

technology-enabled accountability

Internal Control:COSO Framework

for Enterprise Risk Management

•Operations

•Financial Reporting

•Compliance

•Activities

•Business Unit

•Divisions

•Enterprise

MONITORING

INFORMATION AND COMMUNICATION

CONTROL ACTIVITIES

RISK ASSESSMENT

CONTROL ENVIRONMENT

UN

IT A

UN

IT B

AC

TIV

ITY

1

AC

TIV

ITY

2A

CT

IVIT

Y 3

ERPSuppo

rt

IC ComplianceSupportOperations Internal Control Related

System Security Process Security Information Security–validation, completeness, integrity,

authorization Communication Security - documents, consolidation Process Automation and Maps – enterprise standard/consistent Process Workflow – authorizations and approvals Enterprise Operations Visibility –inventory, credit, performance Process/Controls Monitoring – manufacturing, distribution,

admin Enterprise Scorecard analysis – KPIs strategic objectives Close Process - signoff, consolidation, reconciliation, speed,

visibility Event / Exception Alerts – initiate remedial action/disclosure

ERP

IC ComplianceSupportReporting Internal Control Related

Data Harmonization Disparate systems Integration Financial Results – consolidations, XBRL, accelerated Audit - internal and external Operations process/performance monitoring Intermediary financial performance real-time monitoring Integration with non-financial Information Secure Collaboration

ERP

IC ComplianceSupportCompliance Internal Control Related

Reduced reconciliation, consolidation, close time Accelerated period-end results & reports publication Faster access to repeatable and meaningful

information for Alerts and KPIs for potential “material event”

occurrences

ERP

QAD Enterprise Applications

Compliance Support

QAD

Compliance Support Architecture

People

SystemsProcesses

Design toObsolescen

ce

Requisition To Pay

Service & Support

Plan & Fulfill

Plan &

Execute

Quote To Cash

Financial Reporting

BI Ale

rts

Secu

rity

A

udit

Tra

ils

Tra

ceabilit

y

Valid

atio

n Docu

ment M

anagem

ent

eSig

natu

res

Work Flow

XBRL

Financial Transparenc

y

Financial Accountability

Financial Integrity

Consolidation

Business Processes

Financial Shared Services

QAD Financial Compliance

Support GoalsFinancial Business Process Cycles

(BPC)– Increase enterprise visibility– Increase data integrity– Increase process integrity– Reduce reconciliation/close time– Raise security– Automate manual processes– Enhance auditibility/traceability– Deliver enterprise key information– Capture required transaction information

compliance support Activities

QAD product business process Controls/Security Utilization Customer Assessment program (QScan)

QAD product security and controls utilization customer training

QAD current and imminent product launches supporting data and process integrity and security

QAD base-product enhancements regarding business data and process security, internal control, analytics and reporting

QAD new product development regarding enterprise internal control, visibility, data rationalization, shared services, analytics, alerts and reporting

“Co-partner” for complementary compliance support software

QAD Global Services to address organizational unique system requirements

compliance support

New QAD Product/Feature ReleaseseB2 – Financial Enhancements

– Logistics Accounting • Control liabilities and variances on logistics charges

– Extended Account Structure• Additional reporting and analysis capability

– Linked Site Costing• Eliminate costly copy processes• Removes the need for redundant data at distribution sites

– Purchase & Work Order Accounting• Associate purchasing and AP variance accounts by product line,

site and supplier type• Maintain work order accounts by product line and site

– Multi-Entity Accounting• Visibility of inter-company accounts by entity• Use shared services for Account Payable with a database

compliance support

New QAD Product/Feature ReleaseseB2.1 Shared Services Domain

Provides new infrastructure support for enterprise transparency

One DB with Multiple Base Currencies and Chart of Accounts

One DB with Centralized IT admin control & standardization Enhanced business unit & user security Shared Services foundation for process standardization Enhanced GL consolidation foundation and features GL enterprise consolidation within DB - no export needed Enhanced GL transaction drill-down within database Enterprise centralization with flexible business unit

operation autonomy

MFG/PRO eB2.1 Shared Services Domain Solution

Plant 1Plant 1

Plant 1Logical Partition

by Domain

ERPDatabase

Single MFG/PRO eB2.1 Shared Services Domain Database

Plant 2Plant 2

Plant 2Logical Partition

by Domain

ERPDatabase

Plant 3Plant 3

Plant 3Logical Partition

by Domain

ERPDatabase

EnterpriseG/LReporting

EnterpriseG/LReporting

eB2.1 Shared Services DomainBusiness Unit Operations & GL Consolidation

Plant 1Logical Partition

by Domain

Plant 2Logical Partition

by Domain

Plant 3Logical Partition

by Domain

Plant 4Logical Partition

by Domain

ENTERPRISELogical Partition

by Domain

GL Consolidation GL Consolidation

eB2.1 Shared Services Domain GL Entity Consolidation

Entity 1000Domain A

EUR

Entity 2000Domain B

SFR

Entity 3000Domain C

GBP

Entity 4000Domain D

MXP

Entity 5000Domain E

CND

Entity 6000 Domain F

USD

Entity 9001Domain G

EUR

Entity 9002 Domain H

USD

Entity 9999Domain I

USD

Consolidation

Consolidation

Consolidation

eB2.1 Shared Services DomainGL Consolidation Drill-Down

During consolidation cross-reference records are created, linking source transaction to consolidation record

Drill-down functions are available, allowing drill-down from consolidation to detail records in other domains

DomainUser Security

In User Maintenance:

Defines the Domains to which a user can have access

Which Domain is the primary Domain (the one to which a user logs in by default.)

The Security Groups to which a user belongs for each domain -determines menu functions to which he/she will have access for a specific domain.

General Security Enhancements Enhanced Password Complexity & Aging:

– Allows specification of minimum length and amount of numeric/non-numeric signs

– Forcing users to periodically change passwords– Prevention of re-use of passwords

Enhanced User Administration:– Introduction of User Groups (replacement of old security

groups) Enhanced Intrusion Detection:

– E-mail to administrator group– After number of failed login attempts, deactivation of

account– Logon Attempt Report

compliance support

New QAD Product/Feature Releases

compliance support

New QAD Product/Feature ReleasesAdvanced Inventory

Management (AIM)– Enhanced data control and accuracy by

use of automated barcoding and radio-frequency techniques

– Allows decreased inventory carrying costs– Decreased inventory and space

optimization– Inter-warehouse movement traceability

and transaction analysis – Obsolescence risk management

compliance support

New QAD Product/Feature ReleasesAudit Trails

Infrastructure on all QADDB tablesConfigurable by tableSecure, computer generated, time-

stampedRecord date and time of

operator entries actions that create, modify, or delete e-records

Will not obscure previously recorded information

Retention as long as required for subject electronic records

Audit Trails

compliance support

New QAD Product/Feature ReleasesCSS – Customer Self-Service

Customer Self-Service for direct system order capture and visibility

Systematically controlled catalog management

Automated standard order processReduction in administration expense

QAD CSS

compliance support QAD Product Releases

Lean Manufacturing Enhanced Supply Chain transaction data integrity Enhanced performance evaluation Integrated visualization tool Focus on eliminating waste and continuous

improvement Allows decreased inventory, lead times, operating cost Improved demand accuracy Increased agility, quality, floor space

QMobile (Mobile Business) Field Service Transactions – data captured at source

point Increased assurance of data integrity

compliance support

QAD Development ProjectsQXtend - Interoperability Framework

Supply-chain electronic commerce

Unified framework for system and process integration

Provides traceability, authentication, encryption processes

XBRL output: standard financial reporting submittal format

Desktop 3 - Screen Configuration

HiddenFields

DisabledFields

w/ defaults

compliance supportQAD Development Projects

Desktop 3 Business Unit Dashboard/Charting Engine

compliance support

Desktop 3 - Chart Servercompliance support

Desktop 3 - Embedded Process Flow Maps

compliance support

compliance support QAD Development Projects

Business Intelligence (BI) Solution

For company-wide shared reporting and analysis critical to managing an enterprise effectively

Extract from MFG/PRO databases– From multiple sites / functional departments / databases and systems– other SQL databases

Transform Data into Information– Transformation during replication– Provide flexibility through scripting

Load data– Automatically load data into Powerplay Cubes– Distribution of reports, PDF, etc.

Supplier

Customer

Compliance

Manufacturing

QAD BI – Pre-defined Business

Models Sales Analysi

s

Forecasting

VendorRating

FinancialControlling

InventoryMonitoring

ServicePerforman

ce

Manufacturing

Performance

QAD BI - Powerplay Web interface: Sales Analysis Model

compliance support

QAD Development ProjectsDistributed Order Management

global integration and coordination with Local order execution Global standardization and control of customer processes Single point of global access and interface for orders Global enterprise customer and item data harmonization Global aggregated credit risk management and visibility Global consolidated inventory visibility Global visibility of orders/commitments across the enterprise Automated/systematic global enterprise order process Single source of information for enterprise inventory &

customers Sourcing logic for Demand Chain optimization and integrity

Execution / Lean / JIT / EMT / ERP PlanningSingle eB2.1 Shared Services Domain Database

Plant 1 –ChicagoLogical Partition

by Domain

BU 3 –ParisLogical Partition

by Domain

DC 2 –MilanLogical Partition

by Domain

Plant 4 –San PauloLogical Partition

by Domain

Distributed Order Management – Business Rules

Facility 5 – LondonLogical Partition

by Domain

Central Order CAPTURE and VISIBILITY - User Interface

Central Office

QAD Enterprise Solution

Customer

Business and Accounting Software Developers’ Association

UK based, not-for-profit

International standards body

250 plus members

Accounting, Human Resources, Logistics, Manufacturing, Taxation & Web-based applications

Established 1993

Elected General Council Cross IndustryRecognised by OECD, UN, EU, FEE, BoE, DTI, Inland Revenue, HM C&E, HM Treasury, OGC, OeE

BASDA & IFRSBusiness and Accounting Software Developers’ Association

QAD BASDA MembershipBASDA IFRS White Paper

– Software Recommendations

Software Application Vendor ConsortiumBASDA Accreditation Scheme – Q4/04Accreditation Test information/criteria

accessGlobal QAD IFRS analysis of requirements

compliance support

QAD Projects in Analysis/Definition

MFG/PRO Operational ProcessesMFG/PRO Financials ReportingEvent ManagementFinancial Shared Services E-Signatures

accountability

transparency

integrity

Corporate Governance QAD compliance support

Optimal Corporate Performance

Thank You

Maryann HafnerContact: mbh@qad.com