Refereeing Regulations

Enron and the “red flagging” of other businesses during the 1990s committing financial reporting fraud showed the world that some corporate companies weren’t playing fair. To ensure this did not happen again, the government created the Sarbanes-Oxley Act of 2002 to force transparency into business finances. We all saw the news headlines and the court cases, but breaking through the lines of government verbiage is the fact that this Act affects the way airlines and ground handlers do business on a corporate level, which affects everyone on the operational side as well.

Sarbanes-Oxley

For all companies, private/public, large/small, the passing of Sarbanes-Oxley to stop financial reporting fraud changed business practices. Brian Bowman, attorney and business consultant working as product manager for compliance at Workbrain Inc. writes that because of Sarbanes-Oxley’s Section 302, executives must personally certify the accuracy of their company’s financial statements and disclosures — and their certification is regularly required (no loop hole there thanks to Section 404).

In this way it makes executives responsible if the company’s finances are found to be inaccurate and dishonest. The executives face jail time and/or personal fines in these instances.

Bowman reports that Sarbanes-Oxley accounts for 40 percent of all dollars allocated for 2005 compliance initiatives. He also insists that the most pressing priority for a company attaining compliance is the workforce, since employee wages, benefits, etc. account for 40 to 60 percent of an organization’s budget. Bowman makes a case for automating scheduling and payroll to minimize errors, ensure consistency and leave that all important paper trail for the auditors required by Sarbanes-Oxley.

If companies take his advice, this Act could mean scrutinizing of current procedures and/or more e-Solutions for scheduling ramp workers. But this new window into corporate financial data also touches airline’s and ground handler’s purchasing departments by how they can sell their used equipment.

Carol Romashko, GSEmarket.com says, “Sarbanes-Oxley increases company executives accountability as a result of the Enron debacle, but the Act has tentacles.” As a representative for GSEmarket.com, primarily a broker site for auctioning used ground support equipment, Romashko talks to the directors of purchasing at many airlines. In fact that was how the company began, when Delta said it needed help with all the hand written bids it was getting for equipment. “It really is quite time consuming,” says a spokesperson from Continental Airlines, who uses GSEmarket.com to assist in selling used equipment.

And there are stories at every airport of out of service equipment on the books ideal to auction off, but when someone goes out to get the item, it’s lost (or at least misplaced for whatever reason). Romashko brings up the problem of limited airport real estate, “It costs money to store unusable equipment.”

Add into the mix the new requirements from the Act, including being able to prove the sale was done impartially in a fair market, sold for a certain price, that price was received by accounting and the item was removed from the books as an asset. It looks suspicious when the record of sale is incomplete, not to mention it will cause financial problems for the company and the executive who certified it. “Keeping track of equipment is very important,” agrees Romashko, “if that equipment is sold it changes the balance of assets.”