How RFID Fits into the Sarbox Compliance Picture

Lora Bentley

Clicking through the latest news on Sarbox this afternoon, I ran across this headline from yesterday's Contactless News: Will RFID Add Required Visibility for Corporations Struggling with Sarbanes-Oxley? Maybe for some of you the connection is obvious and immediate, but I had to wonder what on earth RFID has to do with corporate accounting and reporting requirements.


So I kept reading. And writer David Wyld makes a good point. He says using RFID (or radio frequency identification) to accurately track inventory and manage assets can -- and he argues will -- be an "indispensable" element of the system of internal controls required by Sarbanes-Oxley sections 302 and 404.


He writes:

[W]ith RFID-enabled warehouses, distribution centers, equipment, yards, offices, etc., one can gain real-time, complete visibility within a company's supply chain operations. Visibility in inventory and asset management thus becomes a foundational element for accuracy in a firm's financial reporting.

Definitely food for thought ... and maybe even cause for action.

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Aug 15, 2008 11:57 AM John Cassidy John Cassidy  says:
Inventory testing for SOX Section 404 is only concerned with potential loss to the company that could have material impact on their financial picture. For a company of say $20 billion in revenue, a typical material inventory loss would amount to around $3 to $5 million or greater.In all of the RFID implementations I have read about so far, each of the RFID systems has had an error rate (i.e. where RFID tags are not successfully tracking 100% of inventory) of around 3% to 5%. Unless there is already evidence of gross inventory loss (e.g. more than 20%) due to damage, theft and spoilage, I emphasize that cannot be corrected by normal means (e.g. building security, cameras, rotation), then I don't agree that as a general principle RFID tags are needed in order to satisfy SOX requirements. If RFID tag implementations can be shown to be virtually 100% accurate and foolproof, then the argument could be made that RFID could prevent/detect material loss and be a cost effective alternative.However, there are a few industries like pharmaceuticals that have begun implementation of RFID for high value items in order to combat counterfeiting, theft and to reduce their legal risk during product recalls. For these industries, in some areas of the world the value of counterfeited product can equal the same amount as the real product they sell, then the financial loss can reach a material level. But in order to implement RFID in the supply chain, the point of sale must invest in the required technology. So there are a narrow set of circumstances where RFID could be beneficial from a SOX perspective. These exceptions do not prove a general rule that RFID should be required for SOX compliance. Reply

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